Annual Report2014 15

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Board of DirectorsFlemming H. Tomdrup, ChairmanJørgen Huno Rasmussen, Deputy ChairmanAnders EldrupChristina Grumstrup SørensenBo LaursenMartin Anders HedegaardBenny Daugaard Laursen

Executive ManagementJens Maaløe, President & CEOPer Thiesen, Executive Vice President & CFOO

BankersDanske Bank, Holmens Kanal 2–12 1092 Copenhagen K, Denmark

OwnersThomas B. Thriges Fond, Herlev, Denmark

AuditorsERNST & YOUNG Godkendt RevisionspartnerselskabVærkmestergade 25, 8000 Aarhus C, Denmark

Jesper Ridder Olsen State-Authorized Public AccountantJes Lauritzen State-Authorized Public Accountant

©Terma 2015

Production: CBC

Images: European Space Agency, Lockheed Martin Corporation, Ministry of Defence / The Netherlands,Royal Danish Air Force, David Bering, and Terma

Printing: Baurs Offset

Financial Highlights – Consolidated - - - - - - - - - - - - - - - - - - 4

Management’s Review 2014/15 - - - - - - - - - - - - - - - - - - - - - 6

Corporate Social Responsibility - - - - - - - - - - - - - - - - - - - - - 18

Solutions and Capabilities - - - - - - - - - - - - - - - - - - - - - - - - - 22

Business Areas and International Offices - - - - - - - - - - - - - - 24

Accounting Policies - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 28

Statement by the Board of Directors

and Executive Management - - - - - - - - - - - - - - - - - - - - - - - - 32

Independent Auditor’s Report - - - - - - - - - - - - - - - - - - - - - - 34

Income Statement - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 35

Balance Sheet – Assets - - - - - - - - - - - - - - - - - - - - - - - - - - 36

Balance Sheet – Equity and Liabilities - - - - - - - - - - - - - - - - 37

Cash Flow Statement - - - - - - - - - - - - - - - - - - - - - - - - - - - - 38

Notes - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 39

Contents

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Order intake 1,394 *1,455 *2,037 1,026 1,390 Order book, year-end *2,567 *2,507 *2,188 1,291 1,603 Revenue 1,308 1,137 1,140 1,338 1,416 Operating profit 100 84 73 106 89 Financial income and costs (29) (30) (30) (37) (27) Profit before tax 71 54 43 69 62 Profit for the year 53 53 29 52 46 Non-current assets 796 788 785 785 769 Current assets 742 698 747 724 819 Total assets 1,538 1,486 1,532 1,509 1,588 Capital stock 18 18 18 18 18 Equity 491 490 440 422 385 Provisions 127 123 137 135 122 Non-current liabilities other than provisions 394 440 399 487 467 Current liabilities other than provisions 526 433 557 464 614 Cash flows from operating activities 133 50 128 153 127 Cash flows for investing activities (81) (77) (52) (80) (123) Investments in property, plant, and equipment (35) (28) (12) (42) (57) Cash flows from financing activities (67) (47) (13) 24 222 Total cash flows (15) (75) 63 97 225

Financial Ratios Net profit ratio 7.7 7.4 6.4 7.9 6.3 Return on investments 6.7 5.9 5.3 7.2 6.0 Liquidity ratio 141 161 134 156 133 Solvency ratio 31.9 33.0 28.7 28.0 24.3 Return on equity 10.8 11.4 6.8 12.9 13.0 Average number of full-time employees 1,117 1,065 1,080 1,195 1,205

* including five-year framework agreements relating to the F-35 Joint Strike Fighter program.

DKK million 2014/15 2013/14 2012/13 2011/12 2010/11

4 FINANCIAL HIGHLIGHTS - CONSOLIDATED

Financial HighlightsCONSOLIDATED

Definitions

Net profit ratio: Operating profit x 100 Revenue

Return on investments: Operating profit x 100 Average operating assets

Operating assets: Total assets less cash at bank and in hand, other interest-bearing assets (including stock), and equity interest in affiliated companies

Liquidity ratio: Current assets x 100 Current liabilities other than provisions

Solvency ratio: Equity at year-end x 100 Total liabilities at year-end

Return on equity: Profit for the year x 100 Average equity

TERMA AT A GLANCE 5

2014/15 IN NUMBERS

Terma at a Glance

MAIN CONCLUSIONS

During the fiscal year 2014/15, Terma experienced a growing activity in its Aerospace, Defense, and Security markets, resulting in a satisfactory financial result and an order backlog that provides for a comfortable busi-ness base in the following years.

Order intake (DKK million)

1,394Down from 1,455

Equity (DKK million)

491Up from 490

Total assets (DKK million)

1,538Up from 1,486

Revenue (DKK million)

1,308Up from 1,137

Order book, year-end (DKK million)

2,567Up from 2,507

Total cash flows (DKK million)

-15Up from -75

Profit before tax (DKK million)

71Up from 54

Return on investments (DKK million)

6.7Up from 5.9

6 MANAGEMENT’S REVIEW 2014/15

Management’s Review 2014/15

RESULT FOR 2014/15During the fiscal year 2014/15 (FY 2014/15), Terma experienced a growing activity in its Aerospace, Defense, and Security markets, resulting in a satis-factory financial result.

The order intake of the year was MDKK 1,394, resulting in an order backlog at year-end of MDKK 2,567. The order backlog provides for a comfortable business base in FY 2015/16 and the following years.

Revenue for the fiscal year was MDKK 1,308 as compared to MDKK 1,137 in FY 2013/14, i.e. a year-over-year growth of 15%.

87% of the revenue was generated outside Denmark. The defense market con-stitutes 68% of the revenue whereas the non-defense markets constitute 32%.

The profit before tax increased to MDKK 71.2 from MDKK 53.9 in FY 2013/14. Recent years’ efforts to manage risks and streamline processes and work flows in order to increase efficiency have contributed to a satis-factory overall result for FY 2014/15 in continuously challenging markets.

The net interest-bearing debt developed positively and has decreased com-pared to FY 2013/14 with MDKK 42 to MDKK 389, primarily due to cash flows from operating activities improving from MDKK 50 to 133.

The Board of Directors proposes a dividend payment of MDKK 10.

At the end of the fiscal year, total staff was 1,192 FTE, an increase of 91 em-ployees during 2014/15. Furthermore, the Executive Management of Terma has been strengthened as we foresee further globalization and, in general, a growth scenario during the coming years but also increased competition.

The Board of Directors and Executive Management greatly appreciate the dedication, commitment, and efforts of our employees worldwide.

OUTLOOK FOR THE 2015/16 FISCAL YEARIn FY 2015/16, Terma expects a consolidated organic growth in the order of 10% in revenue and a consequent increase in earnings before tax.

At the beginning of the year, current contracts cover more than 72% of the budgetted revenue and thereby constitute a solid basis for the budget.

The U.S. and Europe will continue to be important markets to Terma, however, the future growth will come from end users in Asia Pacific, Middle East, and South America. Part of the sales will be re-exported to these regions through main contractors located in the U.S. and Europe. Another signifi-cant growth driver for Terma will be the ramp-up in the F-35 program.

At the end of FY 2015/16, total staff is projected to have increased by 70-90 FTE.

The overall strategy of Terma will continue to stand on the three fundamental pillars:1. Expanding global market access2. Bringing unique products and solutions to the market3. Streamlining the organization and the processes.

BUSINESS ACTIVITIESTerma consists of three Business Areas: Terma Defense & Security, Terma Space, and Terma Aerostructures.

Terma Defense & Security is the largest of the three Business Areas, devel-oping and supplying:1. Airborne Systems covering self-protection, 3D-Audio and Active

Noise Reduction applications, and applied aerostructures solutions for military aircraft and helicopters.

2. Command & Control Systems covering command, control, and com-munications solutions for naval vessels and air defense systems as well as for securing non-defense critical infrastructures.

Jens Maaløe, President & CEO

MANAGEMENT’S REVIEW 2014/15 7

3. Radar Systems covering coastal surveillance and traffic control in sea-ports and airports, and command and control radars, and self-protection systems for naval vessels.

4. Global Support & Services covering maintenance, support, and repair of Terma products.

5. Electronics Manufacturing Services covering high-technology radar and power electronics solutions for aircraft, satellites, and missiles.

Terma Space develops and supplies electronics, software, and services for satellites, space control centers, and for test and validation tasks related to development of new satellites and spacecraft.

Terma Aerostructures supplies advanced composite aerostructures for military fixed-wing and rotary-wing platforms as well as for commercial aircraft.

Terma is active in approx. 40 countries worldwide.

In the recent year, Terma has opened new presences in the United Kingdom and United Arab Emirates in addition to strengthening existing subsidiaries.

Within all business activities and programs, Terma utilizes national as well as internationally based suppliers and partners. Our global supplier list for production encompasses a total of over 700 suppliers.

Terma successfully achieved AQAP 2310, AQAP 2210, and AQAP 2110 certi-fications from the Danish Defence Acquisition and Logistics Organization, DALO, in addition to maintaining the AS9100 and ISO 9001 certifications from Bureau Veritas Certification. One or more of these international standards for Quality Management Systems in the Aerospace and Defense Industry are required by most major customers. The AQAP certifications cover the Danish Terma sites, while the AS9100 and ISO 9001 certifications cover nine Terma facilities in four countries.

BUSINESS AREAS

Terma Defense & SecurityThe Defense & Security market is characterized by increasing activities, and Terma has been successful in capturing significant business within our product niches. This increases the demand to provide local support services in new markets, particularly in the Middle and Far East. In addition, we see an increase in the requirement to address offset and transfer of technology requirements in these regions. Therefore, Terma continues to strengthen and develop its global presence through a regional structure of subsidiaries and liaison offices.

Over the year, Terma Defense & Security has developed and implemented a growth strategy resulting in organizational development, new product ideas, and increasing the pipeline for new business.

International Defense marketDomestic Non-defense markets

Revenue split / Market split /87%

13%

32%

68%

8 MANAGEMENT’S REVIEW 2014/15

TERMA DEFENSE & SECURITY

MILESTONES 2014/15

Obstruction Light Control:Terma will supply a radar system to the national test center for large wind turbines in Østerild, Denmark.

SCANTER 4100:Terma’s SCANTER 4100 radar system has been selected and ordered by BAE Systems for integration on board Royal Navy OPVs.

3D-Audio and Active Noise Reduction:Terma is to integrate its Active Noise Reduction (ANR) and 3D-Audio technologies in BAE Systems’ pilot helmets.

SCANTER 6000:Terma has been contracted by French Navy ship builder DCNS to supply two SCANTER 6000 radars to the French Navy carrier Charles de Gaulle (R91).

Surface Movement Radar:Terma introduced The Aerodrome Traffic Awareness – an add-on to Terma’s Surface Movement Radar application for airports.

Wind Farm Mitigation:During a test performed in Abilene, Texas, U.S. with more than 500 wind turbines within line of sight, Terma’s SCANTER 4002 radar detected and tracked a variety of aircraft with a very high probability of 98% over the wind farm and 99% outside wind farm areas.

T.react CIP:Terma launched the T.react CIP solution – a fast and precise way of detecting, identifying, and tracking both internal and external perimeter threats.

MASE Pod:Terma was contracted by the Royal Netherlands Air Force (RNLAF) to integrate the Terma MASE pod onto NH-90 helicopters.

C-Guard:Terma and The Danish Defence Acquisition and Logistics Organization (DALO) recently conducted a successful Sea Acceptance Test (SAT) of Terma’s C-Guard Decoy Launching System on board HDMS “NIELS JUEL”.

Electronic Warfare:With the U.S. Navy P-8A Poseidon as launch platform, Terma recently introduced the new enhanced and much more powerful generation of the ALQ-213 Electronic Warfare Management Unit.

MANAGEMENT’S REVIEW 2014/15 9

Airborne SystemsAirborne Systems expanded its business with key customers such as Lockheed Martin Corporation. As a result of our performance, Lockheed Martin granted Terma an award for 100% on time delivery and zero defects performance for deliveries to the C-130J aircraft.

In December 2014, Terma signed a contract with Royal Netherlands Air Force for the development and supply of a self-protection solution for their newly acquired fleet of NH-90 helicopters. Once developed, this solution will be available for other NH-90 users.

In October 2014, Terma signed a contract with the U.S.-based IOMAX Corpo-ration for the delivery of Terma’s modular self-protection solution for 24 Arch Angle aircraft to the United Arab Emirates. The contract is an urgent delivery program. The contract is an entry into a new market segment for smaller, cost-effective aircraft platforms for light attack and border control, for which the potential is significant.

The U.S. Foreign Military Sales channel shows good progress and has devel-oped into a significant sales channel to the international market in close collaboration with our U.S. customers.

Command, Control & Sensor SystemsWith revenue growth of 30% and launch of multiple new products, the FY 2014/15 was successful.

The SCANTER 4000/4100 radar technology for medium-range air surveillance is successful in the naval market, including an order for three new Offshore Patrol Vessels to Royal Navy.

The ability of the SCANTER 4000/4100 radars to detect aircraft in the presence of wind turbines has been demonstrated in multiple tests, and with the first radar system under contract, it will be a source of growth as additional orders are expected during FY 2015/16.

Customers all over the world continue to exhibit a keen interest in Terma’s radar systems for our core markets: vessel traffic service (VTS) and coastal surveillance applications. A new radar model, the SCANTER 2200, was intro-duced, based on the latest Gallium Nitride solid state and processing tech-nology. It offers an attractive price/performance ratio and is a continuation of the very successful SCANTER 2001 with more than 1,500 units in operation worldwide. A significant first win for the SCANTER 2200 is a large coastal surveillance system in East Asia.

With the Surface Movement Radar technology, Terma is a global supplier of radar equipment for air traffic control and monitoring of ground-based traffic at airports. Terma has supplied radars to more than 100 airports in the world, most recently to international airports in Bahrain, Singapore, and Dubai.

The Offshore Patrol Vessels market continues to be our strategic focus area for the C-Flex Naval Command & Control systems. The first order for the C-Flex Compact variant was received recently. In addition, a major order was secured from a Middle East customer to upgrade Patrol Vessels with C-Flex Naval Command & Control systems.

T.react CIP, an innovative product for the strong growth market of critical infrastructure protection for airports, harbors, and oil/gas installations, has been launched, and a comprehensive and convincing demonstration has taken place in Bahrain. T.react CIP is based on advanced radar surveillance and detection algorithms coupled with automated camera control. It provides effective area surveillance and protection compared to traditional camera installations.

The first operative T.react CIP system was installed in collaboration with Lockheed Martin Mission Systems and Training in Owego, New York.

Terma has been awarded a contract to deliver advanced capabilities for the NATO Alliance Ground Surveillance (AGS) program. Terma and our Danish subcontractors have the responsibility to develop and deliver the Automatic Target Recognition & Identification functionality as well as Maritime Mission Modules for deployed coalition operations.

Global Support & ServicesGlobal Support & Services is growing and expanding the services business in all areas of Terma Defense & Security.

The services business for Airborne Systems has increased significantly with several spare part deliveries for the U.S. Air National Guard, U.S. Air Force, and U.S. Foreign Military Sales.

Furthermore, Global Support & Services is expanding in the services business area for Command, Control & Sensor Systems. Especially in the Middle East, several campaigns have been launched towards the increasing number of installed land-based radars. Additionally, there is a high level of support activities for the Royal Danish Navy, Royal Navy, Royal Brunei Navy, UAE Navy, and Brazilian Navy.

Electronics Manufacturing ServicesAs supplier to Northrop Grumman Corporation of radar electronics modules for the APG-81 radar on the F-35 Joint Strike Fighter, Terma finalized the production and deliveries for Low Rate Initial Production (LRIP) phase 7 and began phase 8 deliveries. Negotiation for further LRIPs is ongoing. Terma is also in the process of being qualified as a supplier to the F-35 electro-optical Distributed Aperture System (DAS).

Raytheon Company has selected Terma for design, qualification, and production of the power supply for the upgraded Evolved SeaSparrow Missile (ESSM).

Terma has collaborated with the Royal Netherlands Air Force and The Netherlands’ Defence Materiel Organisation for more than 25 years, integrating the Electronic Warfare Management System ALQ-213 on a large variety of aircraft platforms, including F-16, C-130H, AS 532U2 Cougar, AH-64D Apache, and CH-47F Chinook.

Again, in early 2015, Terma was contracted by the Royal Netherlands Air Force (RNLAF) to integrate the Modular Aircraft Survivability Equipment (MASE) pod onto their NH-90 helicopters.

Jesper Petersen, Vice President, Airborne Applications, Terma Defense & Security, stated: “Having collaborated with the RNLAF and The Defence Materiel Organisation for decades, Terma is pleased to be selected to provide the NH-90 platform with self-protection equipment. This strongly indicates that RNLAF has confidence in our solutions. This applies to system performance, the entire process, and the collaboration between the air force and Terma. In combination with our excellent relations with RNLAF, this forms a stable base for strengthening the local presence.”

The MASE pod family concept was originally developed for installa-tion on the RNLAF AH-64D Apache in 2003. Since then, the modularity of the MASE pod has enabled tailoring for other helicopter platforms.

Further, Terma has supplied self-protection solutions for the Dutch AS 532U2 Cougar MK2 and CH-47F Chinook helicopters and their F-16s and C-130Hs. In other words, RNLAF is a very impor-tant customer for Terma, and they have often been “first movers” in terms of new solutions.

In November 2014, Terma and Logistic Centre Woensdrecht (LCW) signed a Partnering Agreement. The two partners have worked together for many years to support the Royal Netherlands Air Force (RNLAF) fleet, through development and supply of advanced integrated self-protection systems currently operated

on almost all RNLAF aircraft, and through maintenance of this deployed inventory at LCW.

At this occasion, Matthijs de Haan, VP & General Manager, Terma B.V., stated: “The strategic partnership will include a further development of our existing Competence Centre for Electronic Warfare and a Regional Support Centre for maintenance, repair, modifications, and overhaul support of military aircraft at Terma’s facility at the LCW premises. Also, we will establish additional maintenance, repair, modifications, and overhaul capabilities for RNLAF weapon system components, in order to improve aircraft availability and affordability.”

Air Commodore Schevenhoven confirms this by stating: “For the RNLAF, partnerships like this are essential. It serves the mission readiness of our weapon systems as an end user, and it helps to keep costs down by means of efficient use of production capacity both ways. Terma has proven to be a loyal partner for many years, and we are pleased to have them on site at LCW.”

Terma was one of the first companies to have a local presence at LCW on the Woensdrecht Airbase and opened its facilities in 2010. The close relationship with RNLAF and the collaboration with the National Aerospace Laboratory (NLR) were determinants in choosing The Netherlands because Terma is already established there, with an efficient organization and office facilities.

Royal Netherlands Air Force

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A STRATEGIC AND

PARTNERSHIPHIGHLY VALUED

The Electronic Warfare Management System ALQ-213 has been integrated on a large variety of RNLAF’s aircraft platforms, including

F-16C-130HAS 532U2 CougarAH-64D ApacheCH-47F Chinook

MANAGEMENT’S REVIEW 2014/15 11

TERMA SPACEThe European space market is developing positively. The decisions made at the 2014 ministerial conference are beginning to materialize, and these provide a promising outlook for the coming period, whereas the U.S. market is impacted by cuts in public spending.

The product development executed over the last years in general, and spe-cifically in 2014, has placed Terma in a good position for a number of new opportunities in Europe, the U.S., and in the Far East. This applies to electronics as well as software solutions. Furthermore, the Space Services area is evolving positively and is expected to continue its growth.

Terma is the main contractor for the ASIM project – The Atmospheric Space Interactions Monitor – with the objective of measuring high altitude lightning in the upper atmosphere. The observatory will be launched to the International Space Station in 2016.

Contracts for the ground segment of the scientific mission ExoMars and the Earth observation mission MTG were secured in 2013 and delivered in 2014.

Significant contracts for power electronics have been secured in FY 2014/15 for ESA missions and non-ESA missions.

The major space missions pursued in FY 2014/15 have been the ESA missions for Earth observation as well as Euclid, EXOMARS 2018, and Electra. Additionally, European military constellation programs have been pursued.

The development of a new generation of Star Trackers funded by ESA is moving well ahead, and a contract for numerous cameras for a constellation of satellites was obtained back in 2013. The new Star Tracker is based on new technology which reduces the size and weight of the system’s camera and computer.

Contracts for the current generation of Star Trackers, as well as for the new generation test and control systems, were entered into with customers outside Europe.

Terma develops the software which controls the Solar Orbiter’s positioning and orbit. The Solar Orbiter will implement observations close to the Sun, and Terma’s software is crucial for the satellite’s correct positioning relative to the Sun.

The Services area of Terma Space evolved positively, highlighted by new framework contracts with the European Space Research and Technology Centre (ESTEC), the European Space Operations Centre (ESOC), the European Organisation for the Exploitation of Meteorological Satellites (EUMETSAT), and the European Southern Observatory (ESO).

MAJOR CURRENT AND FUTURE

MISSIONS

EuclidLaunch: 2020 / ESACharting dark matter and dark energy’s effects on the Universe

Meteosat Third GenerationLaunch: 2018 / ESAMeteosat Third Generation meteorological satellites

Solar OrbiterLaunch: 2018 / ESAEurope’s closest mission to the Sun

ASIMLaunch: 2017 / ESAWill study high-altitude electrical discharges in the stratosphere and mesosphere above severe thunderstorms from the International Space Station

EXOMARSLaunch: 2016, 2018 / ESAMars orbiter and lander, followed by rover

BepiColomboLaunch: 2016 / ESAEurope’s first mission to Mercury

LISA PathfinderLaunch: 2015 / ESATechnology demonstration for gravitational wave detection

IXVLaunch: 2015 / ESAIntermediate eXperimental Vehicle

Sentinel-1First launch: 2014 / ESAA portfolio of operational Earth observation missions

RosettaLaunched: 2004 / ESADeep space comet rendezvous mission.

Image courtesy: ESA

12 MANAGEMENT’S REVIEW 2014/15

OVERVIEW OF PRODUCTS FOR THE

F-35The production of the F-35 Joint Strike Fighter progresses as planned, and capacity expansion in the Grenaa facility has been initiated. The produc-tion capability increases annually, and full-rate production is expected to exceed more than 150 aircraft per year.

FLIGHT TEST PODS (DART)(Lockheed Martin Corporation)

RADAR ELECTRONICS(Northrop Grumman Corporation)

AIR-TO-GROUND PYLONS(Marvin Engineering Co., Inc.)

CENTER FUSELAGE COMPOSITE PANELS(Northrop Grumman Corporation)

GUN POD – DESIGN AND MANUFACTURE(General Dynamics)

LEADING EDGES(Lockheed Martin Corporation)

HORIZONTAL AND VERTICAL TAIL SKINS AND SPARS(BAE Systems)

MANAGEMENT’S REVIEW 2014/15 13

TERMA AEROSTRUCTURESThe international market for aerostructures is characterized by an overall reduction in defense budgets that has reduced the actual defense market value leading to even more intense competition. However, for commercial airplanes, the growing order backlog has forced the manufacturers and their tier-1 suppliers to look for additional capacity and sources.

As a Denmark-based Company, Terma has a special interest in the Danish fighter program and the market opportunities provided by this competition. A down-select is foreseen to take place in 2015; however, this may be postponed due to the Danish election which must take place no later than September 2015.

Terma has agreements and is in continuous dialog with all three candidates:• The F-35 Joint Strike Fighter from Lockheed Martin Corporation, USA• The F-18 Super Hornet from The Boeing Company, USA• The Eurofighter Typhoon fronted by Airbus Defence & Security, Germany

In FY 2014/15, Terma Aerostructures signed a five-year Long Term Agreement (LTA) with Sikorsky Aircraft, which comprises Composite Door Panels for the Sikorsky S-92 helicopter. Signing this agreement was an important milestone achievement in the plan for establishment of our new strategic business area – second leg. The LTA can be extended to cover 10 years upon mutual agreement.

The production of the F-35 Joint Strike Fighter progresses as planned and capacity expansion in the Grenaa facility has been initiated. Presently, the production capability increases from the current level of 43 aircraft annually to a forecast of 94 aircraft annually in two years, and full-rate is expected to exceed more than 150 aircraft per year.

In spring 2014, Terma Aerostructures’ sales activities in the U.S. were strengthened with both technical and business development personnel.

14

TERMA AND LOCKHEED MARTIN

FROM DISTRACTIONTerma and Lockheed Martin are partnering to field Terma’s Critical Infrastructure Protection system – T.react CIP – at the Lockheed Martin Mission Systems and Training (MST) facility in Owego, New York.

Critical infrastructures like harbors, airports, and power plants are often protected by fences and walls, which can be breached. Traditional electronic perimeter protection solutions typically monitor these outer lines, thus ignoring threats inside and outside the perimeter.

The T.react CIP system is designed to provide the means of identifying and tracking a threat on both sides of the perimeter. In most crisis situations, events escalate quickly and unpredictably, and every second counts as operators and security staff try to both under-stand and regain control over the situation. Hence, the T.react CIP system ensures that all relevant events are automatically detected, analyzed, prioritized, and presented according to severity – allowing operators to focus their attention on things that matter whilst the system sorts the action from distraction.

WIDE AREA PERIMETER SECURITY IN OWEGO, NY“T. react CIP is designed to be the most advanced intelligent wide area perimeter security solution to date. It provides operators with maximum levels of security, situational awareness, and con-trol of external environment, regardless of size,” explains Thomas Jensen, Vice President, Terma Security Applications. “As all activity is monitored in real time, in all weather conditions, and at

any time of day or night from a central level, security staff can quickly and accurately determine whether or not activity in the monitored area gives rise to take precautions.”

The T. react CIP solution for the Owego campus is supplied with alarm systems and is composed of a SCANTER 1002 Ground Surveillance Radar (GSR), a control room with monitors, workstation, server and control system, thermal sensors, and a number of high-definition cameras.

The fielding of T.react CIP is part of an industrial cooperation agreement between Terma, Lockheed Martin, and the Danish Business Authority (DBA) following the Danish Defense procurement of MH-60R Seahawk multi-mission helicopters.

SORT ACTION

T. react CIP Wide Area Protection

“T. react CIP is designed to be the most advanced intelligent wide area perimeter security solution to date.”Thomas Jensen, Vice President, Terma Security Applications

MANAGEMENT’S REVIEW 2014/15 15

TERMA GLOBALTerma Global is responsible for Global Sales & Marketing and strategic partnerships with key customers and end users and operates the global sales infrastructure of Terma. 90% of the annual order intake is generated from international customers.

The Group’s global locations are:

Terma North America The Terma North America headquarters in the Washington D.C. area facili-tates business growth through the proximity to key customers and business partners. Terma North America has increased its regional scope to include Mexico and parts of Central America plus the Caribbean. The sales forces in the Airborne and Command, Control & Sensors areas were strengthened, and the Forth Worth-based operation was optimized for increased sales of advanced composite manufacturing.

Terma North America has a total staff of approx. 50 U.S. employees plus contractors with emphasis on software and system engineering.

In Warner Robins, Georgia, Terma North America’s operation functions as part of the Airborne Systems business activities and develops and delivers aircraft self-protection systems to the U.S. Air Force, the U.S. Air National Guard, and the prime integrators Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon Company, and The Boeing Company. Additionally, Terma North America has increased its direct commercial sales with smaller companies such as the IOMAX Corporation.

Through participation in U.S. Foreign Military Sales programs, Terma North America, in collaboration with the U.S. Air Force, has supplied self-protection equipment to several international aircraft update programs and has completed contract negotiations for further Foreign Military Sales opportunities.

Terma North America continues its relationship with the U.S. Coast Guard to develop opportunities for new sales and maintenance of SCANTER radar systems for VTS applications.

Furthermore, Terma North America is growing its partnership with U.S. Customs and Border Protection and Canadian authorities to test the SCANTER radars for border protection applications.

Successful tests were conducted on the U.S. Navy Stiletto research vessel and at the U.S. Naval Base Patuxent River using the SCANTER 6000 radar for naval applications.

The Obstruction Light Control (OLC) is undergoing certification and testing with the U.S. Federal Aviation Authority (FAA), and a marketing campaign for Critical Infrastructure Protection solutions is currently being launched.

Terma Singapore Terma Singapore has – as part of the local presence strategy – continuously strengthened activities, resulting in securing and further expanding a solid market position within safety critical niches despite a general consolidation in the market.

Terma Singapore has a total staff of approx. 10 employees plus contractor support with emphasis on sales and support & services.

The first ground movement radar with an individual video channel providing aircraft arrival and departure surveillance has been commissioned in Singa-pore Changi International Airport.

Another significant capture is the new SCANTER solid state technology sensors for the Hong Kong VTS system to replace the existing SCANTER 2001 systems that have been in continuous operation since 2002.

There is a positive regional outlook for surveillance applications within both the security and naval domains, and the regional team is ramping up to meet these future market demands.

Terma IndiaStrategic in-country relations are being strengthened with both the private as well as the public Indian defense industry to move Terma closer to end users of the Indian Aerospace and Defense market.

In partnership with Tata Advanced Systems Ltd. (TASL), Terma has decided to form a center in India for development of Combat Management Systems (CMS). The partnership has been empanelled for the Indian Navy’s CMS projects.

Business opportunities in the area of security and radar surveillance are being pursued with the Indian Navy and Indian Coast Guard, and new business prospects are being explored together with a defense industry partner.

At the end of 2014, Terma received the Indian authorities’ official “green light” to establish a legal Terma entity (Terma (India) Pte. Ltd.). Administrative formalities are expected to be in place during Q1 of FY 2015/16.

Terma United Arab EmiratesTo support existing Middle East customers and to pursue new business oppor-tunities in the Middle East region in close collaboration with regional business partners, Terma opened a regional liaison office in Abu Dhabi in the United Arab Emirates.

The region is showing rapid development in defense and security and offers a number of interesting projects in the near future.

T.react CIP – the new product for Critical Infrastructure Protection – was formally introduced to the market at the IDEX exhibition in Abu Dhabi in February 2015. A live demonstration facility is currently set up in Bahrain, and more than 30 demonstrations have been conducted.

Terma The NetherlandsTerma The Netherlands focuses on three primary market areas: space, air-craft survivability equipment, and homeland security systems.

16 MANAGEMENT’S REVIEW 2014/15

Terma The Netherlands has a total staff of approx. 40 employees plus contrac-tor support with primary emphasis on software and system engineering for the Space activities as well as support and services for the Airborne activities.

Space activities include in-house turnkey system integration and development specializing in spacecraft test, simulation, and in-orbit management systems together with the provisioning of highly specialized consultants to ESA’s European Space Research and Technology Centre in Noordwijk, The Netherlands.

The EW service and support facility established on the Woensdrecht Air Base is fully operational and processes a continually expanding range of equipment from the Terma EW product lines; now also encompassing “third party” work.

Terma electronic warfare (EW) equipment operated by other air forces is also being channeled through the facility, supporting the goal of centraliz-ing all EW service and support efforts outside the U.S. at one location.

In 2014, Terma signed a Partnering Agreement with Logistic Centre Woens-drecht (LCW). Terma and LCW have worked together for many years to support the Royal Netherlands Air Force (RNLAF) fleet, through development and supply of advanced integrated self-protection systems currently installed on almost all RNLAF aircraft, and maintaining this deployed inventory at LCW. This strategic partnership will bring the collaboration to a higher level that will add further value to the RNLAF operations.

The T.react CIP solutions are proving attractive in the Dutch market, and ongo-ing discussions with partners and end users in this domain will deliver com-mercial commitments in the coming years.

Terma Germany The activities of Terma Germany in Darmstadt are primarily related to ESOC with a portfolio of activities spanning from ESTEC to EUMETSAT further to ESO and to prime spacecraft manufacturing organizations.

Terma Germany has a total staff of approx. 70 employees plus contractors with emphasis on support & services.

For the prime spacecraft manufacturing organizations, we have developed the Meteosat Third Generation Satellite Monitoring Unit Software Valida-tion Facility, and currently, we are developing the Satellite Monitoring Unit Operational Simulator.

For MacDonald, Dettwiler and Associates (MDA), we are currently devel-oping the RADARSAT Mission Constellation Simulator infrastructure and supporting the MDA staff in developing the operational simulator.

Terma Germany continues to provide customer on-site support staff cover-ing a wider range of specialized tasks such as flight dynamics, spacecraft simulation operations, mission control systems tasks, business manage-ment, and controller functions.

Terma United Kingdom Terma United Kingdom is a newly established entity at Harwell Oxford, ini-tially with the purpose of supplying engineering services to the UK space in-dustry and ECSAT, the European Centre for Space Applications and Tele-communications.

RISKSTerma’s most important operational risk is execution of large programs. The Group seeks to reduce this risk by increased focus on contract management as well as a tight financial control.

Terma has the required committed credit lines available and the support of our financial partners to implement the planned short- and long-term activities and investments.

Terma is minimally exposed to changes in interest rates. The interest risk is hedged via fixed-rate mortgage loans and interest contracts.

The Group primarily sells and buys in DKK, EUR, and USD currencies. In agreement with a policy approved by the Board of Directors, risks relative to USD are hedged by entering into forward exchange contracts in connection with the acceptance and conclusion of contracts.

In general, there is no significant credit risk relative to individual customers.

In January 2014, Terma A/S terminated a contract with the Polish Armaments Inspectorate (IU), the Ministry of National Defence, regarding the supply of Aircraft Survivability Equipment for Polish helicopters of the Mi-17 and Mi-24 types. Subsequently, Terma has taken out a writ of summons against the Polish Ministry of National Defence. The dispute between Terma and IU relates to contractual matters. It has not been possible to reach a compromise and form common grounds for a successful way forward. As part of the court proceedings, the Polish Ministry of National Defence has filed a counter claim covering liquidated damages and repayment of the advanced payment made according to the contract.

It is the opinion of the Executive Management that the outcome of the dispute with the Polish Armaments Inspectorate will not affect the financial position apart from what is already reflected in the assets and liabilities recognized in the Balance Sheet on 28 February 2015.

Events after the Balance Sheet DateFollowing the end of the fiscal year, no significant events have occurred which affect the assessment of the Group´s and Parent Company´s financial position as reported on 28 February 2015 and in the 2014/15 Annual Report.

BAE Systems

Terma and BAE Systems collaborate on Helmet Audio Advances.

Terma is to integrate its Active Noise Reduction (ANR) and 3D-Audio technologies in BAE Systems’ pilot helmets. The two companies have signed an agreement to improve pilots’ situation-al awareness, which may also eventually benefit land vehicle operators.

Airborne or acoustically transmitted noise is always present in aircraft, but measures can be taken to reduce it. Terma’s Active Noise Reduction is highly adaptable and supports even the noisiest aircraft platforms. The technology can reduce pilot fatigue and hearing loss and improve speech intelligibility.

3D-Audio helps pilots deal with threat warnings within a complete 360 degree sphere of the aircraft. It alerts them from the exact direction of the danger, also when a threat changes path, which is particularly important in the case of missiles. Pilots with access to 3D-Audio can initiate instant evasive maneuvers – without the need to process any information mentally.

Over the next three years, the two companies will initially work on a 3D-Audio/ANR headset for demonstration with BAE Systems’ helmet, followed by final product development. Terma and BAE Systems will then perform aircraft integration and certification before serial helmet production commences.

President and CEO at Terma, Jens Maaløe, said: “As a result of this agreement, we expect to gain access to a significant market and increase exposure for these technologies globally. We look forward to the collaboration, which will also contribute to the further development and improvement of our Active Noise Reduction and 3D-Audio products.”

Group Business Development Director at BAE Systems, Alan Garwood, added: “The agreement is evidence of our strong links with Danish industry and Terma in particular. Combining our expertise will keep our market-leading pilot helmets at the cutting edge of technology. As well as investing finance and intellectual property in the project, BAE Systems will provide exposure to our global customer network for these two Terma technologies.”

The collaboration between Terma and BAE Systems includes a range of technologies. In 2014, the latest version of Terma’s SCANTER 4103 2D Naval Air & Surface Surveillance Radar was selected and ordered by BAE Systems for integration on board Royal Navy’s three new River-class Offshore Patrol Vessels.

In 2013, Terma and BAE Systems entered into a long-term agreement on the F-35 program for the manufacture of composite parts for the Horizontal and Vertical Tail across all types of the aircraft. The two companies have been collaborating on the F-35 program since 2006.

“As a result of this agreement, we expect to gain access to a significant market and increase exposure for these technologies globally.”Jens Maaløe, President & CEO

3D-Audio helps pilots deal with threat warnings within a complete 360 degree sphere of the aircraft

360°

SOUNDS INTERESTING

17

18 CORPORATE SOCIAL RESPONSIBILITY

Based on the Company values of working with integrity, showing passion, and working globally, we wish to impact our industry and society in a positive way. Terma’s Corporate Social Responsibility program (CSR) takes place in close interaction with customers, partners, employees, the local community, and the world around us.

Inspired by the industry’s approach to CSR, Terma has formulated five long-term goals which act as our points of reference for ensuring that our business activities comply with good Corporate Social Responsibility. The overall CSR areas and the associated current activities are:

1. CUSTOMERS

Aspirational Goal The aim of corporate governance at Terma is to build a culture of integrity and ethical behavior in countries where we do business. Our values and principles provide fundamental guidance for our actions and govern the re-lationship with our employees, customers, suppliers, and communities.

ActivitiesTo fight corruption within our sector, and show that Terma has an unambiguous and clear attitude towards this practice.

Corruption is an unfortunate reality we as an international Company need to pay strong attention to. We are dedicated in our fight against corruption, since such practices are morally indefensible and never acceptable.

Terma has a “Code of Conduct”, where we specify clear rules of engagement. The main aim of this Code of Conduct is to ensure that none of Terma’s employ-ees, or others who represent our Company, seek to gain unjust advantages from authorities or other collaboration partners. The Code of Conduct has been in place since 2008, and it is evaluated on a yearly basis by Terma’s Management. Terma’s Code of Conduct is communicated to all employees and external partners.

We did not find any examples of violation in the FY 2014/15.

In addition to the Code of Conduct, we have also started an extended process for handling Terma’s agents that ensures proper due diligence and training of agents and partners worldwide. The process has been implemented in 2014, including screening of new agents, resellers, and external consultants.

Furthermore, regarding our export projects, Terma is compliant with the International Finance Corporation’s (IFC) 10 Performance Standards on Environmental and Social Sustainability, i.e. www.IFC.org. We always carry out an examination of our export projects’ compliance with the IFC Performance Standards, and we have not seen any examples of violation of these standards in the FY 2014/15.

2. SUPPLIERS

Aspirational GoalTo ensure safe working conditions throughout the supply chain, that business operations are environmentally sound, and that business is conducted in accordance with internationally recognized principles for business ethics and human rights. We expect and require that our suppliers, and their supply chain, adhere to the same high standards as Terma.

ActivitiesTo reach the goal, Terma has established a process and procedure in our quality system, which describes the process for the compliance of the standard business ethics. Any new supplier will be asked to fill out a short questionnaire and to provide evidence that they comply.

In FY 2014/15, more than 70% of our total purchase volume to our factories was screened, and the conclusion is that every supplier is CSR compliant; a very positive outcome. In FY 2015/16, we will continue to screen an addi-tional group of suppliers ranked by purchase volume, and thereby, we will have screened up to 85% of our value in our supplier base.

The actual screening will provide evidence that they have ethical standards in line with those at Terma.

With the policy and procedures for the supply chain, it is the opinion of the Management that Terma is compliant with the expected standards of society. It is our belief that we have to continue the screening process, and that we will not encounter any major issues with our existing or future supplier base, since the adequate processes and procedures are well implemented in our day-to-day business, and therefore, any deviations will be disclosed early in the process.

Corporate Social Responsibility

1. Code of conduct 2. Compliance of business ethics

70%of our total purchase volume was screened and found CSR compliantNext year the number will increase to 85%

0%violation of Terma’s Code of Conduct and the IFC Performance StandardsThe Code of Conduct has been in place since 2008

Dedicated partnerships with our suppliers are an essential part of Terma’s growth strategy. This year, we have extended rela-tions with several Danish and international suppliers in crucial niche areas.

In order to develop efficient and reliable high-tech solutions, we are dependent on Best-in-Class sub-suppliers. In recent years, Terma has developed close ties with several Danish companies which have transformed into true partnerships.

CUTTING-EDGE CABLES AND COMPUTERSDanish cable and wire harness specialist Elfac A/S has been a preferred supplier of cables for Terma’s radars since 2010. Today, the relationship has evolved, and Elfac eyes opportunities in supplying to other Terma defense projects. In addition, Danish producer of monitors and computers for the industrial defense and marine sectors, ISIC A/S, has provided custom-made com-puters for Terma’s radars and command and control systems since 2006. In 2014, ISIC A/S and Terma entered into a formal strategic partnering agreement.

Jens Husted, Vice President, Supply Chain and Procurement in Terma, sees great potential in extending this kind of strategic partnerships with key suppliers. “As part of Terma’s outsourcing strategy, we have subcontracted some of our manufacturing tasks to partners who have demonstrated the ability and willingness to complete tasks better and more cost effectively than we are capable of in Terma.”

ENTERING THE DEFENSE DOMAINJørn Henrik Levy Rasmussen, Vice President, Terma Global, acknowledges the benefits for both Terma and the sub-supplier. “For Terma, it is crucial that we have competent and reliable partners, who on their side also gain an understanding of the strict quality and documentation requirements in the defense sector, from which they can also benefit in other contexts.”

In the long term, these strategic partnerships can be valuable for the sub-supplier. Kvisgaards Maskinfabrik A/S, headquartered at Rødovre near Copenhagen, has been a key supplier to Terma since the two companies entered into the first long-term cooperation agreement in 2009.

“The collaboration between Kvisgaard and Terma is a classic example of how to cultivate strategic partnerships with a key supplier when both parties are prepared to invest the proper efforts,” con-cludes Jørn Henrik Levy Rasmussen.

STRATEGIC

ARE THE KEY TO SUCCESSPARTNERSHIPS

19

“The collaboration between Kvisgaard and Terma is a classic example of how to cultivate strategic partnerships with a key supplier when both parties are prepared to invest the proper efforts.”Jørn Henrik Levy Rasmussen, Vice President, Terma Global

20 CORPORATE SOCIAL RESPONSIBILITY

3. EMPLOYEES

Aspirational GoalTo be recognized as a Company with a second-to-none professional working environment. To provide our employees with challenges that make them “Best in Class”. To develop talents who are in high demand in our fields of expertise.

ActivitiesThe ratio of absence due to sickness is a good indicator of the working envi-ronment and the employees’ job satisfaction. Terma pays attention to our employees’ health, and we wish to ensure that they are thriving.

In order to focus on the ratio of absence due to sickness, we train our managers in preventive communication to capture early warning signals and conduct interviews about health and well-being with the employees, to ensure that potential complications are identified and resolved early.

During FY 2014/15, the average 12 month absence ratio worldwide, covering both white collar and blue collar workers, has gone slightly up from 2.9% to 3.1%, however, this is still considered a satisfactory level.

Accidents per one million working hours were 7.5 in Grenaa, Denmark, and 1.0 in the company in Germany (last 12 months accumulated accidents which resulted in at least one day of absence).

Among other activities, we strive to identify job opportunities for people who are not able to take on regular employment conditions. Specifically, we have set goals for the amount of people hired under extraordinary con-ditions such as subsidized employment to compensate for chronic illness, reduced working hours, or reduced workload.

To have Best-in-Class employees, we need to be a Best-in-Class workplace. In addition, it is important for us to retain our highly skilled employees. This largely depends on employee satisfaction, a key objective of Terma.

To this end, Terma conducts biannual employee satisfaction surveys in order to be able to improve our performance in the areas where our employees

are least content. Again this year, our worldwide employee satisfaction survey showed an impressive response rate of 92% and a significant increase in both loyalty and motivation to a level well above industry bench marks.

Policy to Target an Equal Representation of Genders

In 2013, The Board of Terma A/S adopted a policy to target an equal repre-sentation of genders in the Boards of the Group’s Danish companies. The Board must include at least one person of each gender before the end of the measurement period on 31 March 2017.

Terma’s Board of Directors is composed of the best qualified individuals. Of the four members of the Board of Directors elected by the stockholders at the annual general meeting, three members are male and one member is female.

The following policy has been adopted to increase the share of females in the Group’s other management levels:

In Terma, the differences and diversity in the employees’ personal and profes-sional competences are considered a key strength for the Company. The objective is to eliminate discrimination of any kind, including gender-based discrimination.

One focus area in this context is a more equal gender balance in the Group’s various management levels. Management positions must always be filled by the best qualified candidate, and as part of this requirement, it is our goal to ensure an increase in the number of female managers.

Both historically speaking and today, the candidates for both academic and management positions within our field are predominantly men, and at the moment, this does not facilitate our goal of a balanced distribution of gender in the management positions (at least 40% of each gender).

Terma believes that the means to achieve this goal is an increased focus in recruit-ment situations, both in relation to internal and external candidates, in particular by seeking to ensure that there is at least one female as well as at least one male candidate for a job interview when a management position is to be filled.

Also, we have a special focus on female talent to ensure that the Company will have a broad representation of both genders. Through this, the oppor-tunity to achieve the above goal is enhanced through internal promotions.

At the end of the fiscal year, 18.8% of our worldwide management positions were held by females, an increase compared to last year (17.1%).

3. Gender balance

18.8%of worldwide management positions are held by females9.9% up from last year

CORPORATE SOCIAL RESPONSIBILITY 21

4. ENVIRONMENT AND CLIMATE

Aspirational GoalTo ensure sustainable production lines and daily business operations by optimizing the use of natural resources.

ActivitiesThere is no evidence that the campaign promoting behavioral change, which was in effect in FY 2014/15, has had the desired impact. This is due to the impossibility of separating consumption from electrical fittings in buildings and in processing. However, the campaign has had some impact.

By selecting energy-efficient installations when making new investments and replacing worn-out installations, we have managed to curb our energy consumption by 400 mWhs in FY 2014/15.

We have optimized and expanded our CTS installations and managed these by utilizing optimized working time. The implemented initiatives have resulted in an overall reduction in our energy consumption from 10,050,044 kWhs to 9,741,294 kWhs.

The reduction has been realized in spite of a substantially increased level of activity and number of employees. The achieved reduction corresponds to the yearly average energy consumption in Denmark of 62 single-family houses.

Substitution of Hazardous Chemicals

The EU countries have agreed to fairly comprehensive legislation for chemicals (REACH). Very hazardous chemicals are listed on the “Authorization List”, and they will be banned at a specific date, if an authorization for specific use has not been granted.

This is well in line with Terma’s substitution strategy. Our goal is to substitute at least 1-2 problematic chemicals to less hazardous alternatives each year, on average.

In the FY 2014/15, we have succeeded in removing two very hazardous chemicals from our production line: Trichloroethylene and Dioctyl Phthalate.

The aerospace business is highly affected by the prohibitions laid down within REACH as several of the substances on the authorization list are hexavalent chromates used in a wide range for anti-corrosion purposes for aircraft.

The primary focus for the coming 2-3 years will be minimizing/phasing out hexavalente chromates in our surface treatment facility, more specifically: Sodium Dichromate and Chromic Acid. These two chemicals are contained in several of the treatment baths – both have sunset dates of September 2017. This substitution project is considered to be very extensive, and pre-sumably no other projects for phasing out problematic substances will be initiated in this period.

A main customer has opened up for the possibility of substituting some of the surface treatment products containing the problematic chromates.

5. COMMUNITY

Aspirational GoalTo support educational programs in local communities within Terma’s Business Areas to ensure a recruitment of qualified employees while supporting the local economy and employment market.

ActivitiesAt Terma, we have taken on an obligation to take part in the education of young people from our surrounding communities. Furthermore, it is important to us to invest in the educational institutions, from which we recruit our future employees.

Terma has apprentices, primarily in our production and our administrative areas, and we have student interns in all areas of our Danish companies. Most recently, we have established a collaboration with Lockheed Martin Corporation and Aarhus University giving a group of students from the Faculty of Technology and Science the opportunity to spend a five-month internship at Lockheed Martin Corporation’s premises in Fort Worth, Texas.

In addition, we support relevant educational institutions by supplying trainers or counselors to specific programs and by participation in advisory boards in connection with the schools.

Looking ahead, we will target an expansion of the types of apprentices and interns in our Danish locations and an expansion of the model to include our international locations as well.

We will evaluate the use of interns and the international collaborations with educational facilities annually.

4. Energy efficiency 5. Educational programs

5 monthsinternships at Lockheed Martin, Fort Worth, Texas for students at Aarhus University’s Faculty of Technology and Science

Reduction of energy corresponding to the yearly average energy consumption in Denmark of

62 single-family housesin spite of increased level of activity and no. of employees

22 SOLUTIONS AND CAPABILITIES

Solutions and CapabilitiesAVIONICS /Advanced and combat proven airborne electronic warfare and 3D-Audio solutions

26%

55% 38% 4% 2% 1%

COMMAND AND CONTROL /Scalable command and control systems for naval and air defense and protection of critical infrastructure

19%

Revenue per region

43%

92%

100%

54%3%

8%

Revenue split/North America

Revenue split/Rest of World

Revenue/Worldwide

Revenue split/Middle East and North Africa

150+C-GUARD SYSTEMS IN OPERATION WORLDWIDE

FIELDED ON

2,000+ MILITARY AIRCRAFTTerma is a leading electronic warfare (EW) systems integrator with close to 30 years’ experience in providing combat proven survivability solutions for fighter, transport, and rotary-wing aircraft.

Terma’s C-Guard Soft-Kill Weapon System is a decoy system for naval platforms made to defeat stream attack with multiple missiles and torpedoes from multiple directions.

SOLUTIONS AND CAPABILITIES 23

RADAR SYSTEMS /Radar sensors for small target detection in extreme weather conditions

SPACE SYSTEMS /All phases of a space mission’s lifecycle: from feasibility studies, realization, operation, to the exploitation of results

AEROSTRUCTURES /Advanced composite aeronautical structures for commercial and military aircraft

21% 21%13%

16% 26%24% 5%29%

Revenue split/Middle East and North Africa

Revenue split/Asia Pacific

Revenue split/Europe

14,000+ F-16 PYLONS DELIVEREDTerma has supplied pylons for the F-16 fighter since the 1980s, as co-producer for Lockheed Martin Corporation as well as our own Terma-designed pylons.

2,000+WORLDWIDE INSTALLATIONS Terma’s reknown SCANTER radars for VTS and coastal surveillance applications detect small objects in rough weather conditions and over long distances.

SUPPLIED FOR

15+ MISSIONSTerma’s Star Trackers provide secure focus on fully autonomous attitude determination with high accuracy. Different versions support missions ranging from satellites with short mission lifetimes to satellites having long lifetimes.

Imag

e co

urte

sy:

ESA/

AOES

Med

iala

b

12% 8%1% 79%

Terma Defense & Security is Terma’s primary Business Area which globally supplies network and tactical systems, airborne and naval self-protection systems, electronics manufacturing services, and through-life support and services globally for mission-critical defense and security applications. The Business Area also encompasses advanced radar systems for a broad range of demanding surveillance and traffic control applications, including coastal surveillance, naval surface and air surveillance, airborne environmental surveillance, critical infrastructure protection, vessel traffic management, and airport surface movement control and guidance.

The Business Area comprises two system solutions areas – Airborne Systems and Command, Control & Sensor Systems – and two production and service areas – Electronics Manufacturing Services and Global Support & Services.

Terma Defense & Security operates out of Denmark (Herlev and Lystrup); The Netherlands (Leiden and Woensdrecht); the U.S. (Warner Robins, Georgia and Washington D.C.); Singapore; India; and United Arab Emirates.

AIRBORNE SYSTEMSTerma is a global provider of advanced electronic warfare (EW) self-protection systems, tactical audio technology, and applied aerostructures for all types of military aircraft. The recognized Electronic Warfare Management System, EWMS ALQ-213, is capable of integrating any combination of EW subsys-tems into a coherent and complete systems solution on any type of aircraft.

The system includes high-level functions such as sensor fusion, embedded training, and electronic countermeasures adaptive processing. The Advanced Threat Display and 3D-Audio Warning Systems provide maximum situational awareness for crews. An Active Noise Reduction and Electrical Noise System is incorporated to reduce pilot stress and fatigue.

EW subsystems are typically installed in pods, pylons, or other external fixtures in order to avoid interfering with the aircraft structure and to allow systems to be used across the fleet, thereby significantly reducing the overall cost. Today, more than 2,000 fighters, helicopters, and transport aircraft world-wide are equipped with Terma’s EW self-protection systems.

COMMAND, CONTROL & SENSOR SYSTEMSThe Command, Control & Sensors (CCS) business delivers products and solu-tions based on the SCANTER radar and T-Core command and control (C2) technology. The SCANTER surveillance radars address the global markets for security and safety applications at sea, in the air, and on land. The T-Core C2 technology provides solutions in the naval, air, and missiles defense markets as well as protection of critical infrastructure in the security market.

The recently launched T.react CIP product provides critical infrastructure protection against intruders and security threats using the SCANTER 1002 advanced ground surveillance radar and detection algorithms coupled with automated camera control. It provides very effective area protection com-pared to traditional fixed camera installations. The first system is installed in collaboration with Lockheed Martin Mission Systems and Training in Owego, New York, performing flawlessly and with high user satisfaction.

Navies and coast guards worldwide are important to CCS, with market focus on Offshore Patrol Vessels (OPV), Patrol Vessels, and interceptors with the C-Series – a turnkey mission system solution. C-Series includes C-Flex command and control (C2), SCANTER radars, C-Fire Electro Optics, and C-Raid compact C2. All systems are designed for vital day-to-day missions such as territorial and Economic Exclusive Zone patrolling, counter piracy/terrorism, Search & Rescue operations, and peacekeeping missions.

The SCANTER radar systems are renowned for their unique capability to detect small and maneuvering targets at long distances and under all weather conditions. Terma is the preferred choice for maritime surveillance, mission-critical border security, and traffic safety applications to users worldwide. The SCANTER radar product portfolio comprises the SCANTER 5000 for land-based surveillance and the SCANTER 6000 for naval and coast guard applications. The new SCANTER 2200 series provides a very attractive price/performance in the market and has enjoyed a strong market accep-tance with more than 50 units on order for the Asian market.

The SCANTER 4000/4100 radar for medium range air surveillance has undergone a significant technological upgrade and has been ordered for three new OPVs for Royal Navy. The ability of the SCANTER 4000 radars to detect aircraft in the presence of wind turbines has been demonstrated in multiple tests, and with the first radar system under contract, it will be a source of growth as additional orders for this application are expected during FY 2015/16.

GLOBAL SUPPORT & SERVICESGlobal Support & Services maintains, supports, and provides repair of Terma products in the global defense and security markets. The support and ser-vices include discrete spare parts sales, on-call services, and off-the-shelf service concepts as well as more complex availability solutions, which can be tailored to fulfill any operational profile required by the customers.

Sustainability is essential in a market where component availability and customers’ requirements for long product lifecycles increase. Based on decades of experience, Global Support & Services staff understands the importance of through-life support in order to meet customers’ operational requirements.

With a large, constantly growing, installed base, Terma supports more than 2,000 radar systems, 2,000 aircraft, and several navies worldwide.

24 BUSINESS AREAS AND INTERNATIONAL OFFICES

Business Areas and International Offices

Terma Defense & Security

Steen M. LynenskjoldSenior Vice President

ELECTRONICS MANUFACTURING SERVICESElectronics Manufacturing Services manufactures complex electronics solutions for aircraft, satellites, and radar systems. Our solutions are used in mission-critical applications, and we have core capabilities in the man-ufacturing of high efficiency power supplies and high frequency products. Among others, Terma supplies advanced electronics for the APG-81 radar on the F-35 Joint Strike Fighter.

In-house processes such as vacuum/autoclave bonding, parylene coating, vacuum soldering, extensive electrical testing, and environmental stress screening are available to achieve flexible and competitive manufacturing with short lead times.

The knowledge and technology of Danish space research and Danish com-panies within this market are world-class. In recent years, an increasing scientific, commercial, and educational interest has manifested itself.

Following the ESA ministerial conference in December 2014, new opportuni-ties have been created for re-energizing the Danish business and scientific activities in the space industry.

Terma contributes with mission-customized software and hardware products as well as services to support a number of in-orbit pioneering European scientific, Earth observation, and navigation missions, such as Rosetta, Mars Express, Sentinel-1, Gaia, Cryosat-2, and Galileo.

Additionally, Terma is contracted for the development and delivery of soft-ware and hardware systems and services for numerous ongoing and future European, Russian, Asian, and U.S. satellite missions. Examples of these are: LISA Pathfinder with an expected launch in 2015; BepiColombo with an expected launch in 2016, ExoMars with an expected launch in 2016; Solar Orbiter with an expected launch in 2018, and MTG scheduled for its first launch in 2018, as well as U.S. and Asian missions.

Furthermore, Terma is under contract with ESA for the highly sophisticated man-space ASIM mission. Terma is responsible for the international scientific and in-dustrial team developing a structure containing cameras and photo-meters to be placed outside the International Space Station. The purpose of the mission is to contribute to the study and understanding of how thunderstorms affect the at-mosphere and the climate. The launch is expected to take place late 2016.

The Service area of Terma Space has grown as a result of a number of framework contracts at ESTEC, ESOC, EUMETSAT, and ESO.

The Aerostructures Business Area, headquartered in Grenaa, Denmark, provides world-class design and manufacture of advanced aerostructures to the global Aerospace and Defense markets. The Business Area has a constant focus on continuous improvements and a unique approach to affordability that yields maximum value for the customers.

Terma Aerostructures is a one-stop supplier that integrates composite and metallic products, including wiring harnesses and electronics to form ready-to-install complex subassemblies. A broad range of products are provided for the F-35, F-16, and Gulfstream business jets as well as mis-sionized pods and pylons for various fixed and rotary wing aircraft. These products include pods for electronic warfare and aircraft survivability equipment, reconnaissance pods, data acquisition pods for flight testing, fuel pylons, and enhanced weapon pylons.

Terma Aerostructures has been participating in the F-35 development since 2004 to provide complex composite structures to the program’s prime con-tractors as well as pods and pylons to tier-1 companies. Significant invest-ments have been made at the Grenaa facilities to upgrade manufacturing capabilities and infrastructure to meet the demanding tolerances and so-phisticated technologies of the Joint Strike Fighter program. The capability to provide advanced composites with pre-impregnated carbon fiber com-posites with extraordinary high tolerances is a core competency area.

The Aerostructures Business Area’s journey to become a world-class facility for design and manufacturing of advanced composite structures has been successful. Affordability requirements and a lean thinking philosophy are the cornerstones of the manufacturing model, and every employee is committed to delivering the promise. The F-35 production environment has matured, and Terma Aerostructures has performed very satisfactorily, meeting quality, delivery, and cost targets. This was recognized by the Aerostructures business being designated as a Platinum Supplier by Northrop Grumman Corporation.

In 2014, Terma Aerostructures was awarded a long-term contract for com-posite door panels for the S92 Sikorsky helicopter. This agreement is an important milestone in the establishment of the new strategic business area that focuses on commercial structures.

During 2012/13, Terma entered into long-term contracts for F-35 Low Rate Initial Production phases (LRIP) 6-11 with Lockheed Martin Corporation, Northrop Grumman Corporation, BAE Systems, and General Dynamics. These long-term contracts have provided a stable and more predictable business base and a more secure return on investment.

BUSINESS AREAS AND INTERNATIONAL OFFICES 25

Carsten JørgensenSenior Vice President

Terma Space

Ole GraversenSenior Vice President & General Manager

Terma Aerostructures A/S

26 BUSINESS AREAS AND INTERNATIONAL OFFICES

To enhance the sales & business development efforts and to enable a strong commercial marketing effort, the U.S. sales organization has been enlarged. Key personnel are located at the customer sites to ensure fre-quent customer service and communication.

Terma Global drives Terma’s international sales and marketing efforts and overall internationalization.

Terma Global delivers on the Group’s global and regional strategies, maintains and strengthens strategic customer and partner relationships, and actively seeks new partnerships. The Terma Global team works closely with each Business Area to deliver the entire Terma portfolio of products.

Terma’s international activities are headquartered in Denmark and in Washington, D.C., with regional and local offices in Singapore, India, UAE, The Netherlands, UK, and Germany.

Terma North America Inc., the U.S. subsidiary, is well established as the interface to North American customers for all Terma Business Areas. Terma North America (TNA) facilitates the growth of Terma’s business in the U.S. through a local presence near to important customers and partners. Head-quartered in the Washington D.C. area, TNA leads the interface with senior executives in the Department of Defense, the Department of State, the Danish Embassy, the Federal Aviation Administration (FAA), the Department of Homeland Security, as well as the defense industry’s prime contractors and many other companies relevant to our business.

A major business development and operations facility is located in Warner Robins, Georgia. It maintains business with the U.S. Air Force, providing electronic warfare systems for the Air National Guard and Foreign Military Sales, including maintenance and procurement.

In Fort Worth, Texas, TNA’s facility is strategically located in close proximity to Lockheed Martin Corporation and the program headquarters for the F-35 and F-16. The Fort Worth office expertise provides vital customer insight and program management support.

TNA’s office in Portsmouth, Virginia, near the U.S. Coast Guard headquarters, provides support for surveillance sensors. The business development and technical support personnel has been assigned to provide maximum support and customer interface.

Terma Airborne Systems in Warner Robins successfully expanded its tradi-tional customer base by closing negotiations for key Foreign Military Sales contracts for airborne survivability equipment. The relationship with Northrop Grumman Corporation and The Boeing Company remains strong with follow-on P-8 Poseidon and CH-47 Chinook program opportunities. Additionally, the business with Lockheed Martin Corporation continued strong with busi-ness in the C-130J military transport aircraft and the F-16 fighter programs.

The Aerostructures Business Area is strongly represented at the Fort Worth facility. The team has worked closely with Lockheed Martin Corporation, Northrop Grumman Corporation, General Dynamics, Marvin Engineering, and BAE Systems to sustain long-term supplier agreements for the F-35. A key order with Sikorsky set the stage for “second-leg” composite activity to fully utilize capacity in the factory in Grenaa.

The Command, Control & Sensors business continued new radar sales and maintenance servicing contracts for North American-based radar customers, including Canada, the U.S. Coast Guard, the U.S. Navy, the FAA, and the Department of Homeland Security. Continued operation of the SCANTER 6002 radar system on the experimental U.S. Navy ship (Stiletto) has demonstrated capabilities to detect small targets in various sea states. TNA also conducted tests with the U.S. Navy, Naval Research Laboratory, and Department of Homeland Security that demonstrated the capability of the land-based SCANTER radar to detect and track very small craft in high sea states. The team continued to take advantage of the SCANTER 4000 radar capability to reduce the effects of the Wind Farm Interference Patterns and Obstructive Lighting by testing with the FAA and other agencies on the use of lighting control management based on radar detection. The Terma critical infrastructure protection test site is fully operational at the Lockheed Martin facility in Owego, New York, and ready for the U.S. market.

Terma B.V., the Dutch subsidiary, focuses on three primary market areas: space, aircraft survivability equipment, and homeland security systems.

Matthijs de HaanVice President & General Manager

Terma The Netherlands

Jørn Henrik Levy RasmussenVice President

Terma Global and International Offices

Larry Hungerford President & CEO

Terma North America

BUSINESS AREAS AND INTERNATIONAL OFFICES 27

The past year has seen a success in expanding the role of Terma B.V. in support-ing a range of electronic warfare (EW) products. Space activities include in-house turnkey system integration and development specializing in spacecraft test, simulation, and in-orbit management systems together with the provisioning of highly specialized consultants to ESA’s European Space Research and Technology Centre in Noordwijk, The Netherlands.

The EW service and support facility established on the Woensdrecht Air Base is fully operational and processes a range of equipment from the Terma EW product line; this effort has been expanded by adding third party work. Terma EW equipment, operated by other air forces, is also being channeled through the facility, supporting the goal of centralizing all EW service and support efforts at one location.

In 2014, Terma signed a Partnering Agreement (PA) with RNLAF Logistic Centre Woensdrecht (LCW). Terma and LCW NL MOD have worked together for many years to support the Royal Netherlands Air Force (RNLAF) fleet, through development and supply of advanced integrated self-protection systems currently in operation on almost all RNLAF aircraft and maintaining this deployed inventory at LCW.

The T.react CIP system is attracting significant attention at regional and national levels. CIP solutions are also proving to be attractive in the Dutch market, and ongoing discussions with partners and end users in this market are expected to result in commercial orders in the coming years.

Terma Singapore Pte. Ltd., the Asian subsidiary, provides Asia Pacific market presence for the Terma Defense & Security Business Area through business development, project management, and post-sales service and support. Through an increasing network of regional partners, Terma is solidly estab-lished as a regional partner and supplier of high performance and reliable defense and security solutions in the expanding and developing Asian markets.

The order intake for 2014/15 has been positive and has strengthened Terma’s leading position as a reliable supplier of high-end products and solutions for an increasingly demanding market.

There is a very positive regional outlook for expanded collaboration with regional partners in the security and naval domains.

The Management of Terma’s activities in India is being established in New Delhi to forge strong local partnerships and to market the Terma brand in India. A wholly owned subsidiary, Terma (India) Pte. Ltd., is expected to be operational during the first part of FY 2015/16 to accommodate the growing business.

With India’s increasing defense budget and ambition to improve the country’s self-reliance for defense, including the “Make in India” campaign, the key to this market is the ability to transfer technology and to establish strategic partnerships with Indian industry. Currently, Terma is pursuing a number of business opportunities in India, particularly in the area of command and control, security and surveillance.

Terma established a presence in the capital city of the United Arab Emirates, Abu Dhabi, in the spring of 2014. The local office supports Terma’s growing business in the Middle East region.

The traditional market for Terma in the region has been in the area of security and surveillance, which is exemplified by our steady sale of radars for VTS and coastal surveillance purposes over the last decade. In the coming years, we also expect our newest product for the protection of critical infrastruc-ture, T.react CIP, to do well.

Anupam Narain MathurManaging Director

David Adgill LarsenRegional Director

Terma India

Terma United Arab Emirates

Jesper TolstrupVice President

Terma Singapore

Accounting Policies

The Annual Report of Terma A/S for 2014/15 has been prepared in accordance with the provisions applying to class C enterprises (large) under the Danish Financial Statements Act. The Consolidated Financial Statements of Terma A/S are consolidated in the Consolidated Financial Statements of the Parent Company, Thrige Holding A/S, Lystrup.

The accounting policies used in the preparation of the Financial Statements are consistent with those of last year. A few items have been reclassified. The comparatives have been restated.

Consolidated Financial StatementsThe Consolidated Financial Statements comprise the Parent Company Terma A/S and subsidiaries over which Terma A/S has control, i.e. the power to govern the financial and operating policies so as to obtain benefits from its activities. Control is obtained when the Company directly or indirectly holds more than 50% of the voting rights in the subsidiary or, in some other way, controls the subsidiary.

The Consolidated Financial Statements have been prepared as a consolidation of the Financial Statements of the Parent Company and subsidiaries, prepared according to the Group’s accounting policies. On consolidation, intra-group income and costs, stockholdings, intra-group balances and dividends, and realized and unrealized gains and losses on intra-group transactions are eliminated.

Entities acquired or formed during the year are recognized in the Consolidated Financial Statements from the date of acquisition or formation. Entities which are disposed of or wound up are recognized in the Consolidated Income Statement until the date of disposal or winding-up. The comparative figures are not restated for entities acquired, disposed of, or wound up.

Foreign Currency TranslationTransactions denominated in foreign currencies are translated at the exchange rates at the transaction date. Foreign exchange differences arising between the exchange rates at the transaction date and at the date of payment are recognized in the Income Statement as financial income or financial costs.

Receivables, payables, and other monetary items denominated in foreign currencies, which are not settled on the Balance Sheet date, are translated at the exchange rates at the Balance Sheet date. The difference between the exchange rates at the Balance Sheet date and at the date at which the receivable or payable arose or was recognized in the latest Financial Statements is recognized in the Income Statement as financial income or financial costs.

Upon recognition of subsidiaries that are foreign entities, the Income Statements are translated at an average rate of exchange for the month, and the Balance Sheet items are translated at the exchange rates at the Balance Sheet date. Currency translation differences arising upon translation of foreign subsidiaries’ equity at the beginning of the year to the exchange rates at the Balance Sheet date and upon translation of Income Statements from the average rates of exchange to the exchange rates at the Balance Sheet date are recognized directly in the equity.

Foreign exchange adjustment of balances with foreign entities which are considered part of the investment in the entity is recognized in the Consoli-dated Financial Statements in the equity.

Upon recognition of foreign subsidiaries that are integrated entities, monetary items are translated at the exchange rate at the Balance Sheet date. Non-monetary items are translated at the exchange rate at the date of acquisition or the time of the subsequent revaluation or impairment of the asset. The items in the Income Statement are translated at the exchange rate at the date of transaction. However, items derived from non-monetary items are translated at the historical conversion rate of the non-monetary item.

Derivative Financial InstrumentsDerivative financial instruments are initially recognized in the Balance Sheet at cost and are subsequently measured at fair value. Positive and negative fair values of derivative financial instruments are included in other receivables and other payables, respectively.

Changes in the fair value of derivative financial instruments designated as and qualifying for recognition as a hedge of the fair value of a recognized asset or liability are recognized in the Income Statement together with changes in the fair value of the hedged asset or liability.

Changes in the fair value of derivative financial instruments designated as and qualifying for recognition as a hedge of future assets or liabilities are recognized directly in other receivables or other payables and in the equity. If the hedged forecast transaction results in the recognition of assets or lia-bilities, amounts which were previously recognized in the equity are trans-ferred at the cost of the asset or liability, respectively. If the hedged forecast transaction results in income or costs, amounts previously recognized in the equity are transferred to the Income Statement in the period in which the hedge item affects the profit or loss.

For derivative financial instruments that do not qualify for hedge accounting, changes in fair value are recognized in the Income Statement on a regular basis.

Changes in the fair value of derivative financial instruments used for the hedging of net investments in foreign entities are recognized directly in the equity.

INCOME STATEMENT

RevenueRevenue comprises the deliveries for the year and the value of construction contracts in process with significant customization.

Revenue from contract work in process with an insignificant degree of cus-tomization is recognized in the Income Statement when the transfer of risk to the customer has taken place. Any discounts allowed are deducted from the revenue.

Construction contracts with significant customization are recognized in the revenue when reaching the stage of completion. Accordingly, revenue cor-responds to the selling price of work performed during the year (percentage of completion method).

28 ACCOUNTING POLICIES

Production CostsProduction costs comprise costs, including depreciation, amortization, and salaries, incurred in generating the revenue for the year. Such costs include direct and indirect costs for raw materials and consumables, wages and salaries, depreciation of production plant, and other production costs.

Production costs also comprise research and development costs that do not qualify for capitalization and amortization of capitalized development costs.

Production costs also comprise provisions for losses on construction contracts.

Distribution CostsCosts incurred in distributing goods sold during the year and in conducting sales campaigns, etc. during the year are recognized as distribution costs. Also, costs relating to sales staff, advertising, exhibitions, and depreciation are recognized as distribution costs.

Administrative CostsAdministrative costs comprise costs incurred during the year for the Manage-ment and Administration, including costs related to administrative staff, office premises and office expenses, and depreciation.

Other Operating Income and CostsOther operating income and costs comprise items secondary to the principal activities, including gains and losses on disposal of intangibles and property, plant, and equipment. In the Parent Company, other operating income also comprises management fees from subsidiaries.

Profit in SubsidiariesThe individual subsidiaries’ profit after tax is recognized in the Income State-ment for the Parent Company following elimination of intercompany gains/losses.

Financial Income and CostsFinancial income and costs comprise interest income and costs, gains and losses on receivables, payables, and other transactions denominated in foreign currencies, amortization of financial assets and liabilities as well as surcharges and refunds under the on-account tax scheme, etc.

Tax on Profit for the YearThe Parent Company is subject to the compulsory Danish joint taxation method for the Thrige Holding Group’s Danish subsidiaries. Subsidiaries are part of the joint taxation from the time of the consolidation in the Group’s Financial Statements and until the time when they are left out of the consolidation.

Thrige Holding A/S is the administrative company for the joint taxation, and as a consequence, it settles all tax payments with the authorities.

The current Danish corporate income tax is allocated by payment of the joint taxation contribution between the jointly taxed companies relative to the taxable income. In this respect, companies with tax loss receive joint taxation contributions from companies which have used this loss to reduce their own tax profit.

Tax for the year comprises current tax for the year, the joint taxation contribu-tion, and changes in deferred tax. The tax expense relating to the profit for the year is recognized in the Income Statement, and the tax expense relating to amounts directly recognized in equity is recognized directly in the equity.

BALANCE SHEET

Intangibles

Development Projects Development projects comprise costs, salaries, and amortization directly or indirectly attributable to the development activities.

Development projects that are clearly defined and identifiable, where the technical feasibility, sufficient resources, and a potential future market or development opportunities can be evidenced, and where it is intended to produce, market, or use the project, are recognized as intangibles, provided that the cost can be measured reliably, and that there is sufficient assurance that future earnings can cover production costs, selling costs, administrative costs, and development projects. Other development projects in process are recognized in the Income Statement when incurred.

Capitalized development projects are recognized at cost less accumulated amortization/impairments or recoverable amount, if this is lower.

Following the completion of the development work, capitalized development projects in process are amortized concurrently with the sale of the developed products, alternatively on a straight-line basis over the estimated useful life.

Gains and losses on the disposal of development projects are determined as the difference between the selling price less selling costs and the carrying amount at the date of disposal. Gains and losses are recognized in the Income Statement under other operating income and other operating costs, respectively.

Property, Plant, and EquipmentLand and buildings, plant and machinery, and fixtures and fittings, tools and equipment are measured at cost less accumulated depreciation/impairments. Cost comprises the purchase price and any costs directly attributable to the acquisition until the date when the asset is available for use. The cost of self-constructed assets comprises direct and indirect costs of materials, components, subcontractors, and wages and salaries.

The cost of a total asset is divided into separate elements which are depre-ciated separately if the useful life of the individual elements varies.

Depreciation is provided on a straight-line basis over the expected useful lives of the assets. The expected useful lives are as follows:

Buildings 10-50 yearsPlant and machinery 5-10 yearsFixtures and fittings, tools and equipment 3-7 years

ACCOUNTING POLICIES 29

Major production plants used for the production of aircraft components are depreciated based on the units of production method, typically over 10 years. The annual depreciation corresponds to the actual units produced during the year. An annual reassessment is made of the expected aggregate units of production.

Depreciation is recognized in the Income Statement as production costs, distribution costs, and administrative costs, respectively.

Gains and losses on the disposal of property, plant, and equipment are deter-mined as the difference between the selling price less selling costs and the carrying amount at the date of disposal. The gains or losses are recognized in the Income Statement as other operating income or other operating costs, respectively.

Impairment of Non-Current AssetsThe carrying amount of intangibles and property, plant, and equipment as well as equity interests in subsidiaries is subject to an annual test for indica-tions of impairment other than the decrease in value reflected by depreciation or amortization.

Impairment tests are conducted of individual assets or groups of assets when there is an indication that they may be impaired. Write-down is made to the recoverable amount if this is lower than the carrying amount.

The recoverable amount is the higher of an asset’s net selling price and its value in use. The value in use is determined as the present value of the expected net income from the use of the asset or the group of assets and expected net cash flows from the disposal of the asset or the group of assets after the end of the useful life.

Investments in SubsidiariesInvestments in subsidiaries are measured according to the equity method.

Investments in subsidiaries are measured in the Balance Sheet at the subsid-iaries’ net asset values calculated in accordance with the Group’s accounting policies minus or plus unrealized intra-group profits and losses.

Net revaluation of investments in subsidiaries is shown as a reserve for net revaluation according to the equity method under equity to the extent that the carrying value exceeds the cost. Subsidiary dividends are transferred from the net revaluation to the distributable reserves at the time of distribution.

InventoriesInventories are measured at cost in accordance with the FIFO method. Where the net realizable value is lower than the cost, inventories are written down to this lower value. Cost comprises purchase price plus delivery costs.

Finished goods and work in process are measured at cost, comprising the cost of raw materials, consumables, direct wages and salaries, and indirect production overheads. Indirect production overheads comprise indirect materials and wages and salaries as well as maintenance and depreciation of production machinery, buildings, and equipment as well as factory admin-istration and management. Borrowing costs are not included in the cost.

The net realizable value of inventories is calculated as the sales amount less costs of completion and costs necessary to make the sale, and is deter-mined taking into account marketability, obsolescence, and development in expected selling price.

ReceivablesReceivables are measured at amortized cost. Write-down is made to meet expected losses based on an individual assessment.

Construction ContractsConstruction contracts are measured at the selling price of the work performed.

The selling price is measured on the basis of the stage of completion at the Balance Sheet date and total expected income from the individual contract work. When the selling price of a contract cannot be measured reliably, the selling price is measured at the costs incurred or at net realizable value, if this is lower.

The individual construction contract is recognized in the Balance Sheet under either receivables or liabilities, depending on the net amount of the selling price less prepayments. Net assets are constituted by the sum of the construc-tion contracts where the selling price of the work performed exceeds the amount which has been invoiced on account. Net liabilities are constituted by the sum of the construction contracts where the amount which has been invoiced on account exceeds the selling price.

Selling costs and costs incurred in securing contracts are recognized in the Income Statement when incurred.

Prepayments and Deferred ChargesPrepayments and deferred charges, recognized under current assets, comprise costs incurred concerning subsequent fiscal years.

Equity – DividendsDividends are recognized as a liability at the date when they are adopted at the annual general meeting (declaration date). The expected dividend payment for the year is disclosed as a separate item under equity.

Current Tax and Deferred TaxCurrent tax payable and receivable is recognized in the Balance Sheet as tax computed on the taxable income for the year, adjusted for tax on the taxable income of prior years, and for tax paid on account.

Payable and receivable joint tax contributions are recognized in the Balance Sheet under balances for the Parent Company.

30 ACCOUNTING POLICIES

ACCOUNTING POLICIES 31

Deferred tax is measured using the Balance Sheet liability method on all temporary differences between the carrying amount and the tax value of assets and liabilities. However, deferred tax is not recognized on temporary differences relating to goodwill which is not deductible for tax purposes and other items in which temporary differences – excluding acquisitions – have arisen on the date of acquisition, without affecting the profit/loss for the year or taxable income. Where different tax rules can be applied to determine the tax base, deferred tax is measured on the basis of the planned use of the asset or settlement of the liability, respectively. Adjustment is made to deferred tax resulting from elimination of unrealized intra-group profits and losses.

Deferred tax assets, including the tax value of tax loss carryforwards, are recognized at the expected value of their utilization, either as a set-off against tax on future income or as set-off against deferred tax liabilities in the same legal tax entity and jurisdiction.

Deferred tax is measured according to the tax rules and at the tax rates applicable in the respective countries at the Balance Sheet date.

ProvisionsProvisions comprise anticipated costs related to warranties and losses related to construction contracts in process. Provisions are recognized when, as a result of past events, the Group has a legal or a constructive obligation and it is probable that settlement of the obligation will result in an outflow of financial resources.

Warranties comprise obligations to make good any defects within the warranty period. Provisions for warranties are measured at net realizable value and recognized based on past experience. Provisions expected to be maintained for more than one year from the Balance Sheet date are dis-counted at the average bond interest rate.

If it is probable that the total costs related to a construction contract will exceed the total income, the expected total loss of the construction contract is recognized as a provision.

Liabilities other than ProvisionsFinancial liabilities are recognized at the date of borrowing at the net proceeds received less transaction costs paid. In subsequent periods, the financial liabilities are measured at amortized cost, corresponding to the capitalized value using the effective interest rate. Accordingly, the difference between the proceeds and the nominal value is recognized in the Income Statement over the term of the loan.

Other liabilities are measured at amortized cost.

CASH FLOW STATEMENTThe Cash Flow Statement shows the Group’s cash flows from operating, investing, and financing activities for the year, the year’s changes in cash as well as the Group’s cash at the beginning and end of the year.

Cash Flows from Operating ActivitiesCash flows from operating activities are calculated as the Group’s profit adjusted for non-cash operating items, changes in working capital, corporate tax paid, and receivable/joint taxation contribution.

Cash Flows for Investing ActivitiesCash flows for investing activities comprise payments in connection with capitalized development costs (cash effect), and acquisitions and disposals of other intangibles, property, plant, and equipment, and investments.

Cash Flows from Financing ActivitiesCash flows from financing activities comprise payments to and from the Group’s stockholders and related costs as well as raising of loans and repay-ment of interest-bearing debt.

Cash at Bank and in HandCash at bank and in hand comprises cash reduced by current borrowings in credit institutions.

SEGMENT INFORMATIONRevenue has been allocated according to business segments and geo-graphical markets.

FINANCIAL RATIOSFinancial ratios are calculated in accordance with “Recommendations and financial ratios 2010” of the Danish Society of Financial Analysts.

Definitions of the financial ratios appear in Financial Highlights – Consolidated.

Statement by the Board of Directors and Executive ManagementThe Board of Directors and Executive Management have today discussed and approved the Annual Report of Terma A/S for the 2014/15 fiscal year.

The Annual Report has been prepared in accordance with the Danish Financial Statements Act.

In our opinion, the Consolidated and Parent Company Financial Statements give a true and fair view of the Group’s and Parent Company’s financial position at 28 February 2015 and of the results of the Group’s and the Parent Company’s operations and the Group’s cash flows for the 2014/15 fiscal year.

Further, we consider the Management’s Review to present a fair disclosure of the development in the Group’s and Parent Company’s operations and financial conditions, the results for the year, cash flows, and financial position as well as a description of the most significant risks and uncertainty factors that the Group and the Parent Company face.

We recommend that the Annual Report be approved at the annual general meeting.

Lystrup, 29 May 2015

32 STATEMENT BY THE BOARD OF DIRECTORS AND EXECUTIVE MANAGEMENT

From left: Jens Maaløe, President & CEO and Per Thiesen, Executive Vice President & CFOO

Executive Management

Jens Maaløe President & CEO

Per ThiesenExecutive Vice President & CFOO

STATEMENT BY THE BOARD OF DIRECTORS AND EXECUTIVE MANAGEMENT 33

From left: Flemming H. Tomdrup, Anders Eldrup, Martin Anders Hedegaard, Christina Grumstrup Sørensen, Jørgen Huno Rasmussen, Benny Daugaard Laursen, and Bo Laursen

Board of Directors

Flemming H. Tomdrup, Chairman

Jørgen Huno Rasmussen, Deputy Chairman

Anders Eldrup

Christina Grumstrup Sørensen

Bo Laursen

Martin Anders Hedegaard

Benny Daugaard Laursen

34 INDEPENDENT AUDITOR’S REPORT

Independent Auditor’s Report

TO THE STOCKHOLDERS OF TERMA A/S

Report on the Consolidated and Parent Company Financial StatementsWe have audited the Consolidated and Parent Company Financial Statements of Terma A/S for the 1 March 2014 – 28 February 2015 fiscal year. The Consolidated and Parent Company Financial Statements include Accounting Policies, Income Statement, Balance Sheet, Notes for the Group as well as the Parent Company, and Consolidated Cash Flow Statement. The Consolidated and Parent Company Financial Statements are prepared in accordance with the Danish Financial Statements Act.

Management’s Responsibility for the Consolidated and Parent Company Financial StatementsManagement is responsible for the preparation of Consolidated and Parent Company Financial Statements that give a true and fair view in accordance with the Danish Financial Statements Act and for such internal control that the Management determines is necessary to enable the preparation of Consolidated and Parent Company Financial Statements that are free from material misstatement, whether due to fraud or error.

Auditor’s ResponsibilityOur responsibility is to express an opinion on the Consolidated and Parent Company Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the Consolidated and Parent Company Financial Statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence for the amounts and disclosures in the Consolidated and Parent Company Financial Statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the Consolidated and Parent Company Financial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Group’s preparation of Consolidated and Parent

Company Financial Statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management, as well as evaluating the overall presentation of the Consolidated and Parent Company Financial Statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Our audit has not resulted in any qualification.

OpinionIn our opinion, the Consolidated and Parent Company Financial Statements give a true and fair view of the Group’s and the Parent Company’s financial position at 28 February 2015 and of the results of the Group’s and Parent Company’s operations and Consolidated cash flows for the 1 March 2014 – 28 February 2015 fiscal year in accordance with the Danish Financial Statements Act.

Statement on the Management’s ReviewPursuant to the Danish Financial Statements Act, we have read the Management’s Review. We have not performed any further procedures in addition to the audit of the Consolidated and Parent Company Financial Statements. On this basis, it is our opinion that the information provided in the Management’s Review is consistent with the Consolidated and Parent Company Financial Statements.

Aarhus, 29 May 2015

ERNST & YOUNG Godkendt Revisionspartnerselskab

Jesper Ridder Olsen Jes LauritzenState-Authorized Public Accountant State-Authorized Public Accountant

INCOME STATEMENT 35

Income Statement1 MARCH - 28 FEBRUARY

Note

1,2 Revenue 1,307,814 1,137,009 852,975 753,691 3 Production costs (991,636) (858,018) (654,101) (564,587) Gross profit 316,178 278,991 198,874 189,104 3 Distribution costs (132,994) (120,996) (101,428) (94,980) 3,4 Administrative costs (82,711) (74,003) (48,742) (45,554) Ordinary operating profit 100,473 83,992 48,704 48,570 5 Other operating income 1,718 1,239 30,228 29,369 5 Other operating costs (1,806) (1,295) (4,894) (2,721) Operating profit 100,385 83,936 74,038 75,218 10 Profit in subsidiaries after tax - - 12,628 7,850 6 Financial income 11,784 1,231 14,812 896 6 Financial costs (40,986) (31,299) (32,883) (32,609) Profit before tax 71,183 53,868 68,595 51,355 7 Tax on profit (18,196) (646) (15,608) 1,867 Profit for the year 52,987 53,222 52,987 53,222

Proposed profit appropriation Proposed dividends 10,000 10,000 Reserve for net revaluation according to the equity method 14,540 6,966 Retained earnings 28,447 36,256 52,987 53,222

DKK thousand 2014/15 2013/14 2014/15 2013/14

CONSOLIDATED PARENT COMPANY

Note

ASSETS Non-current assets Intangibles Software 4,309 5,254 4,291 5,215 Software in process 3,503 201 3,503 201 Development projects completed 352,467 321,208 306,016 272,956 Development projects in process 82,402 107,917 82,402 107,917 8 442,681 434,580 396,212 386,289

Property, plant, and equipment Land and buildings 215,867 216,483 215,867 216,483 Plant and machinery 110,078 116,047 13,583 13,346 Fixtures and fittings, tools and equipment 10,733 11,332 6,257 6,163 Property, plant, and equipment under construction 16,870 9,495 16,781 8,999 9 353,548 353,357 252,488 244,991

Investments 10 Investments in subsidiaries - - 297,618 310,813 - - 297,618 310,813

Total non-current assets 796,229 787,937 946,318 942,093

Current assets Inventories Raw materials and consumables 159,630 140,764 111,092 102,276 Work in process 126,918 118,387 106,323 98,181 On-account payments from customers (20,666) (16,153) (19,382) (16,153) Prepayments to suppliers 9,384 1,553 9,384 1,553 275,266 244,551 207,417 185,857

Receivables Trade receivable 226,918 255,232 118,115 135,122 11 Construction contracts 206,036 155,391 147,516 103,596 Amounts owed by Parent Company 3,167 0 3,167 0 Amounts owed by subsidiaries - - 12,858 45,774 Amounts owed by Group companies 155 100 155 100 15 Corporate tax receivable 203 282 0 0 Other receivables 11,786 9,906 5,550 3,363 13 Deferred tax asset 1,444 481 0 0 Prepayments and deferred charges 10,259 10,464 12,760 8,564 459,968 431,856 300,121 296,519

16 Cash at bank and in hand 6,839 21,635 94 14,055

Total current assets 742,073 698,042 507,632 496,431

Total assets 1,538,302 1,485,979 1,453,950 1,438,524

DKK thousand 2015 2014 2015 2014

CONSOLIDATED PARENT COMPANY

Balance Sheet28 FEBRUARY

36 BALANCE SHEET - ASSETS

Note

EQUITY AND LIABILITIES Equity Capital stock 18,000 18,000 18,000 18,000 Net revaluation according to the equity method - - 9,230 22,502 Retained earnings 463,008 462,112 453,778 439,610 Proposed dividends 10,000 10,000 10,000 10,000 12 Total equity 491,008 490,112 491,008 490,112

Provisions Warranty commitments 10,150 7,367 10,150 7,367 Provisions regarding construction contracts 4,647 1,966 4,634 491 13 Deferred tax 112,679 114,045 99,169 93,737 Total provisions 127,476 123,378 113,953 101,595

Liabilities other than provisions

Non-current liabilities other than provisions Credit institutions 172,458 221,188 172,458 221,188 Mortgage credit institutions 221,222 218,331 221,222 218,331 14 393,680 439,519 393,680 439,519

Current liabilities other than provisions 14 Current portion of non-current liabilities 2,364 13,054 2,364 12,366 11 Construction contracts 126,922 100,058 115,179 94,367 Prepayments received from customers 54,177 46,966 21,012 30,651 Trade payables 92,845 67,764 69,367 49,165 Amounts owed to Parent Company 0 9,201 0 9,201 Amounts owed to subsidiaries - - 96,142 72,105 15 Corporate tax 1,902 1,838 0 0 Other payables 247,928 194,089 151,245 139,443 526,138 432,970 455,309 407,298

Total liabilities other than provisions 919,818 872,489 848,989 846,817

Total equity and liabilities 1,538,302 1,485,979 1,453,950 1,438,524

16 Contingent liabilities and security 17 Related party disclosures

DKK thousand 2015 2014 2015 2014

CONSOLIDATED PARENT COMPANY

BALANCE SHEET - EQUITY AND LIABILITIES 37

38 CASH FLOW STATEMENT

Cash Flow Statement1 MARCH - 28 FEBRUARY

Profit from ordinary activities before tax 71,183 53,868

Adjustments: Depreciation and amortization, etc. 74,032 74,756 Reversed provisions 5,464 (1,976) Financial income and costs 29,202 30,067 108,698 102,847

Changes in working capital: Inventories (30,715) (17,930) Receivables (27,824) (82,016) Construction contracts and prepayments from customers 34,075 55,763 Trade payables and other payables 26,027 (31,174) 1,563 (75,357)

Cash flows generated from operations (operating activities) 181,444 81,358 Net financial items, paid and received (30,019) (30,822) Cash flows from operations before tax 151,425 50,536 15 Corporate tax paid (18,273) (811) Cash flows from operating activities 133,152 49,725 8 Capitalized development costs (46,644) (49,843) 9 Acquisition of property, land, and equipment (34,775) (27,600) Cash flows for investing activities (81,419) (77,443) Repayments, non-current liabilities (56,529) (37,470) Dividends paid (10,000) (10,000) Cash flows from financing activities (66,529) (47,470) Net cash flows from operating, investing, and financing activities (14,796) (75,188) Cash at bank and in hand at 1 March 21,635 96,823

Cash at bank and in hand at 28 February 6,839 21,635

The Cash Flow Statement cannot be directly derived from the Balance Sheet and the Income Statement.

CONSOLIDATED

DKK thousand 2014/15 2013/14

NOTES 39

Notes

2014/15

2014/15

2014/15

2014/15

2014/15

2014/15

2013/14

2013/14

2013/14

2013/14

2013/14

2013/14

32% 34%

29% 34%

13% 13%

20%

22% 25%

12% 15%

6% 9%21%

Non-defense

Non-defense

Denmark

Denmark

Aerostructures

Space

Space

Defense & Security

Defense & Security

Defense

Defense

OutsideDenmark

OutsideDenmark

68% 66%

71% 66%

87% 87%

80%

66% 60%

94%79%

91%

2. REVENUE

DKK thousand 2014/15 2013/14 2014/15 2013/14

Goods and services 559,309 552,320 446,904 459,340 Construction contracts 748,505 584,689 406,071 294,351 1,307,814 1,137,009 852,975 753,691

3. STAFF COSTS Parent Company Board of Directors emoluments and Executive Management remuneration 5,590 4,554 5,590 4,554 Wages and salaries 597,228 545,531 374,771 348,554 Pensions and other social security costs 64,730 58,696 36,100 33,249 Other staff costs 4,913 4,765 3,444 3,484 672,461 613,546 419,905 389,841 Average number of full-time employees 1,117 1,065 688 656

CONSOLIDATED PARENT COMPANY

1. SEGMENT INFORMATION - REVENUE

CONSOLIDATED

PARENT COMPANY

40 NOTES

4. FEES PAID TO AUDITORS

DKK thousand 2014/15 2013/14 2014/15 2013/14

Total fees to EY can be specified as follows: Statutory audit 923 890 645 645 Other assurance engagements 16 144 16 144 Tax and VAT 722 1,131 632 969 Other non-audit services 280 486 254 391 1,941 2,651 1,547 2,149

Total fees to other auditors can be specified as follows: Audit 358 286 0 0 Tax and VAT 267 284 17 79 Other non-audit services 299 269 0 0 924 839 17 79

5. OTHER OPERATING INCOME AND COSTS Management fees 1,034 903 24,278 23,628 Rental income 573 295 5,950 5,727 Gain on disposal of non-current assets 111 41 0 14 Other operating income 1,718 1,239 30,228 29,369

Loss on disposal of non-current assets 1,674 38 1,672 0 Costs related to lease obligations 0 1,257 0 0 Costs related to premises rented out 132 0 3,222 2,721 Other operating costs 1,806 1,295 4,894 2,721

6. FINANCIAL INCOME AND COSTS Included in financial income and costs are: Interest income from subsidiaries - - 3,059 852 Interest costs to subsidiaries - - 5,261 2,951 Interest costs to Parent Company 201 309 201 309

7. TAX Joint taxation contribution/current tax 5,301 10,302 4,445 11,732 Deferred tax (749) 8,655 6,646 754 Reduced tax percentage, effect on deferred tax (792) (15,707) (633) (13,149) Total tax 3,760 3,250 10,458 (663)

Specified as follows: Tax on profit 18,196 646 15,608 (1,867) Tax on changes in equity (14,436) 2,604 (5,150) 1,204 3,760 3,250 10,458 (663)

CONSOLIDATED PARENT COMPANY

NOTES 41

8. INTANGIBLES

Development Development Software projects, projects, DKK thousand Software in process completed in process Total

Cost at 1 March 2014 7,737 201 685,559 107,917 801,414 Additions 1,099 3,378 0 46,644 51,121 Transfers 76 (76) 72,159 (72,159) 0 Disposals 0 0 (127,067) 0 (127,067) Cost at 28 February 2015 8,912 3,503 630,651 82,402 725,468 Amortizations and impairments at 1 March 2014 2,483 0 364,351 0 366,834 Amortizations 2,120 0 40,900 0 43,020 Disposals 0 0 (127,067) 0 (127,067) Amortizations and impairments at 28 February 2015 4,603 0 278,184 0 282,787 Carrying value at 28 February 2015 4,309 3,503 352,467 82,402 442,681

Cost at 1 March 2014 7,674 201 628,269 107,917 744,061 Additions 1,099 3,378 0 46,644 51,121 Transfer 76 (76) 72,159 (72,159) 0 Disposals 0 0 (127,067) 0 (127,067) Cost at 28 February 2015 8,849 3,503 573,361 82,402 668,115 Amortizations and impairments at 1 March 2014 2,459 0 355,313 0 357,772 Amortizations 2,099 0 39,099 0 41,198 Disposals 0 0 (127,067) 0 (127,067) Amortizations and impairments at 28 February 2015 4,558 0 267,345 0 271,903 Carrying value at 28 February 2015 4,291 3,503 306,016 82,402 396,212

CONSOLIDATED

PARENT COMPANY

42 NOTES

9. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, Fixtures and and equip- Land and Plant and fittings, tools ment under DKK thousand buildings machinery and equipment construction Total

Cost at 1 March 2014 383,253 310,271 93,037 9,495 796,056 Foreign currency translation adjustments 0 1,404 2,363 0 3,767 Transfers 4,194 848 0 (5,042) 0 Additions 5,764 8,218 3,899 12,417 30,298 Disposals (2,969) (5,955) (2,970) 0 (11,894) Cost at 28 February 2015 390,242 314,786 96,329 16,870 818,227 Depreciation and impairments at 1 March 2014 166,770 194,224 81,705 0 442,699 Foreign currency translation adjustments 0 1,102 1,760 0 2,862 Depreciations 8,901 15,337 5,099 0 29,337 Disposals (1,296) (5,955) (2,968) 0 (10,219) Depreciations and impairments at 28 February 2015 174,375 204,708 85,596 0 464,679 Carrying amount at 28 February 2015 215,867 110,078 10,733 16,870 353,548

Depreciated over 10-50 years 5-10 years 3-7 years

Cost at 1 March 2014 304,954 95,476 68,154 8,999 477,583 Transfer 4,194 352 0 (4,546) 0 Additions 5,764 4,336 2,920 12,328 25,348 Disposals (2,969) (1,910) (2,474) (4,546) (7,353) Cost at 28 February 2015 311,943 98,254 68,600 16,781 495,578 Depreciations and impairments at 1 March 2014 88,471 82,130 61,991 0 232,592 Depreciations 8,901 4,451 2,826 0 16,178 Disposals (1,296) (1,910) (2,474) 0 (5,680) Depreciations and impairments at 28 February 2015 96,076 84,671 62,343 0 243,090 Carrying amount at 28 February 2015 215,867 13,583 6,257 16,781 252,488

Depreciated over 10-50 years 5-10 years 3-7 years

CONSOLIDATED

PARENT COMPANY

NOTES 43

10. INVESTMENTS IN SUBSIDIARIES

DKK thousand

Cost at 1 March 2014 278,368 Additions duing the year 75 Cost at 28 February 2015 278,443 Net revaluations at 1 March 2014 32,445 Translation adjustments at the beginning of the year 7,071 Dividends paid (2,980) Changes in value of hedging instruments (after tax) (29,989) Profit for the year 12,628 Net revaluations at 28 February 2015 19,175 Carrying amount at 28 February 2015 297,618

Name Registered office Ownership Capital stock Terma Aerostructures A/S Grenaa, Denmark 100% DKK 5,000 thousand Terma Ejendomme Skive A/S Aarhus, Denmark 100% DKK 1,150 thousand Terma GmbH Darmstadt, Germany 100% EUR 51 thousand Terma B.V. Leiden, The Netherlands 100% EUR 750 thousand Terma North America Inc. Delaware, USA 100% USD 150 thousand Terma Singapore Pte. Ltd. Singapore, Singapore 100% SGD 100 thousand Terma (UK) Ltd. London, United Kingdom 100% EUR 10 thousand

11. CONSTRUCTION CONTRACTS

DKK thousand 2015 2014 2015 2014 Selling price of construction contracts 1,229,275 1,080,552 830,012 773,283 Invoiced on account (1,150,161) (1,025,219) (797,675) (764,054) 79,114 55,333 32,337 9,229

Recognized as follows: Construction contracts (assets) 206,036 155,391 147,516 103,596 Construction contracts (liabilities) (126,922) (100,058) (115,179) (94,367) 79,114 55,333 32,337 9,229

CONSOLIDATED PARENT COMPANY

44 NOTES

12. EQUITY

DKK thousand 2014/15 2013/14

Equity at 1 March 490,112 439,873 Dividends paid (10,000) (10,000) Profit for the year carried forward 42,987 43,222 Proposed dividends 10,000 10,000 Translation adjustment relating to foreign entity 5,157 (796) Changes in value of hedging instruments, etc. (before tax)* (61,684) 10,417 Tax on changes in value of hedging instruments 14,436 (2,604) Equity at 28 February 491,008 490,112

* All USD contracts are hedged. The development is primarily due to USD forward contracts entered into before the increase in USD exchange rate incurred.

Net revaluation Profit Capital according to the carried Proposed DKK thousand stock equity method forward dividends Total

Equity at 1 March 2014 18,000 - 462,112 10,000 490,112 Dividends paid - - - (10,000) (10,000) Profit for the year carried forward - - 42,987 10,000 52,987 Translation adjustment relating to foreign entity - - 5,157 - 5,157 Changes in value of hedging instruments, etc. (after tax) - - (47,248) - (47,248) Equity at 28 February 2015 18,000 - 463,008 10,000 491,008

Equity at 1 March 2014 18,000 22,502 439,610 10,000 490,112 Dividends paid - - - (10,000) (10,000) Dividends received from subsidiaries - (2,980) 2,980 - 0 Profit for the year carried forward - 14,540 28,447 10,000 52,987 Translation adjustment relating to foreign entity - 5,157 - - 5,157 Changes in value of hedging instruments, etc. (after tax) - (29,989) (17,259) - (47,248) Equity at 28 February 2015 18,000 9,230 453,778 10,000 491,008

Capital stock consists of: 1 stock at MDKK 18 The capital stock has remained unchanged during the preceding five years.

CONSOLIDATED

CONSOLIDATED

PARENT COMPANY

NOTES 45

13. DEFERRED TAX

DKK thousand 2014/15 2013/14 2014/15 2013/14

Deferred tax at 1 March 113,564 120,061 93,737 105,841 Transferred to corporate tax payable (701) 291 (581) 291 Foreign currency translation adjustments (87) 264 0 0 Adjustment for the year (749) 8,655 6,646 754 Reduced tax percentage (792) (15,707) (633) (13,149) Deferred tax at 28 February 111,235 113,564 99,169 93,737

Recognized as follows: Deferred tax asset (1,444) (481) 0 0 Deferred tax 112,679 114,045 99,169 93,737 111,235 113,564 99,169 93,737

Deferred tax relates to: Intangibles 96,789 95,904 85,977 84,485 Property, plant, and equipment 27,467 26,573 16,136 16,501 Current assets 9,673 3,775 8,630 3,788 Liabilities other than provisions (17,944) (1,854) (6,824) (798) Tax loss carryforward (4,750) (10,834) (4,750) (10,239) 111,235 113,564 99,169 93,737

CONSOLIDATED PARENT COMPANY

46 NOTES

14. NON-CURRENT LIABILITIES OTHER THAN PROVISIONS

Current share Loans Long-term of long-term outstanding DKK thousand liabilities liabilities after five years

Credit institutions 172,458 0 0 Mortgage credit institutions 221,222 2,364 174,523 393,680 2,364 174,523

15. CORPORATE TAX PAYABLE

DKK thousand 2014/15 2013/14 2014/15 2013/14

Corporate tax payable at 1 March 1,556 1,258 0 0 Transferred from deferred tax 701 (291) 581 (291) Tax for the year/joint taxation contribution 5,301 10,302 4,445 11,732 Corporate tax paid during the year (18,273) (811) (14,838) 0 Transferred to intra-group balances 12,414 (8,902) 9,812 (11,441) Corporate tax payable at 28 February 1,699 1,556 0 0

Recognized as follows: Corporate tax receivable (203) (282) 0 0 Corporate tax payable 1,902 1,838 0 0 1,699 1,556 0 0

CONSOLIDATED PARENT COMPANY

CONSOLIDATED/PARENT COMPANY

NOTES 47

16. CONTINGENT LIABILITIES AND SECURITY

DKK thousand 2015 2014 2015 2014

Contingent liabilities Lease liabilities (operating leases) falling due within five years 24,230 23,529 5,965 5,099 No lease liabilities are due after more than five years. The Group’s Danish companies are jointly liable for joint registration of VAT.

Terma A/S is a party, as the plaintiff, to a court dispute with the Polish Ministry of National Defence regarding an EW program. Our claim is MDKK 164. Early 2015, a counter claim was filed to the defendant amounting to approx. MDKK 116 (MPLN 64), including repayment of the advanced payment. The asset recognized in the Balance Sheet at 28 February 2015 in respect of the said program represents work completed. It is the opinion of the Executive Management that the outcome of the court dispute will not negatively affect the Group’s and the Parent Company’s financial position as reflected in the Balance Sheet at 28 February 2015. Terma A/S including Danish subsidiaries is jointly taxed with Thrige Holding A/S. Within the taxation group, the Company is jointly and severally liable in line with the other Group members for payment of corporate income tax and withholding tax in Denmark. As of 2013/14, the net obligations of the jointly taxed companies towards the Danish Central Tax Administration (SKAT) appear from the Thrige Holding A/S (CVR No. 26 31 16 83) annual accounts. Any corrections to the joint taxation income and withholding tax appearing at a later time may result in the company being liable for a larger amount.

Security The following assets have been provided as security for loans: Carrying amount of land and buildings 215,867 216,483 215,867 216,483 Other property, plant, and equipment estimated to be comprised by the collateral, cf. the provisions of the Danish Registration of Property Act 120,811 121,920 19,840 19,509 Terma A/S – acting as the Parent Company – has issued a letter of intent to third parties in connection with the establishment of credit facilities for its subsidiaries at a total amount of - - 36,336 24,384

17. RELATED PARTY DISCLOSURES Terma A/S is a wholly owned subsidiary of Thrige Holding A/S (CVR No. 26 31 16 83), which is wholly owned by the Thomas B. Thrige Foundation (CVR No. 10 15 62 11).

Terma A/S’ related parties exercising significant influence comprise the Board of Directors, Executive Management, managerial staff, and their family members. Further, related parties comprise companies in which the above-mentioned persons have substantial interests.

Apart from the intra-group transactions which have been eliminated in the Consolidated Financial Statements and the usual remuneration and emoluments, no transactions have been concluded relative to the Board of Directors, Executive Managers, managerial staff, major stockholders, or other related parties.

CONSOLIDATED PARENT COMPANY

www.terma.com