THE DIRECTORS' REPORT 

Avantor developed steadily and profitably in 1997. The Group continued to concentrate its property portfolio in the Nydalen area and the development of plots in Nydalen continues at a rapid pace. The combination of healthy demand and low interest rates means that development is still an attractive proposition despite increases in construction costs. 

KEY EVENTS IN 1997  

Avantor continued to develop Nydalen during 1997 and completed approx. 31,000 sq.metres of office, storage and parking space with a rental level of approximately NOK 21 million. Work has commenced on a further 33,000 sq.metres of office accommodation for completion in 98/99 with an estimated rental level in the region of NOK 46 million. 

Total rental income in 1997 amounted to NOK 220.7 million and operating profit II totalled NOK 122.6 million. The result before taxes was NOK 8.4 million and the result after tax costs was - NOK 0.2 million. 

During 1997 the Group renegotiated and concluded new contracts of lease on a total of about 55.000 sq.metres. At yearend the vacancy rate stood at 2.8% with a total rental level of approximately NOK 244 million. 

In June of 1997 Oslo City Council decided in principle to lay a subway circuit around Oslo with a station located in central Nydalen. 

OPERATING REVENUES AND RESULT  

Avantor has in recent years sold off a considerable number of properties outside Nydalen and the activities of the Company are now to an even greater extent than in the past concentrated on urban development and the construction of new properties in Nydalen. The completion of Gullhaugveien 9-13 and Nydalsveien 28 will be key projects in this development process. 

Rental income 
Total rental income in 1997 amounted to NOK 220.7 million compared with NOK 225.8 million in 1996. The reduction was due to the loss of rental income as a consequence of the sales of AS Kvadraturen, E.C. Dahls Eiendom AS and Ski Business Park. This was largely offset by Gullhaugveien 9-13 of which NetCom took possession in July 1997. 

Operating profit I 
Operating profit I amounted to NOK 135.3 million as against 130.9 million in 1996. 

Operating profit II 
The profit after gains on sales and refurbishment costs amounted to NOK 122.6 million compared with NOK 349.4 million in 1996. The lower result was due to a reduction in gains on sales. As a result of extensive refurbishment projects in 1997, refurbishment costs in a total amount of NOK 25.4 million have been charged against profits. Most of this figure relates to the refurbishment of Nydalsveien 28 for Posten SDS AS which is now under way. 

Balance Sheet 
As at 31 December 1997 Avantor's Balance Sheet stood at NOK 2,678.6 million. Book equity totalled NK 398.4 million. This represents a book equity ratio of 14.9%, compared with 14.4% in 1996. 

Short-term interest-bearing debt comprises the convertible bond loan which was reduced to NOK 85.3 million as at 31 December 1997. In 1996 short-term debt totalled NOK 293.2 million. 

Liquidity 
Cash flow before taxes amounted to NOK 57.3 million as against NOK 310.3 million in 1996. The cash flow from operations before gains on sales and refurbishment expenses amounted to NOK 70.1 million, compared with NOK 76.9 million in 1996. Liquidity remained satisfactory throughout the year. To secure its freedom of action it is the policy of the Group to maintain a high degree of liquidity.  

INVESTMENTS  
Total investments in 1997 amounted to approx. NOK 370 million, most of which related to Gullhaugveien 9-13 and Nydalsveien 28. 

It is the objective of the Company that future development in Nydalen should proceed in such a way that completed facilities as far as possible can operate independently of construction. Avantor is also upgrading outdoor areas to ensure that landscaping proceeds in pace with construction.  

DEVELOPMENT PLANS  

The zoning plan for Nydalen Park was adopted by Oslo City Council on 15 March 1995. The plan opens the way for the construction of commercial premises covering approx. 25,000 sq.metres with a new structure on a site adjoining the Maridal Road to be called "Utsikten" (the View) with a gross area of 9,500 sq.metres, and a further new building at Gjerdrums vei 21 to be called "Huset ved Dammen" (the House on the Pond) of 7,500 sq.metres, constituting the most important projects. 

The development plan for the north-eastern subsections of Nydalsbyen were adopted by the Town Planning Committee on 20 September 1995. The plan opens the way for new commercial buildings in the area around Gullhaugveien. Approx. 40,000 sq.metres remains, largely in the areas of the plots Gullhaug Torg 4 and Gullhaug Torg 5. 

In December of 1997 Avantor sent out a report containing an account of the new measures planned for Nydalsbyen. The report contained a proposal for a development program beeing prepared in accordance with ¤ 33-3 of the Planning and Building Act with regulations which require an impact study. The measures comprise a total of four subsections for commercial buildings in the southern area of Nydalen, approx. 95% of which would be office accommodation. The zoning plan for the area had already been submitted in February 1997. The plans regulate the sub-plots "Havnajordet", Nydalsveien 28-30, Nydalstorget and Sandakerveien 116-118. This represents a total of approx. 141,000 sq.metres, which, roughly estimated, would entail investments of the order of NOK 2 billion. The order of development and the progress of the other plots will have to be considered in relation to the market for newbuildings and the letting of office accommodation. 

LETTING AND OPERATIONS  

Avantor continued to develop Nydalen in 1997 and completed in the region of 31,000 sq.metres of office, storage and parking space with a total rental value of approx. NOK 21 million. Construction work has commenced on a further 33,000 sq.metres of office accommodation which will be completed in 98/99 and have a rental value of approx. NOK 46 million.  

During 1997 the Company let and renewed contracts on a total of 54,800 sq.metres representing a rental value of NOK 58 million. Nydalen accounts for 90% of this figure. 

During the year the Marketing Department implemented a major campaign to let new premises with excellent results. Avantor registered a favourable development in rental prices in all market sectors. 

Our contact with the market is good and we have continued to give high priority to our relationship with estate agents in that once again in 1997 a seminar was organized in Nydalen for this group.  

Value based percentage let is 97.2% as against 95.6% in 1996, and the remaining terms of leases average 6.0 years. 

Avantor focuses a great deal of attention on the operation of our properties. A customer centre was established during 1997 which acts as an intermediary with our tenants and is intended to ensure that all approaches are actioned. We regard this customer centre as an essential part of our efforts to achieve a customer-oriented organization. 

The Company's operating costs are still very competitive and, as in 1996, account for 16.4% of revenues. This does not include refurbishment costs carried to expense. 

Priority continued to be given to the work on developing internal control procedures in 1997. Reporting tools are in place and a computerized system covering all the Company's procedures within health, environment and safety and internal control is nearing completion. In addition, the Company gives priority to the training of its operational personnel. The safety procedures in the properties work smoothly. This means regular fire drills, the upgrading of fire equipment in older properties and a 24 hour security scheme as well as normal caretaking services. 

Oslo, 17 February 1998 
The Board of Directors of Avantor ASA 

Kjell Inge Røkke | Jan Petter Storetvedt | Carl Erik Krefting (chairman) 
Truls Holthe | Gøte Dahlin | Christian Joys (CEO) 

 
The Board of Avantor ASA