Annual Report 2005 by OEM International

Annual Report 2005

Annual General Meeting The Annual General Meeting will be held on Tuesday 25 April 2006 at 4 p.m. at Stadshotellet, Storgatan 22, Tranås, Sweden.

If the Annual General Meeting adopts the proposal, it is expected that dividends will be distributed on Thursday 04 May 2006 to those entered in the share register on the date of issue.

Business The agenda and business of the Annual General Meeting will be notified through advertisements in

Notification

the daily press and will also be available on

Shareholders wishing to attend the Annual

OEM’s website (www.oem.se). The agenda can

General Meeting must:

also be obtained from the company when regis-

❚ be entered in the share register held by the

tering to attend the meeting.

Swedish Securities Register Centre (VPC AB) by Wednesday 19 April 2006. ❚ notify the company no later than Friday 21 April 2006 before 1 p.m.:

Future reports Q1 Report, January-March

25 April 2006

Half-yearly Report

27 July 2006

Interim report OEM International AB,

Financial Statement,

Box 1011, SE-573 28 Tranås, SWEDEN,

financial year 2006

Telephone: +46 (0)140-36 00 00 or

Annual Report

25 October 2006

February 2007 March/April 2007

Email: info@int.oem.se

Visit us at www.oem.se Shareholders who have registered their shares in

The latest information about the company is

the name of an authorised agent must, no later

available on our website. Feel free to order a

than Friday 19 April 2006 , temporarily register

newsletter to ensure you receive regular

the shares in their own name with VPC in order

e-mails about what is happening.

to participate at the Annual General Meeting.

Dividend The Board of Directors propose that the Annual General Meeting issue a dividend of SEK 7 per share for 2005 and stipulate Wednesday 28 April 2006 as record date.

ontents c to s es c c a sy ea r o F nnual while reading t he laap and repor t, open t he f lay f lat.

Share trends

Contents Annual General Meeting – Future Reports

This is OEM International

3-4

History

3-4

2005 in Brief The Managing Director’s Comments

6-7

Vision

Business concept

www.oem.se

Financial objectives

Growth strategy Employees

OEM has been listed on the Stockholm Stock Exchange since 1983. More information about OEM is available on our website.

11 12-13

Quality, the environment and ethics 14-15 Board of Directors

16-17

Senior Management

18-19

Group structure

20-21

■

OEM Automatic

22-23

■

OEM Electronics

24-25

■

Cyncrona

26-27

■

JMS Systemhydraulik AB

28-29

■

Development

30-31

This is OEM International OEM International is one of Europe’s leading companies in the industrial components

OEM Automatic and Partex

OEM Electronics and CashGuard

JMS Systemhydraulik and Holms

Cyncrona and Hansa Electronics

23 operational units in eight countries

Financial reporting

with its head office in Tranås, Sweden.

Five-year Group overview

Key indicators for the last five years

Directors’ report

and systems trade. The Group comprises

SUPPLIERS

Financial reports – the Group Income statement Balance sheet

to their distinct brand concepts while one group, Development, is a collection of other business activities.

CUSTOMERS

41 42-43

Changes in shareholders’ equity

Cash flow statement

Financial reports – Parent company Income statement Balance sheets

Company Groups The Group is divided into five company groups. As of 2006, four groups are organised according

OEM is as an alternative to manufacturers’ own local sales companies and

OEM Automatic

OEM Electronics

Cyncrona

JMS Systemhydraulik

Development

thereby has marketing and sales responsibility for the products with

Components for industrial automation within the business areas of Electrical Machinery, Electrical Cabinets, Safety, Cables, Pressure & Flow and Pneumatics.

Appliance components, circuit board components and EMC/microwave components.

Production equipment, support and material for electronics production as well as test equipment for circuit boards, microelectronics and printed circuit boards.

Pumps, motors, valves, miniature units as well as construction and production of hydraulic units and complete hydraulic systems for mobile and industrial applications.

Warehouse and warehouse solutions, motors and transmissions, seals and pumps

which the company deals. Customers are offered extensive product and 46

application knowledge and a broad spectrum of components and systems.

47-48

Changes in shareholders’ equity

Cash flow statement

Notes with accounting principles and financial statements

51-73

Proposed allocation of profits

Audit report

OEM shares

76-77

Ownership structure

Key indicators for OEM shares

Ownership data

Share capital trend

Notes

80-83

Addresses

84-85

Definitions

1974

1981

1983

1986

The agency company OEM Automatic AB is founded by the Franzén and Svenberg families.

The first overseas subsidiary is established in Finland.

The company is Industri AB introduced on Reflex is the Stock acquired. Exchange’s OTC list. Sales amount to about SEK 30 million.

1988

1989

1991

1993

1996

1997

1998

1999

2000

Sales exceed SEK 100 million for the first time.

The first subsidiary outside Scandinavia is established in the UK.

OEM International AB is formed and becomes the Group’s parent company. The electronics product area breaks away from OEM Automatic to form a separate company, OEM Component.

The A. Karlson Group is acquired.

New Group structure. The companies are divided into two subgroups: OEM Industrial Components AB and OEM Systemteknik AB.

OEM International AB and Cyncrona AB, also listed on the OTC list, merge. Cyncrona becomes a third subgroup.

A number of corporate acquisitions are completed.

The company Jörgen Zahlin establishes is appointed itself in Italy new MD. though one of four corporate acquisitions made this year.

2002

2003

2004

2005

OEM suffers significant reduction in sales due to downturn in telecommunications.

The Group stabilises at sales 30% lower than in 2001. Industri AB Reflex is sold off.

2004 OEM Acquisition of celebrates Telfa AB 30th anniversary. Continued restructuring and streamlining increase profit by 55%.

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2005 in Brief The Group in figures

Growth and continued streamlining 2005

2004

SEK million

1525

1406

financial items*

SEK million

123,6

89,3

Profit for the year

SEK million

88,8

63,7

Earnings per share*

SEK

11:73

8:41

Cash flow per share*

SEK

10:92

11:90

Shareholders’ equity per share* SEK

63:14

56:13

Net sales

measures entailed:

Profit after net

Proposed dividend per share

SEK

7:00

5:50

Return on shareholders’ equity

19,7

15,4

Equity/assets ratio

62,5

59,6

SEK

163:50

118

SEK million

1238

893

Number

541

571

Quoted price at the end of the period Market value at the end of the period Average number of employees *)

The key indicators are calculated based on the number of shares on the market.

❚ 8% sales growth to SEK 1,525 million (1,406). ❚ 13% sales growth for comparable units. ❚ 38% increase in profit before tax to SEK 124 million (89.3). ❚ Business in Italy divested and decision taken to concentrate activities to northern Europe. ❚ Acquisition of Telfa AB which is active in pumps and has a turnover of about SEK 40 million. ❚ Decision taken to introduce new Group structure as of turn of the year 2005/2006.

Trend per company group Automation increased sales by 9% to SEK 605 million and profit by 11% to SEK 74.7 million, despite divestment of the company in Italy. Electronic increased sales by 7% to SEK 305 million and profit by 26% to SEK 24.7 million. Mechanics’ sales dropped from SEK 194 million to SEK 172 million and profit from SEK 6.1 million to SEK 5.1 million. Hydraulics increased sales by 13% to SEK 157 million and profit by 283% to SEK 11.1 million. EP increased sales by 19% to SEK 284 million and profit from SEK –0.5 million to SEK 18.5 million. (Presented according to former Group structure)

“OEM strives to be a leading player in the trading of industrial components and systems in northern Europe.”

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The Managing Director’s Comments I am both pleased and proud to sum up yet another prosperous year for OEM.

Sales increased in 2005 by 7% and profit by 26%. Group Mechanics suffered an interruption at the start of the year when we coordinated business activities. We judged that gains from coordination were considerably less than predicted. Business

There was a good demand for our goods through-

activities are instead conducted based on each

out the year which, coupled with climbing market

company’s specific circumstances. The Group has,

shares generated an 8% growth in sales. Comparable

after divesting parts of the business, diminished sales

units increased sales by 13%. Profit climbed 38%

from SEK 194 to SEK 172 million. However, profit

due to growth and continued streamlining initiatives.

has dropped from SEK 6.1 million to SEK 5.1 million.

2005 marks the fourth consecutive year of

Within group Hydraulics, we decided in May to

substantial income growth. Subsequently, we have

merge the units into one company. This proved to

realised our financial objectives of 15% income

be a fortunate move. We have created a more effective

growth, more than 20% return on shareholders’

organisation and intensified our range of customer

equity and a debt/equity ration not under 35%.

products. The organisational restructuring has

“I am proud of the results that all have worked together to achieve and look forward to 2006 when we, fortified by our successes can focus on continued growth in sales and earnings.”

consumed a great deal of energy. Nonetheless, we managed to boost sales by 13%, migrating from a profit of SEK 2.9 million to a profit of SEK 11.1 million. 2005 was also good for Group Electronics Production. Sales climbed 19% and profit grew from SEK -0.5 million to SEK 18.5 million. The

These achievements are backed by intense

market for electronic production equipment has

efforts to coordinate and concentrate business

undergone major change. We have altered our

activities, which in turn lead to better efficiency.

product range to adapt our business to the new conditions. New suppliers have been launched,

Escalating profits over all

others have been discontinued.

Automation, which answers for 40% of the Group,

increased sales by 9% and profits by 11%. In line

Greater focus on acquisition

with the strategy to focus business activities to

We again expanded our acquisition activities in 2005.

northern Europe, we sold off the business in Italy and

In August, we took over Telfa AB, a company that

set up an organisation in Estonia. We have also

markets pumps. The company has a turnover of

decided to set up businesses in Latvia and Lithuania.

about SEK 40 million and a profit of about SEK

Electronics was restructured with the merger

3 million. The acquisition is OEM’s first since 2001

of six companies into three operating under the

and has so far fulfilled our expectations. We have

name OEM Electronics. This improved efficiency

also evaluated about ten more acquisitions.

and made us a stronger partner for our suppliers.

We found however that they lacked sufficient

OEM ANNUAL REPORT 2005 ❚ THE MANAGING DIRECTOR’S COMMENTS

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potential or did not suit our business. Acquisition continues to play an important part in our expansion strategy and we will constantly assess new corporate acquisitions.

Coordination within development and communication Coordination within development of our product range and market communication has enabled us to quickly launch new product areas. During the year we expanded our partnerships with several suppliers and carried out many major product launches that transcended national boarders. This strengthens collaborations with our suppliers and makes our market activities more effective.

Warehouse coordination for better customer service We are streamlining logistics and improving customer service within all segments of the Group. One example of the changes made during the year includes relocating the Danish warehouse for OEM Automatic to Sweden. As of November, deliveries to the Danish market are sent from the Swedish warehouse. This allows us to offer higher delivery capacity, better service and a broader product range while eliminating one warehouse. Comparable changes are planned for Norway in 2006.

New Group structure The Group has a new structure as of the turn of the year. Four of the five company groups are now based on their specific brand concepts. These four are OEM Automatic, OEM Electronics, Cyncrona and JMS Systemhydraulik. The fifth group of companies, Development, will consist of other business activities. It is this groupâ&#x20AC;&#x2122;s ambition to create the necessary conditions to develop new, strong brand concepts while allowing space for new ideas and ventures.

Managing our success Development and change are prominent characteristics for OEM and essential if we are to uphold our competitiveness. I am convinced that the success of the past years will encourage the entire company to continue to grow. I am proud of the results that all have worked together to achieve and look forward to 2006 when we, fortified by our successes can focus on continued growth in sales and earnings.

JĂśrgen Zahlin

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Vision Our vision “OEM strives to be a leading player in the trading

Industrial components and systems

of industrial components and systems in northern

Our product range stretches from basic mechanical

Europe.”

components such as seals and couplings to complete manufacturing systems for circuit

Being a leading player means:

boards, for instance. OEM chooses to trade in

❚ Having a level of knowledge and service-

products that allow the company to add value

mindedness that is among the very best in

and gain a substantial market share by being an

each industry.

alternative to suppliers’ own sales company.

❚ Marketing components and systems that live up to or exceed customer expectations. ❚ Making our suppliers market leaders in their particular fields. ❚ Having a level of efficiency that makes us more profitable than our competitors. ❚ Creating opportunities for employees to

By adding new products and discontinuing others we constantly develop our range. Each company markets a clearly defined product range which, coupled with the added value of the organisation, forms a brand concept. The goal is to develop strong concepts that can be launched on several geographical markets.

realise their ambitions.

Northern Europe

“OEM strives to be a leading player in the trading of industrial components and systems in northern Europe.”

Most of OEM’s business activities are in Sweden but it views northern Europe as its market. Brand concepts will be launched on new markets after they have been established on the domestic market, which expands the share outside Sweden.

The essence of our vision forms the basis for the

The company has operations in Sweden, Finland,

culture within the Group. We create a competitive

Norway, Denmark Poland, Estonia and the UK.

Group by constantly questioning and addressing

While there remains great potential for growth on

the essence of our vision.

these markets, new geographical markets will be assessed.

OEM ANNUAL REPORT 2005 ❚ VISION

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Business concept Our business concept

An efficient logistics apparatus enables us to adapt

OEM is a technology trading Group operating in northern

purchasing volumes, stock levels and transport methods

Europe. Our product range consists of industrial

for maximum competitiveness.

components and systems from suppliers that are each specialists in their fields.

OEM’s wide, extensive product programme allows the company to customise its offers to best suit the

The operating companies are to adapt their actions

needs of our customers. At the same time, suppliers

to the specific conditions that apply in each business

gain access to customer groups that they themselves

area, and satisfy the interests of customers, suppliers,

have difficulty contacting.

employees and shareholders in an effective manner.

Business logic

Group affiliation strengthens competitiveness

In simple terms, OEM operates as an alternative to

Belonging to a group with a clear focus improves the

the manufacturers’ own local sales companies.

conditions for the company to grow. This means,

The Group collaborates with around 300 suppliers

among other things:

and has some 20,000 buying customers. OEM is in charge of marketing and sales for products the

❚ Economies of scale. A centralised infrastructure and

company trades.

administration makes it more possible for operating units to focus on business. Logistics, range development

SUPPLIERS

CUSTOMERS

Alternative to suppliers’ own sales company

and market communication is coordinated at company

groups level which intensifies our competitiveness and makes us more cost effective.

To our suppliers, OEM is a partner that has: ❚ competence and financial strength to make market investments

❚ Stimulated by each other’s success. The businesses are continuously compared and

❚ knowledge of the market in question

internal ranking lists stimulate both cross-company

❚ national organisations that transcend cultural

learning and better performance.

divides ❚ Creating opportunities for employees to grow. To our customers, collaboaration with OEM means:

Developing a company means developing people.

❚ access to a wide, extensive range from specialised

As the company develops, career opportunities are

manufacturers ❚ quick, high delivery capacity via effective warehouses

created for employees both internally within the company and within the Group.

❚ the possibility to reduce the number of suppliers. ❚ broad product and application knowledge

BUSINESS CONCEPT ❚ OEM ANNUAL REPORT 2005

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Financial objectives OEM’s objective, during a

Three years marked by restructuring and streamlining have produced substantial growth in profit,

period of strong and stable

enabling us to achieve all financial goals in 2005.

growth, is to achieve good

To continue to achieve our objectives, our strategy is to maintain a balance between growth and profit.

return on shareholder’s equity

The growth strategy and growth target will be

with limited financial risk.

adjusted annually. Changes in the surrounding world, cyclical fluctuations and potential for

Objectives for one business cycle are:

acquisitions are factors that mean the Group must

❚ 15% annual growth in profit

always be prepared for new conditions and not

❚ 20% return on equity

hesitate to introduce structural reforms that

❚ Equity/assets ratio must not fall below 35%

increase our competitiveness. Over the last three years, we have achieved the following targets: 75

“Three years marked by restructuring and streamlining have produced substantial growth in profit, enabling us to achieve all financial objectives in 2005.”

OEM ANNUAL REPORT 2005 ❚ FINANCIAL OBJECTIVES

10 25

25 5

Growth in profit

Return on equity

Equity/assets ratio

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Growth strategy Growth is central for the OEM Group. Our growth strategy

Acquisitions The Group has a history in which acquisitions have played an important role in our growth strategy.

is based on three parts:

Telfa AB was acquired in 2005, marking the first

Organic growth

acquisition since the telecommunications market

OEM’s objective is a 10% organic growth. This will

financial strength to continue to assess and carry

be achieved by:

out acquisitions.

plummeted. OEM has both the resources and

❚ Development of our product range ❚ Expanding our market shares

Acquisitions can be made at three different levels: ❚ Supplementary acquisitions

Increased focus on developing customer/supplier

A company or product range are incorporated

relationships, product offers and service will

into an existing company.

improve competitiveness and enable us to capture further market shares. Organic growth is evidence

❚ Complementary acquisitions

of satisfied customers and that what we offer is

A company that fits in and continues to

also attractive to new customers. New supplier

operate as an individual company within

cooperations are an essential aspect of organic

Development.

growth. To justify our existence, organic growth is necessary over time.

❚ Strategic acquisitions

Geographical expansion

A brand-new product area with significant

By launching established brand concepts on new

a company on a new geographical market.

turnover that becomes a new concept, or

markets, we create new expansion possibilities. Our geographical expansion efforts in 2006 will

Regardless of the level, it is crucial that the

primarily be distinguished by continued work with

acquired company can develop positively

organisations still lacking a profitable, stable platform.

within the OEM Group and that our integration

❚ OEM Automatic, Estonia

strategy allows for both economies of scale

❚ OEM Electronics, Poland

and aggressive initiatives.

❚ Internordic, Finland and Denmark ❚ Cyncrona, Estonia. Telfa AB was acquired in 2005, marking the first acquisition since the telecommunications market plummeted. See note 3, page 57 for more information.

GROWTH STRATEGY ❚ OEM ANNUAL REPORT 2005

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Employees OEM needs skilled, competent employees to be able

Vacant positions are often filled through internal recruitment to maintain continuity for the customer and give our employees the opportunity to develop.

to live up to its vision of

For instance, an employee may start as a sales-

becoming a leading player in

person, advance to sales manager and thereafter become managing director of a company.

the industrial components and systems trade.

Personal commitment Flat organisations create responsibility, participation and commitment. The reason for this is annual

Everyone in the organisation contributes to the

development discussions between each employee

image of OEM, and our activities are based on

and manager. Moreover, we have an open,

good relationships with suppliers and customers.

continuous exchange of information in the

For these relationships to work, our employees

organisation. The work is controlled based on

must be satisfied and develop in the organisation

individual targets, which gives the employee

and we must create opportunities for our

greater freedom.

employees to realise their own ambitions.

Strong corporate culture

and employees, the following aspects are discussed:

in-house at OEM. Attracting, retaining and developing

fulfilment of objectives, development and the need

good leaders and employees is top priority.

for training. An individual in-service training plan is prepared during the course of this discussion.

internally, which is a means of strengthening our

Competence development efforts are primarily

corporate culture. Our aim is over time to build a

conducted at company level where various types

culture that ultimately results in the content of the

of in-house training programmes are arranged.

vision also becoming our identity. It is our employees

During the annual discussions between managers

Our strategy is to recruit young employees to train

One objective is to recruit 75% of our managers

Everyone in the organisation contributes to the image of OEM, and our activities are based on good relationships with suppliers and customers.

Competence development

The Group also has is a well-developed concept

that generate the results and long-term create

for sales training at different stages. OEM has its

value for our shareholders. To retain and recruit

own data support group for Movex business

competent personnel, OEM must be able to offer

systems, which continually provide in-house

attractive terms and a good workplace with

training for administrative personnel. There are

excellent opportunities for growth.

several different types of management programmes at management level.

Career opportunities

Our sellers and product managers must always

There are excellent opportunities to develop both

be sensitive to market changes and requirements.

personally and professionally at OEM.

Market information is passed on to our suppliers,

OEM ANNUAL REPORT 2005 â?&#x161; EMPLOYEES

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Our sellers and product managers must always be sensitive to market changes and requirements.

which means that we form an important link in

Equal opportunities

the development of future products.

We currently have unequal distribution between

Our key product personnel regularly visit our

men and women. This is because most positions

suppliers to pass on market information and

in the Group require technical training and only a

ensure quality in development and production,

few women apply for these jobs.

and to receive training from the supplier.

The reason for this is the low number of women

Trainee programmes

taking technical courses. Of around 320 employees

A trainee programme will begin in 2006 aimed at

are women.

ensuring long-term supply of employees in key positions. The programme will create the necessary

in the aforementioned positions, only a handful

100 Women

Today, most of our female employees are

441 Men

involved in finance, administration and marketing. We are striving to ensure a more even distribution of

conditions for successful future efforts within the

men and women in our companies and encourage

OEM Group — a holistic outlook, broad network,

a greater interest in technical position from female

unique skills and personal growth.

applicants.

Working environment A good working environment is a prerequisite for

Distribution men/women (total 541)

Sweden

Finland

employees being happy at work. The foundation is that employees must have a safe and healthy

Other Nordic countries

workplace. The objective is for employees to feel a sense of job satisfaction, community and security. The companies encourage personnel to participate in various fitness activities and work with contracted preventive healthcare.

Outside the Nordic region 0

100

200

300

Employees divided per country (total 541)

EMPLOYEES ❚ OEM ANNUAL REPORT 2005

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Quality, the environment and ethics OEM’s overall quality policy means that products and services must meet or exceed customer expectations.

The environment The OEM Group’s environmental policy dictates continuous efforts to minimise our external environmental impact. Environmental work will be governed by legal requirements as well as what is financially feasible, technically possible and

Our objective is that customers will associate

ecologically justified. The aim is to reduce the

OEM with good products, high delivery

impact of our business on the environment in

assurance, good technical support and a business-

both the short and long term.

like, positive reception. During 2005 we have continued to work on

Today, one company in the Group is involved in production activities. The others are involved

increasing delivery reliability from our suppliers.

in the sale of components and systems from

This work is vital to ensure we maintain our own

manufacturers the world over. This means that our

quality objectives and live up to our quality policy.

greatest impact on the environment stems from

It requires constant dialogue on subjects ranging

❚ transport of goods and personnel

from product quality and product development to

❚ the content of environmentally-damaging

delivery time and environmental issues. Several companies in the Group also conduct annual customer attitude surveys in order to set targets for quality as part of our customer offer. Subsidiaries that are not ISO certified work

substances in products ❚ the printing and distribution of product catalogues ❚ packaging material ❚ the heating, lighting and cooling of offices.

proactively with environmental and quality targets and continuously evaluate these based on customer

OEM is participating in Folksam’s Climate Index

and market requirements. When discussing and

Survey for 2005.

evaluating certification, the benefits to business are always the main focus and determines

Transport and company cars

whether certification will be introduced.

We exert an influence on forwarding agents to encourage the use of alternative fuel and environmentally-classified cars. As per our own company car policy, the OEM Group must only supply cars classified as per Environmental Class (MK) 2005 (cf. previous environmental class 1).

Requirements for our suppliers Our customers often raise issues about products containing substances that have an impact on the

OEM ANNUAL REPORT 2005 ❚ QUALITY, THE ENVIRONMENT AND ETHICS

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environment. When visiting suppliers, we review

are evident in these relationships. It is therefore

their environmental work. There is a special form

vital to continually discuss ethical issuesd.

for supplier review for companies already certified, which is completed by our product managers.

One example of our efforts in ethical issues is our quality unit in China, which certifies the factories from which we purchase goods, and also investigates

Printing and distribution

the occurrence of child labour. Our day-to-day

Each year the Group prints and distributes about

business is characterised by respect for employees

50,000 product catalogues and brochures.

and business partners.

When purchasing printing services, we only

reduce the number of printed catalogues.

“Our objective is that customers will associate OEM with good products, high delivery assurance, good technical support and a business-like, positive reception.”

Environmental requirements provide business opportunities

Environmentally-certified companies

On 1 July 2006, the ‘lead-free directive’ (RoHs*)

As the business does not have a heavy impact

will be introduced which prohibits the use of lead,

on the environment in terms of production, we

mercury, cadmium and other hazardous substances

currently only have three Swedish companies

in electrical or electronic products. This will have

certified in accordance with ISO 14001.

a huge impact within the EU and throughout the

❚ OEM Automatic AB

rest of the world.

❚ OEM Electronics AB

consider environmentally-certified printers. Wherever possible we try to print items on environmentallyapproved paper. We continue our efforts to publish product information on the internet, which will

Our machinery customers have already begun

❚ Internordic Bearing AB

converting their production facilities and we are seeing increased demand for new furnaces, wave

Quality-certified companies

soldering systems and other machinery functions

❚ OEM Automatic AB

affected by the new directive. The new ban will also

❚ OEM Electronics AB

mean demand for training on the new machines.

❚ Internordic Bearing AB

Solder paste may no longer contain lead, which

❚ JMS Systemhydraulik AB

means that we have to offer new products.

❚ AB Indoma

OEM Automatic AB — one of three Swedish OEM companies to be environmentally and quality certified.

Ethics OEM’s activities are based on long-term relationships with personnel, suppliers and customers. The values of the management and employees

QUALITY, THE ENVIRONMENT AND ETHICS ❚ OEM ANNUAL REPORT 2005

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Board of Directors The Board of OEM International (publ) is comprised of

in the income statement, page 57-59. Auditors are proposed and appointed by the AGM for a fouryear tenure. The auditors’ work is debited within

six board members and three deputies elected by the AGM.

Nomination and Remuneration Committee

Five Board meetings were held in 2005, all of which

The Nomination and Remuneration committee is

were recorded in the minutes. The work of the

comprised of Chairman of the Board Hans Franzén

Board complies with the rules of procedure

and Board members Orvar Pantzar and Agne

adopted by the Board. Once a year, the principal

Svenberg. The Committee nominates members to

auditor attends and reports on the auditing work.

the Board and provides guidelines for remuneration

Decisions and the division of responsibility between

Deputy Directors

negotiated price frames.

to the MD. The Board approves remuneration

the Board and the MD are regulated in written

negotiated by the Chairman of the Board and the

instructions for the MD. Proposals for the Board’s

MD. The Committee has convened once during

remuneration are presented to the AGM for

2005. Remuneration to Senior Management is

decision. Bonuses are not paid to the Board.

determined by the MD in consultation with the

Amounts and other benefits are presented in note 4

Chairman of the Board.

Tomas Franzén

Inger Svenberg

Jerker Löfgren

Born 1962. Deputy Director since 1997. MD and CEO of Eniro AB. Graduate engineer. Not employed by OEM. Not employed by OEM. Other assignments: Chairman of the Board, GRIN AB and Trust2You AB Board member, Eniro AB, Avisere Europe AB and BTS AB Number of shares: 5,000 OEM Class B

Born 1937 Board member 1974-1997 Deputy Director since 1997 Not employed by OEM Number of shares: 216,000 OEM class A and 91,152 OEM Class B

Born 1950 Deputy Director since 2003 Head Counsel Carnegie Investment Bank AB Not employed by OEM No OEM shares

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Hans Franzén

Born 1940. Chairman of the Board since 1992. Board member since 1974. Group President until 31 Dec. 2001. Engineer Other assignments: Chairman of the boards, Tranås Resebyrå AB, Cendio AB, Ibizkit AB and Handelsbanken’s regional board in Tranås, Board member, Crouzet AB and Bomarknadsbolaget AB Number of shares: 260,792 OEM Class A and 232,940 OEM Class B

Agne Svenberg

Born 1941. Board member 1974 Managing Director up until 29 February 2000. Engineer Other appointments: Chairman of the boards of Multitryck AB, EG:s El o Automation AB, Personality Gym AB, and ISP AB Board member, Elektro-Mekan i Årjäng AB Number of shares: 260,800 OEM Class A and 90,835 OEM Class B

Gunnar Eliasson Born 1951 Board member since 2000 Business Administrator Not employed by OEM Number of shares: 2,000 OEM Class B

Ulf Barkman

Born 1957

Board member since 1997 Business Administrator Not employed by OEM Number of shares: 14,000 OEM Class B

Lars-Åke Rydh

Born 1953. Board member 2004 Graduate engineer. Not employed by OEM MD and CEO of Nefab AB Other appointments: Board member, Nefab AB, Handelsbanken Region Eastern Sweden and Nolato AB Number of shares: 1,000 OEM Class B

Auditor

Orvar Pantzar

Born 1939. Board member since 1997. Founder of CynCrona AB Engineer. Not employed by OEM Other appointments: Board member, Next Generation System AB Number of shares: 635,440 OEM Class A and 958,685 OEM Class B

KPMG Bohlins AB KPMG, principal auditor: NIKLAS BENGTSSON Authorised Public Accountant BOARD OF DIRECTORS ❚ OEM ANNUAL REPORT 2005

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Senior Management OEM International is an

These five are the MD of OEM Automatic Sverige and Business Director for OEM Automatic who is

active owner.

in charge of business activities outside Sweden, as well as the Business Director of OEM Electronics,

In addition to setting clear goals, this means

Cyncrona and JMS Systemhydraulik. The CEO is

contributing competence and resources within

head of company group Development and allocates

the fields of IT, economic control, personnel

resources for each business activity within this group.

administration, market communication, quality and environment control, as well as stock management.

Management operational units The board of an operational unit normally consists

Organisation

of business directors, controllers and the MD.

The Group’s senior management consists of the

We appoint external board members to companies

Managing Director, deputy Managing Director,

that need to reinforce the board within certain areas.

Finance Director and the five Directors in charge of the Group's largest companies.

Group-wide resources There are resources within the Group working

Jörgen Zahlin MD/CEO Development

with specific functions across the entire Group. There are resources for economic control, business systems, tele/data, market communication,

Jan Cnattingius Finance Director

Jan Hultman Deputy MD

quality and environment, as well as stock management.

Mikael Thörnkvist Business Director OEM Automatic

Stefan Wik Managing Director OEM Automatic AB

Urban Malm Business Director OEM Electronics

OEM ANNUAL REPORT 2005 ❚ SENIOR MANAGEMENT

Mattias Franzén Business Director Cyncrona

Fredrik Tengstrand Business Director JMS Systemhydraulik

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Stefan Wik

Born 1959. Managing Director OEM Automatic AB Group employee since 1998. Engineer Other appointments: Member of the boards, Landy Vent International AB and JS Computers AB Number of shares: 2,900 OEM Class B (partially via company)

Fredrik Tengstrand Jan Cnattingius

Born 1955. Finance Director

Born 1966. Business Director JMS Systemhydraulik Group employee since 1991. Engineer No shares. Holds 10,000 options in OEM

Group employee since 1985. Economist Number of shares: 2,000 OEM Class B Holds 10,000 options in OEM

Jan Hultman

Born 1945 Deputy MD OEM International AB as of 1 Jan 2002 Group employee since 1980 Engineer Number of shares: 7,023 OEM Class B

Mattias Franzén

Mikael Thörnkvist

Born 1968. Business Director for OEM Automatic Group employee since 1990. Engineer No shares. Holds 10,000 options in OEM

Born 1968 Business Director for Cyncrona. Group employee since 2001. Engineer. Number of shares: 5,600 OEM Class B.

Jörgen Zahlin

Born 1964 MD OEM International AB as of 1 March 2000 CEO since 1 Jan 2002 Group employee since 1985. Engineer Number of shares: 12,500 OEM class B Holds 50,000 options issued by the majority owner at market price

Urban Malm

Born 1962 Business Director for Group Electronics Group employee since 1983. Engineer Number of shares: 300 OEM Class B

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Group structure The Group is organised into five company groups. As of 2006, four groups are organised according to their distinct brand concepts and one group, Development, is a collection of other business activities.

OEM Automatic

OEM Electronics

Components for industrial automation

Appliance components, circuit board

within the business areas of Electrical

components and EMC/microwave

Machinery, Electrical Cabinets, Safety,

components.

Cables, Pressure & Flow and Pneumatics.

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Company Group

Products

Number of countries

OEM Automatic,

Automatic components

OEM Electronics

Electronics components

Cyncrona

Equipment and materials for the electronics industry

JMS Systemhydraulik

Hydraulic systems and components

Development

Other businesses:

Cyncrona

JMS Systemhydraulik

Development

Production equipment, support

Pumps, motors, valves, miniature units

Warehouse and warehouse solutions,

and material for electronics production

as well as construction and production of

motors and transmissions, seals and

as well as test equipment for circuit

hydraulic units and complete hydraulic

pumps

boards, microelectronics and printed

systems for mobile and industrial

circuit boards.

applications.

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Stefan Wik

Managing Director OEM Automatic AB

Mikael Thörnkvist Business Director OEM Automatic

OEM Automatic During the year, investments were made in both the sales and market organisations, resulting in intensified market initiatives and greater market shares. ❚ Sales increased by 9% to SEK 605 million. ❚ Profit increased by 11% to SEK 74.7 million.

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600

Coordination within development of our product range, logistics and market communication has enabled us to quickly launch new product areas.

❚ Represent our key suppliers on all markets 400

where we have market presence ❚ Geographical expansion in northern Europe

200

We are concentrating warehouse operations to Sweden, Finland and the UK which will improve

Market and customers

our delivery capacity and level of service on all

With the exception for the UK, the demand has

markets. It will also make it possible to quickly

increased on all markets.

and cost-effectively set up organisations on new markets.

Sales (SEK million)

On the whole, the market for automation components in Europe is relatively stable and

In line with our strategy to become the leader

we expect that it will grow about 2-3% per year

in northern Europe, OEM Automatic established

over a business cycle. As most of our customers

operations in Estonia and divested its business

produce small to medium-sized volumes, there

in Italy.

is no drastic transfer of production to low-cost

Geographical collaboration has been expanded with several suppliers in 2005. This includes

countries. We expect a continued strong demand throughout 2006.

80 60 40 20 0

setting up the business area Pressure & Flow in Profit (SEK million)

Norway and Denmark. Business area Cable

Competitors

which was developed in Finland has also been

We compete with manufacturers such as Schneider

introduced in Sweden. We have also launched

Electric, ABB and Omron, but also with trading

several new product areas.

companies such as Indutrade and Addtech.

Goals and strategies

300

200

100

The goal is to surpass a 10% annual growth. To establish operations on new geographical

markets and introduce new product areas, we will evaluate acquisitions. We will

Number of employees

start working the markets in Latvia Connection system from Brad Harrisson

and Lithuania in 2006.

The strategy is: ❚ A strong local presence with Share of Group sales

face-to-face sales ❚ Streamlining through coordination ❚ Enhance our customer offer by expanding our product range

Operations

Geographical market

OEM Automatic is comprised of seven

Marketing is primarily conducted through

OEM Automatic has operations in Sweden,

companies active in the sale of industrial

face-to-face sales where OEM provides

Norway, Denmark, Finland, Estonia,

automation components.

the customer with product and application

Poland and the UK.

Customers include machine and appliance manufacturing industries, wholesalers and strategic end users.

knowledge.

Products

OEM Automatic represents some

Components for industrial automation

60 suppliers that specialise and are

within the business areas of Electrical

leaders within their respective fields.

Machinery, Electrical Cabinets, Safety Cables, Pressure & Flow and Pneumatics.

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Urban Malm

Business Director OEM Electronics

OEM Electronics Sales and profit increased according to plan in 2005. Our growth stems primarily from new projects in the fields of telecommunications, medicine and general industries. ❚ Sales increased by 7% from SEK 285 million to SEK 305 million. ❚ Profit increased by 26% to SEK 24.7 million.

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400

Our product offers to Electronic Manufacturing

❚ An organisation distinguished by service-

Services (EMS) customers has yielded good

mindedness, extensive application skills

results and OEM Electronics collaborates with

and various types of logistics solutions.

200

all major contract manufacturers in the Nordic

Market and customers

countries. The restructuring measures, in which several

Production in the Nordic countries has stabilised

different companies became one company per

and reports lacklustre growth. We believe that

country, has made us more effective and improved

Poland will answer for greater growth in the

our customer offers. New structure enables

future.

0 Sales (SEK million) 30

greater coordination within range development, logistics and market communication.

“We have created a more effective organisation and intensified our range of customer products.” Our investment in Poland is beginning to produce

Competitors Our competitors include both the large global

components distributors Arrow and Avnet, and engineering firms such as Addtech, the Lagerkrantz Group and the Electronics

Group. In addition, our customers include the Profit (SEK million)

manufacturers’ own sales companies.

results and higher growth.

100

Our own on-site personnel will handle procurement in China during 2006. This means shorter information routes, easier communication

and better service.

Goals and strategies 0

Our goal is a growth rate over 10% per year and to become the strongest electronics

Number of employees

component player in northern Europe.

The strategy is: ❚ A strong local presence with face-to-face sales Share of Group sales

❚ Streamlining through coordination

Operations

Geographical market

OEM Electronics is comprised of three

respective fields. Marketing is primarily

OEM Electronics has operations in

companies active in the sale of electronics

conducted through face-to-face sales

Sweden, Finland and Poland.

and electromechanical components.

where OEM provides the customer with

Our customers include appliance and electronics manufacturers as well as

product and application knowledge alongside logistics solutions.

strategic contract manufacturers in northern Europe. OEM Electronics represents some 60 suppliers that are specialists in their

Products Appliance components, circuit board components and EMC/microwave components.

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Mattias Franzén Business Director Cyncrona

Cyncrona The Cyncrona companies increased their sales by 30% and profit by 157% in 2005. A new organisation was successfully established in Estonia with offices in Tallin during the year. ❚ Sales increased by 30% from SEK 218 million to SEK 284 million. ❚ Profit rose from SEK 7.2 million to SEK 18.5 million.

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❚ Continued range development to ensure

The success of the companies has fluctuated during the year but all show positive growth. The Finnish

competitiveness

and Norwegian companies surpassed their targets, while the Swedish and Danish companies did not

❚ Aggressive marketing of both existing and potential customers ❚ Complementary acquisitions

achieve satisfactory results. During the year, Cyncrona Denmark adjusted to current market conditions and cut back personnel. The companies formed a joint IT platform to

Market and customers We saw a general increase in demand on the

Sales (SEK million)

further boost conditions for internal efficiency and

Nordic and Baltic markets compared with 2004,

inter-company cooperation.

largely due to the new EU directives concerning

Focus was directed to range development. Cyncrona has through its geographical presence in five countries a competitive advantage in

lead-free production. Our assessment is that the Nordic market will remain stable throughout 2006 while demands

terms of attracting new suppliers.

will increase in the Baltic

In 2005, several suppliers

countries. As advances in

were substituted and two

technology are made

suppliers launched within

and our suppliers launch

new product areas.

new machines, the

Most of our second-

Profit (SEK million)

conditions necessary for

hand stock was sold off

new business will evolve.

during the year, reducing

Competitors

capital tied-up by SEK 2,5 million.

Cyncrona competes with manufacturers such as Siemens

Goals and strategies

and Mydata for surface-mounting

Our goal is to confirm our position as

machines, and a handful of local distributors,

the leading distributor in the Nordic and Baltic

for example Scanditron and Sincotron, for other

countries of equipment, support and material for

parts of the range.

Number of employees

electronics products and eventually realise a 7% operating margin.

The strategy is: Share of Group sales

❚ Increased efficiency through intensified international cooperation. Fuji AIM machine scheduled for launch in 2006. (All comparability figures are according to the new Group structure.)

Operations

Geographical market

Cyncrona is comprised of five companies

Marketing is conducted primarily

Cyncrona has operations in Sweden,

active in the sale of equipment and

through face-to-face sales where

Finland, Denmark, Norway, Estonia,

materials for electronics production.

Cyncrona provides the customer with

Latvia and Lithuania.

Cyncrona represents around twenty

both product and process knowledge.

leading suppliers who are each specialists in their chosen field. Support is an important part of the business and involves training, installation, commissioning and servicing.

Products Production equipment, support and material for electronics production as well as test equipment for circuit boards, microelectronics and printed circuit boards.

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Fredrik Tengstrand

Business Director JMS Systemhydraulik

JMS Systemhydraulik In 2005 sales rose 13% despite the 2004 wind up of Hydroprodukter, and profits improved substantially. ❚ Sales rose 13% from SEK 139 million to SEK 157 million. ❚ Profit increased by 283% to SEK 11.1 million.

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150

The company decided during the year to merge

100

Hydrac and JMS Systemhydraulik into one company under the name JMS Systemhydraulik AB. This gives

us a strong unit with a comprehensive product range and cutting-edge expertise, coupled with

greater efficiency and competitiveness.

Sales (SEK million)

The share of outsourced work will increase within unit and block production. We are also

Settima’s low noise rotor pump

looking for new partners, primarily in Eastern

Europe, to cut purchase prices.

Market and customers

Goals and strategies

We enjoyed robust demand throughout the entire

The goal is a 10% growth in terms of sales and

year. Customers within our most important

profit. The market situation still appears

sectors of paper/pulp, marine/offshore and

favourable. We have yet to realise full effect of the

mobile construction equipment have seen

merger’s rationalisation and cost-cutting impact.

positive development.

“New JMS Systemhydraulik will become a strong unit with a comprehensive product range and cutting-edge expertise.”

Profit (SEK million) 80

We deem there are excellent opportunities for growth in Sweden which is why geographical

Competitors

expansion has been down prioritised.

The greatest competition in Sweden stems mainly

from the Dacke PCM Group. We also get The strategy is:

competition from such international players as

❚ More market shares within units and blocks.

Parker Hannifin, Bosch Rexroth and Danfoss.

❚ Expand workshop’s assembly capacity

0 Number of employees

❚ Intensify existing customers’ component sales

Share of Group sales

Operations

Geographical market

JMS Systemhydraulik is active in the

Sweden’s foremost hydraulic workshops

sale of hydraulic systems and compo-

makes JMS Systemhydraulik one of the

nents, primarily to Swedish OEM cus-

industry leaders.

Sweden

tomers. We represent leading manufacturers

Products

including Eaton, SUN, Casappa and

Pumps, motors, valves, miniature units as well

Walvoil. Strong competence throughout

as construction and production of hydraulic

the entire organisation and one of

units and complete hydraulic systems for mobile and industrial applications.

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Development Companies within Development demonstrated varying volume and turnover trends in 2004. ❚ Sales amounted to SEK 162 million (159) ❚ Profit on par with last year at SEK 8.4 million (8.0). ❚ Acquisition of Telfa AB with an annual turnover of about SEK 40 million.

Estimated distribution of sales 2006 30

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Telfa was acquired in September. The company

Indoma AB

trades in pumps for industrial, marine and mobile

Sales dropped from SEK 39.1 million to SEK

applications. During the period September-

37.5 million.

December, Telfa reached sales and profits in line with expectations.

200

In 2005 the company further affirmed its strategy of intensifying its orientation on OEM customers

100

and sealant solutions. Our OEM customer sales climbed significantly during the year. Companies within Group Development

The company’s product range has been

Sales (SEK million)

refined to seals.

Internordic Bearing AB

Sales rose in Sweden from SEK 58.8 million to SEK

Telfa AB

62.1 million.

Sales for the period September-December

During the autumn we put the Swedish organisation in charge of the Finnish ball bearing sales. At the end of the year, we decided to employ a sales resource to develop sales activities in Denmark.

reached SEK 14.2 million. Alongside integration efforts, the company has focused on analysing and enhancing its sales process and marketing. A reveiw of current supplier partnerships will result in an altered

IBEC

product range over the next few years.

Sales climbed from SEK 23.3 million to SEK 27.6 million.

Profit (SEK million)

The sales organisation will be reinforced during 2006.

100

Our operations in China have improved their quality control and increased delivery capacity of customer-unique ball bearing solutions.

We have decided to set up distributors in Europe.

OEM Motor AB

Sales climbed from SEK 31.0 million to SEK 32.7

Number of employees

million. The units in Borlänge and Lidköping were wound up and business activities concentrated to Tranås and Stockholm during the year. By refining our product programme and condensing our organisation, we create

Share of Group sales

conditions for continued positive growth. IBEC’s aluminium storage units

Operations

Incorporated units

Companies group Development is

within affiliated product areas, but also

Internordic Bearings AB, IBEC,

comprised of companies in various

within new product areas and on new

OEM Motor AB, Indoma AB and Telfa AB.

stages of growth with the ambition

geographical markets.

Geographical market

to evolve into a strong brand concept or be modified to merge with another company. The group constantly evaluates opportunities for acquisitions

Products Warehouse and warehouse solutions, motors and transmissions, seals and pumps

Internordic operates in Sweden, Finland and Denmark Ibec’s market is northern Europe. The remaining companies operate in Sweden.

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OEM Automatic and Partex Marking Systems AB

A Nordic partner Partex Marking Systems AB in Gullspång, Sweden develops, manufactures and markets marking systems for

In charge of all Nordic countries The final step was taken in 2005 when OEM Automatic was put in charge of all marketing for all Nordic countries. Partex had good expereince of OEM’s method of working the Swedish market. “They have the right idea in not involving too many

cables, wires, pipes, and

or competing makes. Their division into business

electric components.

areas makes them specialist in their individual fields. We finally found a well-functioning organisation

A conscientous focus on quality and delivery assurance has ensured a very strong market position.

that markets our entire range,” says TorBjörn Lööf. A hectic time ensued when all the customers had to be informed In connection with Partex’ break

In 2000, Partex and OEM Automatic embarked

with the German company. TorBjörn Löff feels that

on a successful partnership on the Swedish market.

OEM Automatic was highly professional and made

Product and customer offers have been jointly

it possible to maintain the company’s sales level.

developed which resulted in strong sales growth.

Partex’ President TorBjörn Lööf is pleased with the partnership with OEM Automatic.

The partnership was expanded in 2005 to include

Synergy effects for OEM

all Nordic countries after Partex’ collaboration

The partnership is important for OEM Automatic

with its former partner was concluded.

for several reasons.

“To make a long story short, things didn’t work

“By gaining the trust to market Partex’ products

out with the German company that was in charge

in all Nordic countries, we attain synergy effects

of most of our marketing,” says Partex MD

in both logistics and marketing that benefit all

TorBjörn Lööf. When they began marketing their

parties. The marking system is in demand by

own competing products in Sweden, we opted

our customers and Partex, which is the leader

to allow OEM Automatic to sell our products in

in this area, fits our offer very well,”says Business

parallel.

Director Mikael Thörnkvist.

Partex Marking Systems AB in Gullspång, Sweden develops, manufactures and markets marking systems mainly for customers in the electric industry.

OEM ANNUAL REPORT 2005 ❚ OEM AUTOMATIC AND PARTEX

Number of employees: 110 of whom 63 are in Sweden. Annual turnover: about SEK 100 million, of which SEK 52 million in Sweden. Markets: Nordic countries via OEM Automatic, as well as some 60 countries via five subsidiaries and otherwise via retailers.

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OEM Electronics and CashGuard

Cooperation from concept to production CashGuard develops and sells systems for effective and safe cash handling.

Participation and understanding Spring 2005, the project advanced from development to production. Patrik Hellqvist is very satisfied with the cooperation and support supplied by OEM Electronics throughout the

The system provides control of cash flows and transactions and reduces the risks of robbery

project’s various phases. “OEM has provided enormous support the

and loss. Products are sold directly and through

entire time and we feel they understand our

partners to businesses active in trade, post and

needs and wishes. This cooperation has enabled

bank, as well as security companies in the Nordic

us to develop a product much appreciated by

countries and the rest of Europe.

our customers.”

Leading supplier

Parallell development

CashGuard was founded in 1991 and has since

OEM Electronics has chosen Digi International as

then evolved from an entrepreneurship to one of

component supplier of CashGuard’s system.

the world’s leading suppliers of systems for safe

The company, which is represented on the

and effective cash handling. A collaboration was

North American Nasdaq stock exchange,

initiated with OEM Electronics in November 2004.

adheres to the principle that

“We have developed a function in our system

Patrik Hellquist, Cashguard, and Yousef Abraham, OEM Electronics.

hardware and software should

and OEM has actively participated from the concept

be developed in parallel to

phase to the product launch. Among other things,

become cost-effective,

OEM has helped us with development tools and

good communications

technical support for implementing TCP-IP in

solutions.

CashGuard’s products,” explains Patrik Hellqvist, project manager for CashGuard’s R&D Department.

CashGuard AB in Täby develops and sells systems for safe and effective cash handling. Number of employees: about 120 people Annual turnover: about SEK 214 million Markets: Primarily Sweden, Norway and Germany. Expansion activities are ongoing in the rest of Europe. OEM ELECTRONICS AND CASHGUARD ❚ OEM ANNUAL REPORT 2005

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JMS Systemhydraulik and Holms Industri AB

In the vanguard of new technology Holms Industri AB is a thirdgeneration family company.

“First and foremost, it is a matter of quality and service. Holms Industri sells quality and doesn’t bother competing on the low-price market.

Initially, the company was

JMS Systemhydraulik offer good products that

one of Sweden’s leading

are well known by our users. We also have a good, trusting relationship

horseshoe manufacturers.

between our designers and the staff at JMS. They are good people who understand our needs and are willing to be there for us.”

Mutual development efforts The partnership entails substantial mutual development efforts. Sometimes Holms initiates a project — other times it is JMS that wants to test a new idea or solution. Innovativeness and the ability to think in new ways have contributed to JMS’ position as one of Holms’ largest suppliers. Today, Holms Industri is the market leader in

”We have a sense of enormous committment

Sweden within front-mounted attachments for

from JMS. At the same time, we are careful that

sweeping and snow removal. The company is

our partnership does not become routine.

also big in the US.

Naturally, we also contact other suppliers with requests for bids to boost competition, but so far

Quality and service

JMS has been our best alternative,” explains

For many years JMS Systemhydraulik has been

Mattias Ericsson.

the company’s supplier of hydraulic motors and blocks. Mattias Ericsson, Procurement Manager Mattias Ericsson, Procurement Manager at Holms Industri AB

at Holms, explains why.

Holms Industri AB in Motala, Sweden. Laser cutting, edge bending, welding, painting and assembly of sweepers and snowplows. Number of employees: 60 people Annual turnover: SEK 75 million Markets: Sweden, Nordic countries and the USA 34

OEM ANNUAL REPORT 2005 ❚ JMS SYSTEMHYDRAULIK AND HOLMS

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Cyncrona and Hansa Electronics

Full-service solution generated major order Hansa Electronics is a Latvian company specialising in cost-efficient electronics manufacturing on contract.

The company’ technical scope and experience enables it to offer assembly of complete and complex products. The company can also provide electrical and environmental trials and testing, including full-scale xray. The new production line with Fuji’s new NTX assembly machines.

A full-service supplier

Positive trend

Cyncrona was selected as partner in conjunction

“This order was important to us,” says Clas

with the new, complete production line investment.

Kagerup, MD of Cyncrona AB. It is the first Fuji

“We wanted a complete supplier that could

NTX installation in the Baltic region and can pave

supply a full-service solution,” says Ilmars Osmanis,

the way for more installations. We have excellent

MD of Hansa Electronics. It is an advantage to have

experience of over ten NXT installations in the

one single supplier that represents the technolgy we

Nordic countries and we now hope for market

require. To face tough competition both today and

expansion in the Baltic countries. The launch in

in the future, we want the latest technolgy and Fuji

the Nordic countries started in 2004 and the

NXT is the leading technical solution for assembly.

trend has been extremely positive.

The new production line is now equipped with

Fuji NTX is designed to meet the new

Fuji’s new NTX assembly machines. In addition to

specifications within modern electronics

two reflow ovens from SMT, two inspection ovens

production. The machines have the technology

from MVP and Nutek’s labeling and management

and equipment to make them highly flexible

system. The total order value was about

and allow them to be used for various assembly

SEK 20 million.

needs.

Clas Kagerup, MD for Cyncrona AB

Hansa Electronics in Latvia provides the manufacturing industry with production, technical development and support.

Number of employees: 105 people Annual sales: EUR 3 million Markets: The Baltic countries and Nordic countries CYNCRONA AND HANSA ELECTRONICS ❚ OEM ANNUAL REPORT 2005

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Valve plate with SUN cartridge valve.

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OEM ANNUAL REPORT 2005

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Financial reporting Five-year Group summary ....................38 Key indicators for the last five years ......39 Directors’ report ....................................40

Group financial reports Profit and loss account..........................41 Balance sheet..................................42-43 Movements in equity ............................44 Cash flow statement ............................45

Parent Company financial reports Profit and loss account..........................46 Balance sheet..................................47-48 Movements in equity ............................49 Cash flow statement ............................50

Notes with accounting principles and notes to the financial statements ..51-73

Proposed distribution of profit ..............74 Auditors’ report ....................................75

This is an English translation of the Annual Report 2005 for OEM International AB (publ.).

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2005

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Five-year Group summary

(SEK thousands)

FROM THE PROFIT AND LOSS ACCOUNT

2005

2004

2003

2002

2001

Sweden

959,921

900,542

950,256

1,076,074

1,261,916

Overseas

557,422

497,567

467,117

443,259

664,813

1,517,343

1,398,109

1,417,373

1,519,333

1,926,729

Total amount invoiced

Operating income before depreciation and write-down

133,698

108,852

92,250

91,241

122,755

Depreciation and write-down

-13,403

- 21,701

-36,986

-51,706

-58,502

Income from financial items

2,015

1,074

-2,883

-5,677

-3,783

Participating interest

1,313

1,103

1,009

496

615

123,623

89,328

53,390

34,354

61,085

Taxation

-34,864

- 25,674

-21,904

- 19,632

-25,950

Group profit and loss for the year

88,759

63,654

31,486

14,722

35,135

Profit before taxation

FROM THE BALANCE SHEET Intangible fixed assets Tangible fixed assets

18,198

10,255

15,641

32,635

59,184

122,481

136,141

125,547

138,477

170,195

Financial fixed assets and deferred tax claim

14,241

20,483

17,858

19,228

23,914

Inventories

218,161

205,917

230,885

282,909

342,252

Current receivables

241,020

228,607

198,912

229,080

291,553

Liquid funds

150,042

111,001

52,648

44,397

101,197

764,143

712,404

641,491

746,726

988,295

Shareholders’ equity

477,939

424,888

391,067

414,740

464,011

Long-term liabilities

30,537

41,114

24,842

27,774

41,774

255,667

246,402

225,582

304,212

482,510

764,143

712,404

641,491

746,726

988,295

Total assets

Current liabilities

Total shareholders’ equity and liabilities

In the above five-year summary and the key indicators for the past five years, 2005 and 2004 are reported under IFRS and 2003-2001 are reported under Swedish GAAP. Adjustments have been made for the years 2003-2001 for goodwill and component depreciation to ensure consistency with IFRS.

OEM ANNUAL REPORT 2005 ❚ FIVE-YEAR GROUP SUMMARY

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Key indicators for the last five years THE OEM GROUP

2005

Net turnover

2004

2003

2002

2001

MSEK

1,525

1,406

1,428

1,534

1,944

36.8

35.6

32.9

29.5

34.5

Group’s profit before taxation

MSEK

123.6

89.3

53.4

34.4

61.1

Rate of return on total capital

17.0

13.8

8.1

5.1

7.0

Rate of return on capital employed

24.8

20.6

11.9

7.1

10.4

Rate of return on shareholders’ equity

19.7

15.4

7.8

3.4

7.1

of which overseas

Average interest payable

3.9

4.4

2.2

3.1

3.0

times

0.12

0.10

0.25

0.54

Operating income/turnover

8.8

7.5

6.5

5.9

6.3

Profit percent

8.2

6.7

3.9

2.9

3.9

Profit margin

8.1

6.4

3.7

2.2

3.1

times/year

2.00

1.97

2.23

2.05

1.97

MSEK

2.8

2.5

2.2

2.5

62.5

59.6

61.0

55.5

47.0

MSEK

77.4

92.9

131

156

89.5

153

138

112

Undiluted earnings per share

SEK

11.49

8.23

3.87

1.77

3.88

Diluted earnings per share

SEK

11.43

8.18

3.86

1.77

3.88

Average number of shares

thousands

7,723

7,739

8,139

8,332

9,049

Average number of diluted shares

thousands

7,763

7,779

8,166

8,332

9,049

SEK

61.88

55.02

48.08

49.77

55.69

Earnings per share excl. repurchased shares SEK

11.73

8.41

4.14

1.88

4.32

Number of shares excl. repurchased

7,569

7,603

7,817

8,132

Debt/equity ratio

Capital turnover rate Turnover/employee

Equity/assets ratio

Cash flow from operations Quick ratio

Equity per share*

thousands

Proposed dividends

SEK

7.00

5.50

4.50

Exchange quoted price on 31 December

SEK

163.50

118.00

102.00

77.00

92.50

times

14.2

15.9

26.4

43.5

23.8

4.3

4.7

4.4

5.8

4.9

number

541

571

636

701

773

MSEK

178

184

197

220

244

P/E Direct return

Number of employees Salaries and remuneration

*Equity per share = visible equity per share.

ns while io it in ef d to s es c c a For easy r t, open t he o p re l a u n n a e h t g readin f lap and lay f lat. KEY INDICATORS FOR THE LAST FIVE YEARS ❚ OEM ANNUAL REPORT 2005

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DIRECTORS’ REPORT

The Board and the Managing Director of OEM International AB (Publ) hereby submit the annual report and the consolidated financial statements for the 2005 financial year. The annual report and the consolidated financial statements, including the auditors' report, cover pages 38-73. OPERATIONS OEM International AB is represented via its subsidiaries in the Scandinavian countries, as well as in Great Britain, the Netherlands, Poland and Estonia. OEM is a technology trading Group operating in northern Europe. Our product range consists of industrial components and systems from suppliers that are each specialists in their fields. In 2005, the Group was organised into five groups of companies: Automation, Electronics, Hydraulics, Mechanical and EP. GROUP TURNOVER AND PROFIT The total turnover for the Group amounted to SEK 1,524,828 thousand (1,406,128). Profit or loss for the financial year after tax amounted to SEK 88,759 thousand (63,654), which is equivalent to SEK 11.49 (8.23) per share on the market. Disposal of operations had a SEK 48,652 thousand adverse impact on turnover between the years and for comparable units Group turnover consequently increased by 13%. Continuing strong demand, greater coordination and a series of new product launches in Automation increased turnover by 9% and profit by 11%. All operations, except for the Danish, showed positive development during the year. The market shares in the Electronic Group increased which meant that turnover increased by 7% in spite of some customers moving business and increased pressure on prices. The work of consolidating all operations in the Electronic Group to create one unit per country has led to an improvement in efficiency and a 26% rise in profits. Excluding the winding-up of A. Karlsson Industriteknik AB, turnover for Mechanics remained on a par with the previous year, while the profit increased by MSEK 0.6. Ball bearing operations have experienced positive development, while other operations have not achieved acceptable profit levels. Hydraulics has experienced high demand and an increased market share has meant that turnover has increased by 13% despite the winding up of some product areas. The merger into one group in Hydraulics has resulted in greater efficiency and profits have increased by 283%. Steady demand, primarily in Finland and Norway, has led to a 19% rise in turnover for EP. Previous restructuring measures, along with further streamlining of operations, mean that EP has turned a negative result into healthy profitability. Jubo Mechatronics AB burdened EP by MSEK -7.8 in 2004. GROUP CHANGES This year saw the acquisition of Telfa AB. The Company operates in Sweden in the field of pumps for marina, mobile and industrial

OEM ANNUAL REPORT 2005 ❚ DIRECTORS’ REPORT

applications. The acquisition of Telfa AB brings a new product segment and a turnover of about MSEK 40 to the Group. The effect of this acquired addition on Group turnover and profits is negligible. The Group has set up a legal corporation in Estonia. The corporation in Estonia will concentrate on expanding the market for the Group. The Group’s Finnish company within the Automation and EP areas of operations has previously been responsible for this. Two salespersons have been employed locally in Estonia. OEM Automatic Italy has been sold. The Italian company had a turnover of approximately MSEK 21 in 2004. Continued restructuring of the Group is underway where the objective is to achieve a simplified and clearer legal Group structure, through fusions and voluntary liquidation. During the year, the following dormant companies were eliminated from the Group; OEM Hydraulik AB and SPG Motors Europe AB in Sweden, and MPE Microteknikka OY in Finland.

Environmental Code. The Group’s environmental impact is described on page 14.

FINANCIAL POSITION 2005 Liquid funds and undrawn credit commitments in the Group amounted to SEK 399,219 thousand (415,029) at the end of the year. The Group’s equity/assets ratio at year-end was 62.5% (59.6).

THE PARENT COMPANY The Parent Company must be an active owner and develop the subsidiary companies. In addition to establishing clear goals and expectations for the businesses, this also entails contributing with experience and supplying resources in the fields of IT, economic control, personnel administration, market communication, quality and environment control as well as stock management. Parent Company turnover amounted to SEK 34,903 thousand (35,090). Of this, SEK 34,755 thousand (34,855) relates to turnover to subsidiary companies. Profit before appropriations and taxation amounted to SEK 21,386 thousand (-3,829).

INVESTMENTS Investments in the Group during the year amounted to SEK 19,105 thousand (15,293) in machinery and equipment, SEK 2,179 thousand (807) in buildings and SEK 9,900 thousand (-) in other intangible fixed assets. RESEARCH AND DEVELOPMENT The Group does not conduct any research and development of its own. Development mainly takes place at our suppliers, using information that we have provided about the market requirements. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT For a description of financial instruments and risk management, please see Notes 1 and 22. CHANGE IN ACCOUNTING PRINCIPLES From January 1, 2005, OEM International prepares its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as approved and adopted by the European Commission. The introduction of the new reporting standards have had an effect on the income statement and balance sheet. In order to present a comparison of the Group’s development and position, the figures for the previous year have been restated and rendered comparable (see Note 26). The Parent Company applies Recommendation 32 of the Swedish Financial Accounting Standards Council. ENVIRONMENTAL IMPACT In 2005, the Group had no operations that require registration under the Swedish

REPURCHASE OF OWN SHARES OEM International AB has authorisation, granted to the Board of Directors by the Annual General Meeting, to repurchase shares with the aim of improving the Group’s return on shareholders’ equity and earnings per share. The Company has not repurchased any shares in 2005. Total company ownership of shares at year end was 154,000, equivalent to 2% of the total number of shares. The value of shares owned by the Company is SEK 770 thousand of the share capital’s SEK 38,615 thousand. SEK 12,203 thousand has been paid for the Company’s share holding. The Annual General Meeting authorised the repurchase up to 10% of the total number of shares, that is, 772,310 shares. THE WORK OF THE BOARD The work of the Board and its programme are presented on page 16.

PROPOSED DIVIDEND The Board of Directors and the Managing Director are proposing that the dividend be raised from SEK 5.50 to SEK 7. The complete proposal for profit allocation is presented on page 72. EVENTS THAT HAVE OCCURRED SUBSEQUENT TO THE BALANCE SHEET DATE No particular events have occurred subsequent to the balance sheet date. FUTURE DEVELOPMENT The Group’s objective is to increase profit by an average of 15% annually over an economic cycle. The Group with its market position, organisation and financial position is strong and well equipped for continued expansion. The growth strategy is presented on page 11. Figures for 2004 are in brackets.

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GROUP PROFIT AND LOSS ACCOUNT SEK thousands

Note

2005

2004

1,524,828

1,406,128

- 1,004,432

-915,723

- 120,525

-105,577

- 266,173

-275,976

intangible fixed assets

-13,403

-21,701

OPERATING INCOME

120,295

87,151

BUSINESS INCOME Net turnover

O P E R AT I N G E X P E N S E S Trading stock Other expenses Personnel expenses Depreciation and write-down of tangible and

FINANCIAL INCOME AND EXPENSES Financial income

5,228

4,235

Financial expenses

- 3,213

- 3,161

Income from associate

1,313

1,103

123,623

89,328

- 34,864

-25,674

88,759

63,654

88,759

63,654

Undiluted earnings per share, SEK

11.49

8.23

Diluted earnings per share, SEK

11.43

8.18

Average number of shares

7,723,103

7,738,795

Average number of diluted shares

7,763,103

7,778,795

7.00*

5.50

PRE TAX PROFIT Taxation

PROFIT OR LOSS FOR THE FINANCIAL YEAR

AT T R I B U TA B L E T O : Parent Company shareholders Minority interest

Dividends, SEK *Proposal

FINANCIAL REPORTING â?&#x161; OEM ANNUAL REPORT 2005

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GROUP BALANCE SHEET SEK thousands

ASSETS

Note

31.12.05

31.12.04

Goodwill

9,398

10,255

Other intangible fixed assets

8,800

18,198

10,255

FIXED ASSETS I N TA N G I B L E F I X E D A S S E T S

TA N G I B L E F I X E D A S S E T S Buildings and land

92,556

104,914

Equipment, tools and installations

29,925

31,227

122,481

136,141

5,599

5,386

2,632

1,803

FINANCIAL FIXED ASSETS Participating interest

Other financial assets Other long-term receivables

D E F E R R E D TA X R E C E I VA B L E S

TOTAL FIXED ASSETS

400

831

8,631

8,020

5,610

12,463

154,920

166,879

CURRENT ASSETS STOCK Work in progress Finished goods and goods for resale

3,270

2,905

214,891

203,012

218,161

205,917

213,036

198,783

C U R R E N T R E C E I VA B L E S Customer receivables Receivables from associated companies Other receivables Prepayments and accrued income

13,260

14,580

14,721

15,241

241,020

228,607

150,042

111,001

TOTAL CURRENT ASSETS

609,223

545,525

TOTAL ASSETS

764,143

712,404

LIQUID FUNDS

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GROUP BALANCE SHEET SEK thousands

EQUITY AND LIABILITIES

Note

31.12.05

31.12.04

Share capital

38,615

Other capital contributed

39,440

EQUITY

Reserves Surplus brought forward Profit or loss for the financial year TOTAL SHAREHOLDERS’ EQUITY ATTRIBUTABLE TO HOLDERS OF SHARES IN THE PARENT COMPANY

5,922

305,203

283,179

88,759

63,654

477,939

424,888

LIABILITIES

LONG-TERM LIABILITIES Interest-bearing liabilities Other long-term liabilities

8,878

11,686

Provisions for pensions

2,254

Non interest-bearing liabilities Deferred tax liabilities

TOTAL LONG-TERM LIABILITIES

21,611

27,174

30,537

41,114

CURRENT LIABILITIES Interest-bearing liabilities Overdraft

44,169

37,744

Other current liabilities

2,808

2,373

Non interest-bearing liabilities Advances from customers

826

443

107,548

97,359

Liabilities to associated companies

1,046

1,156

Tax liability

2,270

7,883

32,005

34,483

63,888

64,155

Accounts payable

Other liabilities Accruals and deferred income

Guarantee provisions

1,107

806

TOTAL CURRENT LIABILITIES

255,667

246,402

TOTAL EQUITY AND LIABILITIES

764,143

712,404

31.12.05

31.12.04

Mortgages on property

27,650

42,650

Business mortgages

69,750

88,400

97,400

131,050

2,908

2,824

346

2,908

3,170

PLEDGED ASSETS AND

Note

CONTINGENT LIABILITIES

PLEDGED ASSETS FOR OWN LIABILITIES AND PROVISIONS

TOTAL PLEDGED ASSETS

CONTINGENT LIABILITIES Guarantee commitments Location contribution TOTAL CONTINGENT LIABILITIES

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2005

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GROUP CHANGES IN EQUITY SEK thousands

Share equity

Opening equity 01.01.04

40,661

Other capital contributed

37,394

Brought forward profits

Total equity

313,012

391,067

9,018

322,030

400,085

- 1,329

- 1329

63,654

62,325

-34,214

-3,308

- 3,308

346,833

424,888

346,833

424,888

Reserves

Adjusted for changes in accounting principles* Adjusted equity 01.01.04

40,661

37,394

Translation differences Total changes in assets are recognised immediately in shareholders’ equity, excluding transactions with owners

Profit or loss for the financial year Total changes in assets, excluding transactions with owners

Issued dividends Reduction of share capital

- 2,046

2,046

Repurchase of own shares**

Closing equity 31.12.04**

Opening equity 01.01.05

38,615

39,440

38,615

39,440

Translation differences Total changes in assets are recognised immediately in shareholders’ equity, excluding transactions with owners

5,922

Profit or loss for the financial year Total changes in assets, excluding transactions with owners

5,922

Issued dividends

Closing balance 31.12.05**

38,615

39,440

* Changes arising from the transition to IFRS, see Note 26 ** Equity attributable to Parent Company shareholders. *** Repurchase of shares is included in total as SEK - 12,203 thousand in retained earnings.

OEM ANNUAL REPORT 2005 ❚ FINANCIAL REPORTING

5,922

88,759

94,681

-41,630

393,962

477,939

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G R O U P C A S H F L O W S TAT E M E N T S E K t h o u s a n d s

2005

2004

C U R R E N T O P E R AT I O N S Income after financial items Adjustments for items not included in the cash flow

Tax paid

OPERATING CASH FLOW BEFORE WORKING CAPITAL CHANGES

123,623

89,328

21,002

21,547

144,625

110,875

- 40,477

- 18,604

104,148

92,271

Cash flow from working capital changes Change in inventories

- 8,815

21,401

Change in customer receivables

- 7,497

- 24,851

Change in other operating receivables

- 7,889

- 4,217

8,067

3,829

Change in accounts payable Change in other operating liabilities

- 10,608

4,478

OPERATING CASH FLOW

77,406

92,911

INVESTMENT ACTIVITIES Disposal of business Acquisition of tangible fixed assets

1,141

- 15,147

-15,207

Acquisition of intangible fixed assets

-9,900

Sales of tangible fixed assets

15,849

11,330

Sales of financial fixed assets

- 9,077

-2,736

CASH FLOW FROM INVESTMENT ACTIVITIES

FINANCING ACTIVITIES Loans raised Dividends paid Repurchase of own shares

11,107

5,734

- 41,630

-34,214

- 3,308

-30,523

-31,788

CASH FLOW FOR THE YEAR

37,806

58,387

Liquid funds at the start of the year

111,001

52,648

1,235

- 34

150,042

111,001

CASH FLOW FROM FINANCING ACTIVITIES

Exchange rate difference in liquid funds Liquid funds at the end of the year

Additional information, see Note 24

FINANCIAL REPORTING â?&#x161; OEM ANNUAL REPORT 2005

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PA R E N T C O M PA N Y P R O F I T A N D L O S S A C C O U N T S E K t h o u s a n d s

Note

2005

2004

34,903

35,090

BUSINESS INCOME Net turnover

O P E R AT I N G E X P E N S E S Other external expenses Personnel expenses

-18,365

- 18,614

-25,134

- 23,066

-1,725

- 1,871

-10,321

- 8,461

455

Depreciation of tangible and intangible fixed assets OPERATING INCOME

INCOME FROM FINANCIAL ITEMS Income from shares in affiliated undertakings

28,500

Income from shares in associated companies

1,100

750

Other interest income and similar income items

2,121

3,437

Interest expenses and similar expense items

- 14

- 10

21,386

- 3,829

172

176

INCOME AFTER FINANCIAL ITEMS

A P P R O P R I AT I O N S Difference between tax depreciation and depreciation according to plan: • Buildings and land • Equipment, tools and installations Accruals fund, resolution Accruals fund, allocation PRE TAX PROFIT Taxation

PROFIT OR LOSS FOR THE FINANCIAL YEAR

OEM ANNUAL REPORT 2005 ❚ FINANCIAL REPORTING

- 326

250

6,583

- 13,000

21,482

- 10,023

2,048

2,316

23,530

- 7,707

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PA R E N T C O M PA N Y B A L A N C E S H E E T S E K t h o u s a n d s

ASSETS Note

31.12.05

31.12.04

Buildings and land

18,786

19,303

Equipment, tools and installations

3,428

2,624

22,214

21,927

FIXED ASSETS TA N G I B L E F I X E D A S S E T S

FINANCIAL FIXED ASSETS Shares in affiliated undertakings

176,544

170,020

Participating interest

1,200

7,000

1,018

178,762

179,238

200,976

201,165

Loans to affiliated undertakings Shares in tenant-owners’ society

TOTAL FIXED ASSETS

CURRENT ASSETS

C U R R E N T R E C E I VA B L E S Customer receivables Loans to affiliated undertakings Other receivables

211,358

193,736

2,813

2,214

214,216

196,012

107,579

77,755

TOTAL CURRENT ASSETS

321,795

273,767

TOTAL ASSETS

522,771

474,932

Prepayments and accrued income

C A S H AT B A N K A N D I N H A N D

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2005

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PA R E N T C O M PA N Y B A L A N C E S H E E T S E K t h o u s a n d s

E Q U I T Y, P R O V I S I O N S

Note

31.12.05

31.12.04

Share capital

38,615

Restricted reserves

32,288

70,903

212,249

199,764

23,530

- 7,707

235,779

192,057

306,682

262,960

AND LIABILITIES

EQUITY RESTRICTED EQUITY

NON-RESTRICTED EQUITY Non-restricted reserves Profit or loss for the financial year

TOTAL EQUITY

U N TA X E D R E S E R V E S Accumulated excess depreciation: Buildings and land

239

Machinery and equipment

569

243

Accruals fund, allocated in conjunction with taxation for 2003

250

Accruals fund, allocated in conjunction with taxation for 2004

9,400

Accruals fund, allocated in conjunction with taxation for 2005

13,000

TOTAL UNTAXED RESERVES

23,036

23,132

1,672

1,561

1,672

1,561

PROVISIONS Deferred tax liability

TOTAL PROVISIONS

CURRENT LIABILITIES Non interest-bearing liabilities Accounts payable Amounts owed to affiliated undertakings Tax liability Other liabilities Accruals and deferred income

1,028 171,645

11,490

3,217

4,461

4,749

9,328

6,640

TOTAL CURRENT LIABILITIES

191,381

187,279

TOTAL EQUITY, PROVISIONS AND LIABILITIES

522,771

474,932

31.12.05

31.12.04

Mortgages on property

7,500

TOTAL PLEDGED ASSETS

7,500

Security undertakings to the benefit of Group companies

139,414

172,436

TOTAL CONTINGENT LIABILITIES

139,414

172,436

PLEDGED ASSETS AND

1,903 164,199

Note

CONTINGENT LIABILITIES

PLEDGED ASSETS FOR OWN LIABILITIES AND PROVISIONS

CONTINGENT LIABILITIES

OEM ANNUAL REPORT 2005 ❚ FINANCIAL REPORTING

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PA R E N T C O M PA N Y C H A N G E S I N E Q U I T Y S E K t h o u s a n d s Restricted equity Share equity

Opening equity 01.01.04

40,661

Non-restricted equity

Legal reserve

30,242

Repurchase of own shares

- 8,895

Adjusted for changes in accounting principles* Adjusted equity 01.01.04

40,661

Group contributions received

Total equity

Profit/loss brought forward

207,318

269,326

3,052

210,370

272,378

64,450

Tax effect on Group contributions received

-18,046

- 18,046

Group contributions paid

-14,712

- 14,712

4,119

35,811

-7,707

- 7,707

28,104

- 34,214

Tax effect on Group contributions paid Total changes in assets are recognised immediately in shareholders’ equity, excluding transactions with owners-

Profit or loss for the financial year Total changes in assets, excluding transactions with owners

Reduction of share capital

-2,046

2,046

Issued dividends Repurchase of own shares

-3,308

- 3,308

Closing equity 31.12.04

38,615

32,288

-12,203

204,260

262,960

Opening equity 01.01.05

38,615

32,288

-12,203

204,260

262,960

Group contributions received

94,514

Tax effect on Group contributions received

-26,464

Group contributions paid

- 8,650

2,422

61,822

23,530

85,352

-41,630

247,982

306,682

Tax effect on Group contributions paid Total changes in assets are recognised immediately in shareholders’ equity, excluding transactions with owners-

Profit or loss for the financial year Total changes in assets, excluding transactions with owners

Issued dividends

Closing equity 31.12.05

38,615

Proposed dividends, SEK 7.00 per share

32,288

- 12,203

54,062

* Changes arising from the transition to IFRS. Refers to component depreciation

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PA R E N T C O M PA N Y C A S H F L O W S TAT E M E N T S E K t h o u s a n d s

2005

2004

21,386

- 3,829

5,388

5,651

26,774

1,822

-13,771

- 8,195

13,003

- 6,373

C U R R E N T O P E R AT I O N S Income after financial items Adjustments for items not included in the cash flow

Tax paid

OPERATING CASH FLOW BEFORE WORKING CAPITAL CHANGES

Cash flow from working capital changes Change in customer receivables Change in other operating receivables Change in accounts payable

-9

- 11,224

39,116

875

505

Change in other operating liabilities

- 5,046

9,653

OPERATING CASH FLOW

- 2,372

42,892

INVESTMENT ACTIVITIES Acquisition of subsidiary companies

-10,024

Acquisition of tangible fixed assets

- 2,025

- 2,114

-12,038

-2,114

Sales of tangible fixed assets CASH FLOW FROM INVESTMENT ACTIVITIES

FINANCING ACTIVITIES Group contribution Dividends paid Repurchase of own shares

49,738 -34,214

- 3,308

CASH FLOW FROM FINANCING ACTIVITIES

44,234

12,216

CASH FLOW FOR THE YEAR

29,824

52,994

Liquid funds at the start of the year

77,755

24,761

107,579

77,755

Liquid funds at the end of the year

Additional information, see Note 24

85,864 - 41,630

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N O T E S W I T H A C C O U N T I N G P R I N C I P L E S A N D C O M M E N T S T O T H E F I N A N C I A L S TAT E M E N T S A M O U N T S I N S E K T H O U S A N D S U N L E S S O T H E R W I S E I N D I C AT E D

NOTE 1. GENERAL ACCOUNTING PRINCIPLES COMPLIANCE WITH STANDARDS AND LEGISLATION The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and statements concerning interpretation published by the International Financial Reporting Interpretations Committee (IFRIC), as approved by the European Commission and applicable in all Member States. This annual report and consolidated financial statements present the first complete financial reports prepared under the International Financial Reporting Standards (IFRS). As a starting point for the transition to IFRS from previous accounting principles, the Group has applied IFRS 1 “First time adoption of International Financial Reporting Standards”, which explains how an entity should make the transition to IFRS from another basis of accounting. Furthermore, the Group has applied the Swedish Financial Accounting Standards Council’s recommendation RR 30 “Supplementary Accounting Regulations for Groups”. The Parent Company applies the same accounting principles as the Group, except in those cases specified below in the section “Accounting Principles of the Parent Company”. The differences between the accounting principles of the Parent Company and the Group result from restrictions on how IFRS can be implemented in the Parent Company on account of the Swedish Annual Accounts Act and the Act on Safeguarding of Pension Obligations (Tryggandelagen) and, in some cases, for fiscal reasons. Note 26 gives a summary explanation of how the transition to IFRS has affected the Group’s financial position and profits plus the reported cash flow. REQUIREMENTS FOR PREPARING PARENT COMPANY AND GROUP FINANCIAL REPORTS The Parent Company’s functional currency is the Swedish krona (SEK), which is also the official accounting currency for the Parent Company and the Group. This means that the financial reports are presented in Swedish krona. All amounts, unless otherwise stated, are rounded off to the nearest thousand. Assets and liabilities are reported at the historic acquisition value, except for some financial assets and derivate instruments that are valued at their fair value. Financial instruments, which are valued at their fair value, consist of financial assets classified as financial assets valued at fair value via the income statement or as financial assets that can be sold. Fixed assets and disposal groups that are held for sale, are reported at the previously reported value or the fair value, less costs to sell, whichever is lower. To prepare the financial reports in accordance with the IFRS, the management must make estimates and assumptions that affect the application of the accounting principles and the reported amounts pertaining to assets, liabilities, revenue and expenses. These estimates and assumptions are based on historical experience and a number of other

factors that are deemed reasonable in the circumstances. The results of these estimates and assumptions are then used to assess the reported value of assets and liabilities that cannot clearly be determined from other sources. Consequently, the actual results can differ from these estimates. The estimates and assumptions are regularly reviewed. Changes in estimates are reported in the period in which the change is made, if the change affects that period only, or in the period in which the change is made and future periods if the change affects both the current and future periods. The Group accounting principles specified below have been consistently applied to all periods presented in the Group’s financial reports, unless otherwise stated below, and when preparing the Group’s opening balance sheet in accordance with the IFRS as of January 1, 2004, which explains the transition from previously applied accounting principles to the IFRS principles. Group accounting principles have been consistently applied to the accounts and consolidation of the Parent Company, subsidiaries and associated companies. CHANGES IN ACCOUNTING PRINCIPLES The transition to IFRS has been accounted for by the Group in accordance with IFRS 1 as outlined in Note 26. The Group is taking the exemption offered by IFRS 1 to apply IAS 39 and IFRS 4 and IFRS 5, not for the comparative figures for 2004, but with effect from January 1, 2005. The adoption of IAS 39, IFRS 4 and IFRS 5 has had no effect on the financial reports for 2005 (see Note 27). The effects of IAS 39 in the income statement have been marginal in 2005 due to the unchanged interest rate level and stable exchange rates. The comparative figures for 2004 are based on the same accounting principles as those used for the Parent Company in respect of financial instruments. CLASSIFICATION, ETC. Fixed assets and long-term liabilities in the Parent Company and the Group essentially consist only of amounts that can be expected to be recovered or paid more than twelve months after the balance sheet date. Current assets and current liabilities in the Parent Company and the Group essentially consist only of amounts expected to be recovered or settled within twelve months from the balance sheet date. SEGMENT REPORTING A segment is an identifiable part of the Group for accounting purposes that provides products or services (business segment), or provides goods or services in a given economic environment (geographic segment), which is exposed to risks and returns that differ from other segments. IAS 14 segment information is only provided for the Group. BASIS OF CONSOLIDATION FOR SUBSIDIARY COMPANIES Subsidiaries are those entities over which OEM International AB has a controlling influence. Control is achieved when the controlling entity

has the direct or indirect power to govern the financial and operating strategies of an enterprise, for the purpose of gaining financial benefits from its activities. When determining whether a controlling influence exists, potential shares with voting rights that can be used or converted without delay should be taken into account. The acquisition method is used to account for the purchase of subsidiaries. The acquisition method means that the acquisition of a subsidiary is regarded as a transaction through which the Group indirectly acquires the subsidiary’s assets and takes over its liabilities and contingent liabilities. The method determines the acquisition value of the shares or business, the fair value of acquired identifiable assets on the acquisition date, and assumed liabilities and contingent liabilities. The acquisition value of the subsidiary shares and the business is determined by the fair values on the transfer date for assets, incurred or assumed liabilities and equity instruments issued in exchange for the acquired net assets and transaction-related costs that are directly attributable to the acquisition. If the acquisition value exceeds the net value of the acquired company’s assets and assumed liabilities and contingent liabilities, the difference is reported as goodwill. A negative difference is recognised immediately in the income statement. The financial reports of the subsidiary are included in the consolidated financial statements from the effective date of acquisition up to the date when the Parent Company no longer exercises any controlling influence. BASIS OF CONSOLIDATION FOR ASSOCIATED COMPANIES Associated companies are companies in which the Group exercises substantial, but not controlling, influence over the operational and financial management, generally through a holding of between 20% and 50% of the voting rights. From the date on which the Group acquires substantial influence, holdings in associated companies are reported in the consolidated financial statements according to the equity method. The equity method means that the value of the shares in the associated companies reported in the consolidated accounts corresponds to the Group’s interest in the associated companies’ equity, the consolidated goodwill and other residual values that might exist in the consolidated fair value adjustments. In the consolidated income statement, the Group’s share in the associated companies’ net earnings after tax and minority interest adjusted for depreciation, write-downs and resolution of acquired fair value adjustments is reported under “Participations in associated companies”. Dividends obtained from the associated company reduce the reported value of the investment. On acquisition, any differences between the acquisition value of the holding and the owning company’s share of the net fair value of the associated company’s identifiable assets, liabilities and contingent liabilities are reported in accordance with IFRS 3 “Business Combinations”. FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2005

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When the Group’s share of reported losses in the associated company exceeds the reported value of the shares in the Group, the value of the shares is reduced to zero. Deductions for losses are also made against unsecured, long-term financial transactions which, in their financial sense, constitute part of the owning company’s net investment in the associated company. Further losses are not reported, unless the Group has undertaken to cover losses arising in the associated company. The equity method is adopted until the substantial influence is no longer exercised. TRANSACTIONS TO BE ELIMINATED ON CONSOLIDATION All intra-Group receivables and payables, income or expenses, and unrealised gains or losses arising from intra-Group transactions between Group companies are eliminated in their entirety on consolidation of the financial statements. Unrealised gains arising from transactions with associated companies are eliminated to an extent that corresponds to the Group’s share of ownership of the company. Unrealised losses are eliminated in the same way as unrealised gains, but only if there is no indication that a write-down is required. FOREIGN CURRENCY Transactions in foreign currencies Functional currency is the currency in the primary economic environments in which the Group subsidiaries operate. The Parent Company’s functional currency, also its presentation currency, is the Swedish krona (SEK). The Group’s presentation currency is the Swedish krona (SEK). Transactions in foreign currencies are translated to the functional currency at the exchange rate prevailing on the date of the transaction. Monetary assets and liabilities that are denominated in foreign currencies are retranslated to the functional currency at the exchange rate prevailing on the balance sheet date. Exchange rate differences resulting from translations are reported in the income statement. Exchange rate differences regarding operating assets and liabilities are reported in the operating income, while changes in value attributable to financial assets and liabilities are reported in net financial items. Non-monetary assets and liabilities reported at their historical acquisition values are translated at the exchange rate prevailing on the date of the transaction. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated to the functional currency at the rate prevailing at the date when the fair value was determined. Exchange rate fluctuations are then reported in the same way as other changes in value with regard to assets or liabilities. Financial reports in foreign entities Assets and liabilities in foreign entities, including goodwill and other corporate fair value adjustments, are translated to Swedish kronor (SEK) at the exchange rate prevailing on the balance sheet date. Revenue and expenses in foreign entities are translated to Swedish kronor (SEK) at an average rate that represents an approximation of the rates that applied when each transaction took place. Differences that arise when translating currency in foreign 52

OEM ANNUAL REPORT 2005 ❚ FINANCIAL REPORTING

entities are recognised immediately in shareholders’ equity as a translation reserve. REVENUE Sale of goods Income from the sale of goods is reported as revenue when the following conditions are met: • The Company has transferred the material risks and benefits associated with ownership of the goods to the purchaser. • The Company does not retain any such involvement with the ongoing administration which is usually associated with ownership and the Company does not exercise any control over the goods which have been sold. • The income can be calculated in a reliable way. • It is likely that the economic benefits to the seller which are associated with the transaction occur. • The costs which occur or are expected to occur as a result of the transaction can be calculated in a reliable manner. Sales of services and similar assignments Income from the sale of services and similar assignments is reported as revenue when the following conditions are met: • The income attributable to the assignment can be calculated in a reliable way. • It is likely that the economic benefits to the individual taking the assignment which are associated with the assignment occur. • The costs that have occurred and the costs that remain to complete the assignment can be calculated in a reliable manner. If it is considered probable that the combined costs for an assignment will exceed the total costs, the incurred loss must be immediately reported in full as a cost. OPERATING COSTS AND FINANCIAL INCOME AND EXPENSES Payments for operational leasing Payments for operational leasing agreements are reported in the income statement on a straight-line basis over the period of the leasing agreement. Benefits obtained on signing an agreement are reported as part of the overall leasing cost in the income statement. Payments for financial leasing The minimum leasing payments are allocated to interest expenses and amortisation of the outstanding liability. The interest expenses are distributed over the period of the lease, so that each accounting period is charged with an amount corresponding to a fixed rate of interest for the liability reported in the respective period. Variable payments are entered as expenses in the periods they occur. Financial income and expenses Financial income and expenses include interest revenue from bank assets, receivables and interest-bearing securities, interest expenses related to loans, dividend incomes, exchange rate differences attributable to financial investments and financing activities, unrealised and realised gains and losses on financial investments, and derivative instruments used in financial operations. Interest revenue from receivables and interest expenses related to liabilities are calculated using the effective interest method. The effective interest is the rate that ensures that the current value of all estimated future receipts and payments during the expected interest duration

is the same as the reported value of the receivable or the liability. The interest element of financial leasing payments is reported in the income statement by using the effective interest method. Interest revenue includes a periodic amount of transaction expenses and discounts, where applicable, premiums and other differences between the original value of the receivable and the amount received on maturity. Interest expenses include a periodic amount of issue expenses and similar direct transaction expenses related to borrowing. Dividend income is reported when the right to retain payment has been established. The Group and the Parent Company do not capitalise interest in the acquisition value of assets. FINANCIAL INSTRUMENTS Financial instruments are valued and reported in the consolidated financial statements according to IAS 39 from January 1, 2005, without retroactive restatement of the previous year. A financial asset or financial liability is included in the balance sheet when the company is party to the instrument’s conditions of agreement. Liabilities are included when the service has been rendered and the agreed liability remains to be paid, even if the invoice has not been received. A financial asset (or part thereof) is removed from the balance sheet when the rights in the agreement are effected, expire or the company transfers, in all essentials, the risks and benefits associated with ownership. A financial liability (or part thereof) is removed from the balance sheet when the liabilities in the agreement are fulfilled or cease in some other way. Borrowing and investments are reported when the transaction is carried out (settlement date accounting), while derivative instruments are reported when the agreement has been entered into (trade date accounting). A financial asset and a financial liability are offset and reported in the balance sheet as a net amount only when there is a legal right to set off the amount and an intention to adjust the items with a net amount or, at the same time, realise the asset and settle the liability. Financial instruments are reported initially at an acquisition value corresponding to the fair value of the instrument plus transaction expenses for all financial instruments, except those instruments categorised as financial assets reported at their fair value in the income statement, which are reported at their fair value excluding transaction expenses. The financial instruments are classified in the first accounts according to the purpose of the acquisition of the financial instrument. This classification is used for accounting purposes hereafter. The fair value of listed financial assets corresponds to the asset’s listed bid price on the balance sheet date. The fair price of unlisted financial assets is determined using evaluation methods such as recent transactions, prices of similar instruments and discounted cash flow. Accounts receivable and other current and long-term receivables Receivables, that are not derivatives, with payments that can be scheduled, and that are not listed on an active market, are reported at the accrued acquisition value according to the effective interest method. Accounts receivable and other current receivables that normally have a remaining duration of less than twelve months are reported at nominal value.

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A receivable is individually assessed with regard to its estimated loss risk and is entered at the amount it is expected to generate. Writedowns are made where necessary and are reported in the income statement. Financial investments This category has two subgroups: financial assets held for trading and other financial assets that the Company initially chose to include in this category. A financial asset is classified as being held for trading if it was acquired for the purpose of being sold in the short term. Financial investments are valued continuously at fair value, with changes in value being reported in the income statement in net financial items. Derivative instruments Derivative instruments include a currency future contract and currency options to cover risks resulting from changes in exchange rates. Derivatives are also contractual terms that are embedded in other agreements. Embedded derivatives must be reported separately if they are not closely related to the host contract. Value changes in derivative instruments, standalone and embedded, are reported in the income statement. The Group does not use derivatives for hedging purposes. Value changes in derivative instruments are reported as income and expenses in the operating income or in net financial items, based on the intended use of the derivative instrument and how this use is related to an operating item or a capital item. Liquid funds Liquid funds are cash and immediately available credit in banks and similar institutions, plus current liquid investments with a term of less than three months, from the date of acquisition, which are only exposed to insignificant risk for fluctuations in value. The cash at bank and in hand balance is reported at nominal value. The definition of liquid funds in the cash flow statement corresponds with liquid funds in the balance sheet. Interest-bearing liabilities Loans are reported continuously at accrued acquisition value, which means that the value is adjusted through discounts, where applicable, or premiums when the loan is taken and costs when borrowing is spread over the expected term of the loan. The scheduling is calculated on the basis of the initial interest rate of the loan. Gain and loss arising when the loan is settled are reported in the income statement. Accounts payable and other operating liabilities Liabilities are reported at the accrued acquisition value which is determined from the effective interest that was calculated at the time of acquisition which normally implies nominal value. TANGIBLE FIXED ASSETS Owned assets Tangible fixed assets are reported as assets in the balance sheet if it is likely that future financial benefits shall accrue to the Company and the acquisition value of the asset can be calculated in a reliable way. Tangible fixed assets are reported at acquisition value after deductions for accumulated depreciation and any write-downs. The acquisition price includes the purchase price including

expenses directly attributable to the asset in order to bring it to the location and in a condition to be used as intended by the acquisition. Directly attributable costs, which are included in the acquisition value, are the cost of delivery and handling, installation, title deeds, consultancy services and legal services. Loan expenses are not included in the acquisition value for fixed assets produced by the Company. Accounting principles for write-downs are presented below. The carrying amount of a tangible fixed asset is removed from the balance sheet on the disposal or retirement of the asset. Or when no future economic benefits are expected from its use or disposal/retirement. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset, less direct sales costs. The gain or loss is recognised in other operating income/cost. Leased assets Leased assets are classified under IAS 17. The lease is classified in the consolidated financial statements either as a capital or operating lease. In a capital lease, the financial risks and benefits associated with the ownership are essentially transferred to the lessee, otherwise it is an operating lease. Assets leased under a capital leasehave been reported as assets in the Group balance sheet. The obligation to pay future lease fees has been reported as long-term and current liabilities. The leased assets are depreciated according to plan, and the leasing payments are reported as interest and amortisation of liabilities. With an operating lease, the lease fee is entered as an expense during the leasing period starting from the date of utilisation, which may differ from what has actually been paid as a lease fee during the year. Subsequent expenditure Subsequent expenditure is added to the acquisition value only if it is likely that the future economic benefits associated with the asset will flow to the enterprise and the acquisition value can be calculated in a reliable manner. All other subsequent expenditure is reported as an expense in the period it is incurred. When determining whether subsequent expenditure should be added to the acquisition value, it is crucial to know if the expense is intended for the replacement of identified components, or parts thereof, in which case such expenses are set up as assets. Even in those cases when a new component has been constructed, the expense is added to the acquisition value. Any undepreciated values reported for replaced components, or parts of components, are discarded and charged to expenses when the component is replaced. Repairs are charged to expenses as incurred. Depreciation principles Amortisation is based on the straight-line method over the estimated utilisation period of the assets. Land is not depreciated. The Group applies component depreciation, whereby assets are segregated into separate components with different expected useful lives, and this forms the basis for depreciation. Estimated useful lives • buildings, business property • land improvements

see below 20 years

• machinery and plant 5–10 years • equipment, tools and installations 3–10 years The business property consists of a number of components with different useful lives. The main group is buildings and land. Land is not depreciated as its useful life is considered to be indefinite. The buildings consist of a number of components with different useful lives. These components have estimated useful lives of between 20 and 100 years. The following main groups of components have been identified and form the basis for depreciation of buildings; Frame 100 years Frame extensions, interior walls, etc. 30 years Installations, heating, electricity, water and sanitation facilities, ventilation, etc. 20-32 years External surfaces, walls, roof, etc. 20-50 years The residual value and useful life of an asset are reviewed annually. INTANGIBLE FIXED ASSETS Goodwill Goodwill represents the difference between the acquisition value of a business acquisition and the fair value of the acquired assets, assumed liabilities and contingent liabilities. In respect of goodwill in acquisitions that were made before January 1, 2004, the Group has not applied IFRS retroactively on transition to IFRS. Instead, the reported value in the future will be the acquisition value for the Group, after impairment tests (see Note 11). Goodwill is valued at the acquisition value less any accumulated write-downs. Goodwill is allocated to the cash-generating units and is no longer written off, but is assessed annually for impairment (see accounting principles). Goodwill arising from the acquisition of associated companies is included in the reported value of participations in associated companies. If the acquisition value is less than the net value of the acquired company’s assets and assumed liabilities and contingent liabilities, the difference is recognised immediately in the income statement. Other intangible fixed assets Other intangible assets acquired by the Group are reported at the acquisition value less the accumulated depreciation (see below) and write downs (see accounting principles). The expenses of internally generated goodwill and internally generated trademarks are reported in the income statement as the costs are incurred. Subsequent expenditure Subsequent expenditure on intangible assets is reported as an asset in the balance sheet only when it increases the future economic benefits of the specific asset to which it relates. All other expenditure is recognised as an expense when incurred. Depreciation Depreciation is reported in the income statement on a straight-line basis over the estimated utilisation period of the assets, unless such utilisation periods are undetermined. Intangible fixed assets with an undetermined utilisation period are assessed annually for impairment or FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2005

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see below 20 years

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N O T E 2 . A R E A S O F O P E R AT I O N A N D G E O G R A P H I C A R E A S The Group is organised into five segments: Automation, Electronics, Mechanical, Hydraulics and EP. For a description of activities in the areas of operations refer to pages 20-31 in the annual report. Mechanical in included in Development on page 30. Parent Company activities are described under the Directorsâ&#x20AC;&#x2122; Report.Other activities include the Parent Company, owned shares in underlying companies, property companies owning operating property where the Group manages its own activities and Telfa AB which was acquired on September 1. From 2006, Telfa AB will be reported in Development, page 30.

2005

Other operations

Elimination/ Undistributed

Automation

Electronics

Mechanics

Hydraulics

Total

601,209

302,063

166,486

156,978

284,304

13,788

1,524,828

3,624

2,542

5,266

336

42,713

-54,482

604,833

304,605

171,752

157,314

284,305

56,501

74,666

24,743

5,083

11,140

18,539

-13,876

INCOME External sales Internal sales Total income

-54,482 1,524,828

PROFIT Operating income Other financial items Tax expenses Income

120,295

3,328

-34,864

74,666

24,743

5,083

11,140

18,539

-13,876

-31,536

88,759

Assets

174,051

99,739

84,431

68,997

101,626

476,115

-258,112

746,847

Liabilities

126,748

60,300

53,066

40,009

46,580

81,889

-157,955

250,637

9,900

2,648

593

1,486

836

2,237

13,484

21,284

857

1,100

2,059

479

925

510

1,813

6,760

12,546

O T H E R I N F O R M AT I O N

Investments intangible fixed assets Investments material fixed assets Amortisation of goodwill Amortisation of intangible fixed assets Depreciation material fixed assets

2004

Other operations

Elimination/ Undistributed

Automation

Electronics

Mechanics

Hydraulics

Total

549,621

282,903

187,337

138,627

239,349

8,291

5,369

1,909

7,031

280

38,200

-52,789

554,990

284,812

194,368

138,907

239,349

46,491

-52,789

1,406,128

67,134

19,553

6,134

2,859

-555

-8,356

86,769

INCOME External sales Internal sales Total income

1,406,128

PROFIT Operating income Other financial items Tax expenses Income

2,974

-26,089

67,134

19,553

6,134

2,859

-555

-8,356

-23,115

63,654

Assets

183,750

95,439

86,042

57,464

120,705

457,571

-315,089

685,882

Liabilities

139,775

56,144

59,064

28,795

59,304

90,826

-195,508

238,400

O T H E R I N F O R M AT I O N

Investments intangible fixed assets

1,978

143

1,005

234

4,383

8,357

16,100

Amortisation of goodwill

2,382

555

1,278

1,096

5,311

Amortisation of intangible fixed assets

Amortisation of material fixed assets 3,813

557

1,088

679

3,399

6,854

16,390

Investments material fixed assets

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THE GEOGRAPHIC AREAS

External sales 2005

Assets

2004

Liabilities

2005

2004

2005

2004

Investments 2005

2004

10,674

Sweden

950,867

906,154

507,618

444,677

132,630

102,503

16,460

Denmark

57,395

67,463

29,665

38,670

15,644

22,360

181

United Kingdom

60,012

59,555

51,573

44,303

19,403

19,653

137

178

364,774

288,248

123,895

115,185

65,363

61,192

2,614

4,206

7,254

8,260

8,505

5,392

3,831

2,103

1,115

Italy

12,590

19,813

14,469

13,660

207

Norway

41,998

33,774

14,890

13,298

5,263

7,137

Poland

29,938

22,861

10,701

9,888

8,503

9,792

553

719

Finland The Netherlands

Estonia Total

NOTE 3.

535

1,299

128

1,524,828

1,406,128

746,847

685,882

250,637

238,400

21,284

16,100

A C Q U I S I T I O N O F O P E R AT I O N S

On September 1, 2005, the Group acquired 100% of the shares in Telfa AB at a purchase price of SEK 10,000 thousand and paid in cash. The Company operates in Sweden and trades in pumps for industrial, marine and mobile applications. In the four months following the acquisition, the subsidiary contributed SEK 426 thousand to Group income in 2005. EFFECTS OF THE ACQUISITION Net assets of the acquired company on acquisition: Booked value in Telfa AB

Tangible fixed assets

Fair value accounted for

1,163

Intangible fixed assets

Fair value in the Group

1,163 9,900

9,900

Inventories

6,801

Accounts receivable and other receivables

6,994

Accounts payable and other liabilities

- 2,122

Other liabilities

-12,736

Identifiable assets and liabilities, net

100

6,801

- 12,736 9,900

Group goodwill

10,000 -

Purchase sum paid

10,000

It is estimated that net turnover would have been SEK 40,000 and profit would have been SEK 3,000 thousand if the acquisition had been made on January 1, 2005. For further information about intangible assets, see Note 12.

NOTE 4.

EMPLOYEES AND PERSONNEL EXPENSES

AVERAGE NUMBER OF EMPLOYEES

2005

Whereof men

2004

Whereof men

T H E PA R E N T C O M PA N Y Sweden

81%

Sweden

325

82%

363

82%

Denmark

73%

74%

United Kingdom

86%

88%

Finland

80%

The Netherlands

50%

Italy

60%

China

92%

83%

Norway

83%

81%

Poland

76%

79%

Estonia

100%

Total at subsidiaries

520

82%

550

81%

Group total

541

82%

571

81%

S U B S I D I A RY C O M PA N I E S

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( C O N T. N O T E 4 )

S A L A R I E S , O T H E R R E M U N E R AT I O N A N D S O C I A L S E C U R I T Y E X P E N S E S 2005 Salaries and remuneration

The Parent Company (Whereof pension expenses)

Subsidiaries

Social security expenses

(Whereof pension expenses)

Salaries and remuneration

Social security expenses

15,940

8,270

13,427

7,124

(2,429)

(2,116)

58,773

170,501

162,147

(Whereof pension expenses)

Group total

2004

62,177

(14,285)

(14,029)

178,087

67,043

183,928

69,301

(16,714)

(16,145)

SEK 432 thousand (last year SEK 396 thousand) of Parent Company pension costs relate to the Group’s Board of Directors and Managing Director. There are no pension obligations for this group. 2) SEK 2,632 thousand (last year SEK 2,864 thousand) of Group pension costs relate to the Group’s Board of Directors and Managing Director. There are no pension obligations for this group.

S A L A R I E S A N D O T H E R R E M U N E R AT I O N D I V I D E D B E T W E E N C O U N T R I E S A N D B E T W E E N B O A R D MEMBERS ETC. AND OTHER EMPLOYEES 2005 Board and Managing Director

2004 Other employees

Board and Managing Director

Other employees

T H E PA R E N T C O M PA N Y Sweden (Whereof bonus)

4,073

11,867

(990)

3,226

10,201

(436)

SUBSIDIARIES Sweden (Whereof bonus)

Denmark

716 (-)

United Kingdom

757

(Whereof bonus)

(27)

(Whereof bonus)

3,479

620

(Whereof bonus)

(222)

(Whereof bonus) Norway (Whereof bonus) China (Whereof bonus) Poland (Whereof bonus) Estonia (Whereof bonus)

Subsidiary companies total (Whereof bonus) Group total (Whereof bonus)

OEM ANNUAL REPORT 2005 ❚ FINANCIAL REPORTING

12,116

7,714

26,766

182

801

7,772

3,429

25,817

646

225

(-) -

910

2,693

(-) 6,205

1,491

4,847

(73) 253

–

266

(-) 2,599

(105) -

11,921

(792)

(-) 669

1,105

(107)

(158) -

98,474

(31)

(-) 1,662

7,626 (576)

(823)

The Netherlands

Italy

92,490

(598)

(Whereof bonus)

Finland

5,696

541

1,937

(80) 223

(-)

13,599

148,548

(1,933) 17,672 (2,923)

16,549

153,952

(1,659) 160,415

19,775 (2,095)

164,153

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REMUNERATION FOR SENIOR EXECUTIVES AND BOARD MEMBERS Board of Directors Remuneration has been paid to the Board to the amount of SEK 975 thousand, of which the Chairman, Hans Franzén, received SEK 350 thousand and other members each received SEK 125 thousand. Group President/Managing Director Salary and other benefits paid to the Managing Director amounted to SEK 3,098 thousand. In addition, the Company contributed to a retirement insurance policy to the amount of SEK 432 thousand. This is defined contribution. Bonus amounted to SEK 990 thousand based on attained profit level which gave maximum results for 2005. Bonus could be paid at a maximum of 50 percent of the annual salary. The period of notice for the Managing Director is 24 months from the Company’s side, with

the obligation to work, and 6 months from the Managing Director’s side. Retirement age for the Managing Director is 60 years. Head of the Group/ Managing Director’s salary and remuneration is set by the Board. Other Senior Executives Salaries and other benefits for the management group, excluding the Managing Director (8 people) in 2005 amounted to SEK 7,815 thousand. Contributions based pension premiums amounted to SEK 1,667 thousand. Bonus amounted to SEK 1,538 thousand but can be, based on achieved results, paid to a maximum of 40 percent of the set salary. The period of notice for other senior executives is a maximum of 12 months from the Company’s side, with the obligation to work, and a maximum of 6 months from the employee’s side. If the Company serves notice after the age of 55 years, a further maximum of 6 months salary is paid. Retirement age for other senior executives is between 60 and 65 years.

Shared options for the Senior executives During 2003, OEM International introduced an incentive program in accordance with the decision taken at the Annual General Meeting. The program is an options program aimed at the other senior executives within the Group. 40,000 share options have been made available on the basis of repurchased B shares held by the Company. The maximum distribution is 10,000 options per person. Each purchase option gives the holder the right to purchase 1 share in the Company at a price of SEK 120 between August and November 2006. The purchase options are transferred at a market price determined by third-party appraisal. The retained option premium is reported as an increase in non-restricted equity. Because the price was the market value the agreements are not associated with any costs to OEM.

S I C K L E A V E PA R E N T C O M PA N Y 2005

Total sick leave as a proportion of normal working time

2004

0.5%

0.7%

Men

0.3%

0.4%

Women

1.6%

1.5%

Continuous sick leave of 60 days or more as a proportion of the total sick leave

T O TA L S I C K L E A V E A S A P R O P O R T I O N O F EACH GROUP’S NORMAL WORKING TIME Sick leave by gender:

S I C K L E A V E B Y A G E C AT E G O RY: 29 years old or younger 30-49 years 50 years old or older

0.6%

0.7%

GENDER DISTRIBUTION THE GROUP

THE PARENT COMPANY

(Proportion of women) 2005

(Proportion of women)

2004

2005

2004

Board of Directors

Other Senior Executives

10%

FEES AND REIMBURSEMENT OF EXPENSES TO THE AUDITORS

THE GROUP 2005

THE PARENT COMPANY 2004

2005

2004

KPMG Audit assignment Other assignments

1,079

1,212

200

228

129

594

612

–

1,802

1,827

329

231

OTHER AUDITORS Audit assignment Total

Audit assignments cover scrutiny of the annual report and accounts, and the administration by the Board and the Managing Director, any other tasks that fall to the Company’s auditors, and guidance or any other contribution brought about by observations during that scrutiny, or fulfilment of other such tasks. All else is secondary work.

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N O T E 5 . D E P R E C I AT I O N / W R I T E - D O W N O F TA N G I B L E A N D I N TA N G I B L E F I X E D A S S E T S THE GROUP 2005

Goodwill, write-down

THE PARENT COMPANY 2004

2005

2004

-857

- 5,311

–

Buildings and land, depreciation

- 3,014

- 2,951

- 605

- 588

Equipment, tools and installations, depreciation

-9,532

-13,439

- 1,120

-1,283

- 13,403

-21,701

- 1,725

- 1,871

Total

N O T E 6 . I N C O M E F R O M S H A R E S I N A F F I L I AT E D U N D E R TA K I N G S THE PARENT COMPANY 2005

2004

Dividends received

32,000

4,000

Write-down shares

-3,500

-3,545

28,500

455

Total

N O T E 7 . S H A R E S I N E A R N I N G S O F A S S O C I AT E D C O M PA N I E S / I N C O M E F R O M S H A R E S I N A S S O C I AT E D C O M PA N I E S THE GROUP 2005

Dividends received Income from shares in associated companies Total

THE PARENT COMPANY 2004

2005

2004

–

1,100

1,313

1,103

750 –

1,313

1,103

1,100

750

NOTE 8. FINANCIAL INCOME/OTHER INTEREST INCOME AND SIMILAR INCOME ITEMS THE GROUP 2005

THE PARENT COMPANY 2004

2005

2004

Interest income

2,480

2,079

2,121

3,437

Other financial income

2,748

2,156

5,228

4,235

2,121

3,437

Total

NOTE 9. FINANCIAL EXPENSES/INTEREST EXPENSES AND SIMILAR INCOME ITEMS THE GROUP 2005

2005

2004

Interest expenses

-2,166

- 2,397

-14

Other financial expenses

- 1,047

- 764

- 3,213

-3,161

- 14

-10

Total

THE PARENT COMPANY 2004

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N O T E 1 0 . TA X E S THE GROUP 2005

THE PARENT COMPANY 2004

2005

2004

Current tax

- 33,574

-32,558

2,159

2,690

Deferred tax

- 1,290

6,884

- 111

- 374

- 34,864

-25,674

2,048

2,316

- 24,042

-13,927

Total reported tax expenses Tax relating to items reported directly in equity

L I N K B E T W E E N TA X E X P E N S E S F O R T H E Y E A R A N D I N C O M E B E F O R E TA X

Reported income before tax

123,623

89,328

21,482

- 10,023

Applicable tax rate for income tax in Sweden

- 34,614

-25,012

- 6,015

2,806

- 240

- 1,487

9,268

1,330

Amortisation of consolidated goodwill Non-taxable share dividends Write-down shares

- 980

- 993

- 10

825

- 225

- 827

-34,864

-25,674

2,048

2,316

3,105

3,536

7,343

Goodwill

1,461

1,402

Other

1,044

182

5,610

12,463

Other items Total reported tax expenses

D E F E R R E D TA X C L A I M S

Deficit deductions Prepaid income

Total deferred tax claims

D E F E R R E D TA X L I A B I L I T Y

Buildings and land

4,754

4,819

1,672

1,561

Untaxed reserves

16,857

22,355

21,611

27,174

1,672

1,561

Total deferred tax liability

For the Group there is SEK 2,558 thousand (2,439) in inactive deferred tax claims corresponding to deficit deduction, which, when valued in accordance with the probability principle, cannot be assumed to be usable as it is not possible to offset the surpluses against these within a reasonable period of time. Deficit deductions that are not calculated and can be used within 3 years have not been activated.

NOTE 11.

GOODWILL THE GROUP 2005

2004

A C C U M U L AT E D A C Q U I S I T I O N VA L U E S At the start of the year New acquisitions Total acquisition value

15,566

â&#x20AC;&#x201C;

15,566

A C C U M U L AT E D W R I T E - D O W N S At the start of the year Write-down Total write-downs Residual value at the year-end

-5,311

- 857

- 5,311

- 6,168

- 5,311

9,398

10,255

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( C O N T. N O T E 1 1 )

I M PA I R M E N T T E S T F O R I N TA N G I B L E A S S E T S

The companies have performed impairment tests on cash-generating units containing goodwill and intangible assets that have an indeterminable useful life, based on the usage values of the units.

G O O D W I L L A N D I N TA N G I B L E A S S E T S WITH AN INDETERMINABLE USEFUL LIFE Companies

2005

JMS Systemhydraulik AB

6,353

Indoma AB

3,045 9,398

Telfa AB

8,800

Total

18,198

The above specified amounts refer in their entirety to goodwill, except for Telfa AB whose value is determined by acquired supplier relations, at a reported value of SEK 8,800 thousand (see Note 12). Write-downs of SEK 857 thousand (5,311) made on goodwill relate to subsidiaries where expected earning capacity may not justify the goodwill balance which has consequently been written off entirely and is thus not included in the above list. The usage values are based on estimated future cash flows for a total of five (5) years with the starting point in the existing business plans for the next three (3) years. The principal assumptions for the valuation for all cash-generating units are assumptions about margins and volume development. The business plans are based on experience from previous years. Current market shares are expected to increase marginally in the forecast period. According to the business plans, operational growth is expected to be 5 to 10% each year. Growth is expected to be 3 to 5% each year for other years in the period of use. The gross profit margins are expected to reach the same level as at the end of 2005. The forecast cash flows have been converted to a present value using a discount rate of 12% before tax. The recoverable values for the units are greatly in excess of their reported values. The Company management is of the opinion that no reasonable changes in the key assumptions will lead to the estimated recoverable values for the units being lower than the reported values.

N O T E 1 2 . O T H E R I N TA N G I B L E A S S E T S THE GROUP 2005

2004

A C C U M U L AT E D A C Q U I S I T I O N VA L U E S At the start of the year New acquisitions Total acquisition value

9,900 9,900

A C C U M U L AT E D D E P R E C I AT I O N At the start of the year Depreciation Total depreciation Residual value at the year-end

- 1,100

8,800

The purchase sum paid for the acquisition of Telfa AB exceeded the net of assets and liabilities in the Company by SEK 9,900 thousand. The surplus value was analysed and distributed as SEK 1,100 thousand to orders on hand and SEK 8,800 thousand to supplier relations. The value of orders on hand relates to contribution margin and is depreciated in line with invoicing. At the end of the year, all invoicing had been completed and SEK 1,100 thousand has been depreciated. The amount has been charged to costs for trading goods. Impairment test for other intangible assets, see Note 11.

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N O T E 1 3 . TA N G I B L E F I X E D A S S E T S 2005.12.31

GROUP

Buildings and land

2004.12.31 Machines and other technical facilities

Equipment, tools and installations

Buildings and land

Machines and other technical facilities

Equipment, tools and installations

A C C U M U L AT E D A C Q U I S I T I O N VA L U E At the start of the year

138,836

129,306

138,542

12,409

151,506

2,179

17,942

807

15,293

4,496

- 18,374

- 26,993

- 11,157

-30,966 -6,398

New acquisitions Acquired through business combinations Sales and disposals Reclassifications

- 938

-1,252

2,969

2,321

-513

-129

125,610

126,134

138,836

129,306

-109,814

Translation differences for the year Total acquisition value

C U M U L AT I V E D E P R E C I AT I O N A C C O R D I N G T O P L A N At the start of the year

-33,922

- 98,079

-31,061

-9,435

- 3,333

4,273

15,541

8,439

21,444

-3,014

- 9,532

-2,951

-256

-13,183

1,252

3,236

Acquired through company acquisitions Sales and disposals Depreciation for the year according to plan at acquisition values Reclassifications

1,207

Translation differences for the year

-391

- 2,013

238

Total planned depreciations

-33,054

-96,209

- 33,922

-98,079

Book value at year end

92,556*

29,925

104,914*

31,227

*The value of the buildings amounts to 82,806 (94,876) for the Group and 18,240 (18,740) for the Parent Company Leasing contracts for cars have been reclassified as an asset or liability in the balance sheet. Planned residual value on December 31, 2005, amounts to SEK 11,686 thousand. The comparison year 2004 has been recalculated.

2005.12.31

PA R E N T C O M PA N Y

Buildings and land

2004.12.31 Equipment, tools and installations

Buildings and land

Equipment, tools and installations

A C C U M U L AT E D A C Q U I S I T I O N VA L U E S At the start of the year

26,814

18,188

26,012

17,139

1,936

802

1,312

New acquisitions, Group companies

–

Sales and disposals

- 649

–

-271

26,903

19,475

26,814

18,188

New acquisitions

C U M U L AT I V E D E P R E C I AT I O N A C C O R D I N G T O P L A N At the start of the year

- 7,511

-15,564

- 6,923

-14,544

Sales and disposals

637

–

271

Depreciation taken over, Group companies

–

-8

- 605

- 1,120

- 588

-1,283

- 8,116

- 16,047

- 7,511

-15,564

18,787*

3,428

19,303*

2,624

- 239

-243

-415

-290

172

-326

176

-67

-569

-239

-243

18,720

2,859

19,064

2,381

Planned depreciation for year on purchase values

Planned residual value at end of year A C C U M U L AT E D E X C E S S D E P R E C I AT I O N At the start of the year Change for the year

BOOK VALUE TAXATION VALUE

9,551

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N O T E 1 4 . S H A R E S I N A F F I L I AT E D U N D E R TA K I N G S

OEM Industrial Components AB, Sweden

Corp. number

Registered office

Number shares

Equity share

Face value

Book value

5,000

46,231

100

1,500

300

78,350

10,277

556051-4514

Tranås

100,000

100%

OEM Automatic AB, Sweden

556187-1012

Tranås

–

100%

OEM Automatic AS, Norway

–

OEM Automatic A/S, Denmark

–

100%

OEM Finland OY, Finland

–

100%

OEM Automatic Ltd, UK

–

100%

OEM Automatic Sp.z o.o., Poland

–

100%

OEM China Development B.V, Netherlands

–

100%

Internordic Bearings AB, Sweden

556493-8024

Nässjö

Egevo Elektronik AB, Sweden

556311-3306

Stockholm

–

100%

OEM Electronics AB, Sweden

556054-3828

Tranås

–

100%

Pronesto AB, Sweden

556112-6755

Stockholm

–

100%

–

100%

OEM Källving AB, Sweden

556220-5343

Borlänge

–

100%

Indoma AB, Sweden

556326-5171

Jönköping

–

100%

OEM Electronics OY, Finland

OEM Systemteknik AB, Sweden

Annual change

100%

556050-9076

Stockholm

1,000

100%

A. Karlsson Industriteknik AB, Sweden

556163-0905

Stockholm

–

100%

Jubo Förvaltning AB, Sweden

556494-7058

Karlskoga

–

100%

Plastinvent i Karlskoga AB, Sweden

556334-5486

Karlskoga

–

100%

OEM Fastigheter AB, Sweden

556194-8521

Stockholm

–

100%

Skäggriskan AB, Sweden

556248-9780

Stockholm

–

100%

Technology AB, Sweden

556038-8356

Stockholm

300

100%

Cyncrona AB, Sweden

556296-1838

Stockholm

–

100%

LIF Produkter AB, Sweden

OEM Electronics Production

556123-2694

Huddinge

–

100%

Cyncrona AS, Norway

–

100%

Cyncrona OY, Finland

–

100%

Cyncrona A/S, Denmark

–

100%

Cyncrona Sp.z o.o., Poland

–

100%

Opiab-Företagen AB, Sweden

556165-6769

Solna

–

100%

Testcenter i Stockholm AB, Sweden

556204-5152

Huddinge

–

100%

A. Karlson Fastigheter AB, Sweden

556029-8456

Stockholm

10,000

100%

1,000

Intermate Electronics AB, Sweden

556266-6874

Tranås

1000

100%

100

600

OEM Ejendomsselskab A/S, Denmark

–

1300

100%

DKK 1,300

1,176

OEM Fastighetsbolag AB, Finland

–

1200

100%

FIM 1,200

1,441

OEM Property Ltd, UK

–

400,000

100%

GBP 400

5,147

OEM Motor AB, Sweden

556850-6498

Tranås

1,000

100%

100

Internordic Förvaltning AB, Sweden

556302-0873

Nässjö

1,000

100%

100

1,300

JMS Systemhydraulik AB, Sweden

556063-2134 Gothenburg

10,000

100%

1,000

18,461

Hydroprodukter International i Ängelholm AB, Sweden

556241-1099

Ängelholm

2,500

100%

250

767

Hydrac AB, Sweden

556466-0875

Borås

2,000

100%

200

136

Fastighets AB Hydraulen, Sweden

556363-6256

Borås

1,000

100%

100

Fotbromsen AB, Sweden

556150-4282

Karlskoga

5,000

100%

500

992

- 3,500

Telfa AB

556675-0500 Gothenburg

1,000

100 %

100

10,000

100 %

176,544

6,524

OEM Eesti Ou. , Estonia

Total

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N O T E 1 5 . PA R T I C I PAT I N G I N T E R E S T

Corp. number

Registered office

Number shares

Equity share

Nom. value

Book value

Annual change

556197-1911

Stockholm

12,000

50%

1,200

5,599

213

556197-1911

Stockholm

12,000

50%

1,200

THE GROUP Crouzet AB, Sweden

T H E PA R E N T C O M PA N Y Crouzet AB, Sweden

S P E C I F I C AT I O N F O R T H E G R O U P VA L U E S R E L AT E D T O O W N E D S H A R E O F I N C O M E , P R O F I T, A S S E T S A N D L I A B I L I T I E S .

Owned share as %

Land

Revenue

Income

Assets

Liabilities Shareholders’ equity

50 %

Sweden

25,815

1,313

11,453

5,854

5,599

50 %

Sweden

25,601

1,103

11,441

6,055

5,386

2005 Crouzet AB

2004 Crouzet AB

NOT 16.

P R E PAY M E N T S A N D A C C R U E D I N C O M E THE GROUP 2005

Accrued commission income etc. Other prepaid expenses TOTAL

NOTE 17.

THE PARENT COMPANY 2004

2005

2004

775

2,608

–

13,946

12,633

2,813

2,214

14,721

15,241

2,813

2,214

SHAREHOLDERS’ EQUITY

The shares consist of Class A and Class B. The face value is SEK 5. 2005 Shares

Class A shares

10 votes

Class B shares

1 vote

1,589,032

2004 Votes

Votes

15,890,320

1,589,032

15,890,320

6,134,071

7,723,103

22,024,391

7,723,103

22,024,391

For further information, see the section on share on pages 76-79.

NOTE 18. FINANCIAL LEASING LIABILITIES THE GROUP 2005

2004

Financial leasing liabilities fall due for payment as shown below: Within one year

2,808

2,373

Between one and five years

8,878

11,686

Later than in five years Total

11,686

14,059

The financial leasing liabilities relate to leasing of cars.

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N O T E 1 9 . P R O V I S I O N S F O R P E N S I O N S A N D S I M I L A R O B L I G AT I O N S P R O V I S I O N A L B E N E F I C I A L O B L I G AT I O N S A N D VA L U E O F A D M I N I S T R AT I O N A S S E T S .

2005-12-31

The present value of entirely or partially funded obligations Fair value of the administration assets Total entirely or partially funded obligations The present value of non funded provisional defined benefit obligations

Net amount in balance sheet (obligations + assets -)

2004-12-31

8,495

7,563

-8,447

-7,070

493

1,761

2,254

The net amount reported in the balance sheet: Provisions for pensions and similar obligations

The net amount is split over plans in the following countries: Norway

493

1,761

2,254

Expenses for pensions earned during the year

449

668

Interest expenses

405

376

Expected return on administration assets

-501

-422

Expenses for defined benefit plans

353

622

404

673

Italy Net amount in balance sheet (obligations + assets -)

PENSION EXPENSES Defined-benefit plans

Salary tax Total expenses for remuneration after completed employment

R E C O N C I L I AT I O N O F N E T A M O U N T F O R P E N S I O N S I N T H E B A L A N C E S H E E T The following table explains how the net amount in the balance sheet has changed during the period

Net amount in the balance sheet as of 31.12.03 Effect of changing accounting principles to RR 29 Net amount as of 2004-01-01 Expenses for defined benefit plans Payments of contributions from the Company Net amount in the balance sheet as of 31/12/04 Expenses for defined benefit plans Payments of contributions from the Company Disposal of subsidiaries Net amount in the balance sheet as of 31.12.05

1,791 716 2,507 673 -926 2,254 404 -849 -1,761 48

ACTUARIAL COMMITMENTS The following significant actuarial commitments have been applied when calculating the obligations: (weighed average values)

Discount rate

Expected return on administration assets

Future salary increases

Future increases of pensions Staff turnover Expected remaining length of service

Pledged assets for pension obligations

OEM ANNUAL REPORT 2005 â?&#x161; FINANCIAL REPORTING

3% 10% 20 years

None

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In Norway and Italy all employees are covered by defined benefit pension plans. In countries other than Sweden, all employees are covered by defined-contribution plans for which the Company pays fixed contributions to a separate legal entity and has no obligation to pay further contributions. The Group’s results are burdened by costs as the benefits are earned. Take up of old age pension and family pension by a small section of the employees in Sweden is secured by an insurance policy with Alecta. According to a statement from the Swedish Financial Accounting Standards Council’s Akutgruppen, URA 42, this is a defined benefit plan which covers several employers. The Company has not had access to sufficient information to make it possible to report this plan as a defined benefit plan for the 2005 financial year. The pension plan according to ITP, which is secured via an insurance with Alecta, is therefore reported as a defined-contribution plan. Expenses this year for pension insurance with Alecta amount to MSEK 2.6 (3.7). Alecta’s excess can be allocated to the policy holders and/or the insured. At the end of 2005, Alecta’s excess in the form of the collective consolidation level was 128.5% (128). The collective consolidation level is made up of the market value of Alecta’s assets as a percentage of the insurance commitment calculated according to Alecta’s insurance calculation premise, which does not comply with IAS 19. Most of the employees in Sweden are covered by defined-contribution plans. The Group’s total cost for defined-contribution plans is MSEK 13.2 (11.6).

NOTE 20. OVERDRAFT The majority of the Swedish companies are connected to a central account system with a total limit of SEK 180 million (210). The overall degree of utilisation is reported in the Parent Company under this item. The subsidiaries’ balance/liability in the central account system is reported in the Parent Company, either as a receivable from, or a liability to, the subsidiaries. The total limit in the Group is SEK 293 million (342).

PLEDGED ASSETS TO CREDIT INSTITUTES

THE GROUP

THE PARENT COMPANY

2005

2004

Mortgages on property

27,650

42,650

7,500

Business mortgages

69,750

88,400

97,400

131,050

7,500

7500

Total

NOTE 21.

2005

2004

7500

ACCRUALS AND DEFERRED INCOME THE GROUP

THE PARENT COMPANY

2005

2004

Accrued holiday pay

20,995

20,755

2,118

1,961

Accrued social security expenses

12,514

12,205

2,282

1,693

Prepaid income

1,209

1,526

Accrued supplier inv./commercial debts

7,829

8,659

1,280

21,341

21,010

4,894

1,672

63,888

64,155

9,328

6,640

Other accrued expenses Total

2005

2004

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NOTE 22.

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FINANCIAL RISKS AND RISK MANAGEMENT

The primary risks of the OEM Group are connected to currencies, customer credits and customer guarantees. Through matching, however, the risks have almost been completely eliminated. A risk elimination that contributes to the Group having a relatively stable coverage ratio over time. In addition to the named risks, the Group has a limited interest risk in the form of a cash flow risk. The currency risks are initially due to purchases being made in foreign currency. The risks are managed by the customer contract often prescribing that the price must be adjusted in relation to any currency changes. Alternatively the sale is carried out in the same currency as the purchase. A detailed report is given in connection with the following table. The customer credit risks are small. Clear customer limits are carefully decided and strictly applied. Short credit periods and absence of risk concentrations for individual customers, branches or geographical areas contribute to a good risk picture. A risk picture that is confirmed by the small historical customer losses. Further information is given below in connection with the heading customer and credit risks. Customer guarantees have not been a cause of any risks of practical significance. There are often corresponding rights of recourse against the supplier for provided guarantees. This management has worked well in practice. The interest risk is low. The Group does not have any liabilities with fixed interest, and long-term receivables with fixed interest are very small. The risk of a shift in the interest rate causing a significant change in actual value for the Group is, in real terms, non-existent. The cash and bank items, the overdraft item and other interest-bearing liabilities (financial leasing) are marred by cash flow risks. FINANCIAL INSTRUMENTS The OEM Group’s holdings of financial instruments that form fixed assets are fairly limited. At the end of 2005, the book value of the financial assets of long-term securities holdings was MSEK 1.6 (0.8), shares in tenant-owners’ rights MSEK 1 and other long-term receivables MSEK 0.4 (0.8). The Group’s holding of financial instruments that represent current assets amounted at year end to MSEK 213 (199) and accrued income to MSEK 0.8 (2.6) and other receivables to MSEK 11.9 (13.5). The Group does not have any liabilities with fixed interest and at year-end long-term receivables amounted to SEK 0.4 million (0.8), which is less than one percent of total assets. The risk of a shift in the interest rate causing a significant change in fair value is thus non-existent. The item cash at bank and in hand MSEK 150 (111) and the overdraft item MSEK 44.2 (37.7) and other interest-bearing liabilities (financial leasing) MSEK 11.7 (14.1) have variable interest rates and are thus marred by cash flow risks. Overdrafts apply for 1 year and are not combined with any specific requirements from the guarantor.

OEM ANNUAL REPORT 2005 ❚ FINANCIAL REPORTING

CURRENCY EXPOSURE The currency flow of the Group is attributable to imports from Europe, Asia and North America. Purchasing is split as a percentage as follows: 2005

2004

EUR

45%

51%

USD

18%

23%

SEK

GBP

JPY

15%

Other currencies

100%

Exchange rate changes significant currencies Currency Weighed average 2005

and the time of invoicing affect the amount reported in Swedish Kronor. Since invoicing, in accordance with currency adjustment clauses, is carried out in SEK, there is no rate of exchange difference after the date of invoicing. OEM applies the same terms and conditions for adjusting currencies and prices for its Swedish and overseas customers. The changes in values related to the multiple currency clauses are therefore treated consistently from the points of view of risk and accounting. With regard to currency risk, it can be determined that OEM also has balance exposures in the form of net investment in independent foreign operations. At present these currency risks are not secure.

Weighed average 2004

Change

Currency rates are used in the Group’s consolidated accounts for recalculating foreign subsidiary’s income and net assets. Currency

EUR 1

9.25

9.10

+1.1%

USD 1

7.44

7.30

+1.9%

GBP 1

13.51

13.35

+ 1.2%

JPY 1

6.74

6.79

- 0.7%

As long as it is possible, the Group eliminates the effects of exchange rates by using multiple currency clauses in the main contract and by purchasing and selling in the same currency. On the whole, purchasing is carried out in the supplier’s functional currency. From the table above it can be seen that 18% (23) for USD, 45% (51) for EUR, 15% (5) for Yen and 5% (6) for GBP, 8% (8) for SEK and 9% (7) for other currencies are attributable to purchasing in 2005. The OEM Group manages the effects of changing exchange rates by multiple currency clauses in the sales contract and by invoicing in the same currency as the corresponding purchase. OEM sells goods to Swedish and foreign customers and either invoices in the purchasing currency or in another currency with multiple currency clauses with regard to the purchase currency. The multiple currency clauses adjust 80–100% of the changes in the exchange rate from the sales order to the date of invoicing, depending on whether OEM receives currency compensation for the profit margin or not. There is often a threshold value, which means that exchange rate changes below 2.25% are not taken into account. Currency adjustments are made symmetrically for rising and falling currency rates. There are no conditions that give debt ratios or that are similar to options. Multiple currency clauses and sales in the purchasing currency make up approx 80% (70) of all sales contracts. Where purchasing is based on sales orders, economic protection against the risk of currency fluctuation is achieved in sales and purchasing. However, in many cases there is a mismatch in timing between purchase orders and sales orders. Purchase orders normally run 7-60 days prior to delivery. The customer credit period is about 30 days. The currency adjustment clauses means that only currency changes between the time of sale

Weighed average 2005

December 2005

NOK 100

115.33

117.34

DKK 100

124.30

125.69

EUR 1

9.2521

9.3670

GBP 1

13.5101

13.6540

PLN 1

2.2920

EEK 1

0.6016

0.5983

Currency

Weighed average 2004

December 2004

NOK 100

108.71

109.01

DKK 100

122.41

120.96

EUR 1

9.0970

8.9867

GBP 1

13.3532

12.6787

PLN 1

2.0026

2.2001

EEK 1

CUSTOMER AND CREDIT RISKS The Group has approximately 20,000 purchasing customers in total. The largest individual customer accounted for approximately 8.3% (3.3) of sales. The five largest customers accounted for 15.6% (12) of sales and the ten largest customers accounted for 20.4% (15) of sales. The distribution of risk is thus very good. Customer losses during the year have amounted to SEK 1.2 million (1.1), which corresponds to 0.08 % (0.08) of sales. The average credit period rose to approximately 39 days.

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N O T E 2 3 . O P E R AT I O N A L L E A S I N G THE GROUP 2005

THE PARENT COMPANY 2004

2005

2004

Leasing agreements where the Company is the lessee Non-redeemable leasing payments amount to: Within one year Between one and five years Longer than five years Total

7,507

9,875

857

2,452

21,833

14,362

382

4,032

29,340

24,237

1,239

6,484

Most of the above operational leasing relates to rent for premises.

FINANCIAL REPORTING â?&#x161; OEM ANNUAL REPORT 2005

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N O T E 2 4 . C A S H F L O W S TAT E M E N T A D D I T I O N A L I N F O R M AT I O N C O N C E R N I N G C A S H F L O W S TAT E M E N T:

THE GROUP 2005

THE PARENT COMPANY 2004

2005

2004

S P E C I F I C AT I O N F I N A N C I A L I T E M S Rents received Dividends received Rents paid

2,480

2,079

2,121

3,437

33,100

4,750

- 2,166

- 2,015

-14

- 10

1,871

SPECIFICATION ITEMS NOT INCLUDED IN THE CASH FLOW Depreciation

13,403

21,701

1,725

Realisation profits

5,914

Other

1,685

- 154

163

235

3,500

3,545

21,002

21,547

5,388

5,651

Tangible fixed assets

1,163

Inventories

6,801

Operating receivables

6,994

100

15,058

Write-down shares Total

A C Q U I S I T I O N O F S U B S I D I A RY C O M PA N I E S - G R O U P

ACQUIRED ASSETS AND LIABILITIES

Liquid funds Total assets Current operating liabilities Total liabilities

14,958

PURCHASE PRICE: Prepaid purchase sum

10,000

Deducted: Liquid funds in the acquired operation

- 100

Impact on liquid funds

9,900

D I V E S T M E N T O F S U B S I D I A RY C O M PA N I E S - G R O U P

DIVESTED ASSETS AND LIABILITIES: Tangible fixed assets

674

653

3,372

2,463

10,398

201

14,543

3,317

Current operating liabilities

6,605

701

Current interest-bearing liabilities

7,055

13,660

701

Inventories Operating receivables Liquid funds Total assets

Total liabilities PURCHASE PRICE: Sale price:

190

2,616

- 1,475

Purchase sum received

190

1,141

Deducted: Liquid funds in the divested business

-99

1,141

Deducted: Sales reverse

Impact on liquid funds

LIQUID FUNDS Liquid funds currently only cover cash at bank and in hand.

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N O T E 2 5 . I N F O R M AT I O N A B O U T T H E PA R E N T C O M PA N Y OEM International AB (Publ) is a Swedish-registered public limited company with its headquarters in Tranås, Sweden. The Parent Company shares are listed on the Stockholm Stock Exchange. The address of the Head Office is Dalagatan 4, Box 1011, Tranås, Sweden. The consolidated financial statements for 2005 incorporate the financial statements of the Parent Company and its subsidiaries, jointly referred to as the Group. The Group also includes shareholdings in associated companies.

NOTE 26. TRANSITION TO IFRS The present financial report is the first issued by the Group in accordance with the IFRS (as specified in Note 1). The accounting principles specified in Note 1 were applied in the preparation of the Group’s financial reports for the 2005 financial year and for the comparative year 2004 and for the Group’s opening balance on January 1, 2004, excluding IAS 32, 39 and IFRS 4 which, using exemptions in IFRS 1, are only adopted for 2005. In preparing the Group's opening balance sheet, amounts reported under previous accounting principles have been adjusted to conform to IFRS. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flow of the Group is provided in the following tables and notes. See Note 27 for an explanation of the application of IAS 32, 39 and IFRS 4 from January 1, 2005.

I N C O M E R E C O N C I L I AT I O N 2 0 0 4

SEK THOUSANDS Under Swedish GAAP

Net turnover

Effect at transition

1,406,128

Under IFRS

1,406,128

O P E R AT I N G E X P E N S E S Trading stock

-915,723

Other external expenses

- 105,577

Personnel expenses

- 275,976

Depreciation of tangible and intangible fixed assets

-28,407

6,7061)

- 21,701

OPERATING INCOME

80,445

6,706

87,151

Participating interest

1,518

- 4152)

1,103

Financial income

4,235

- 3,161

INCOME FROM FINANCIAL ITEMS

Financial expenses PRE TAX PROFIT

83,037

6,291

89,328

Tax on profit or loss for the financial year

- 25,591

- 833)

- 25,674

PROFIT OR LOSS FOR THE FINANCIAL YEAR

57,446

6,208

63,954

Earnings per share before dilution, SEK

7.42

0.81

8.23

Diluted earnings per share, SEK

7.38

0.80

8.18

Average number of shares

7,738,795

Average number of diluted shares

7,778,795

Changes in component depreciation

1,749

Reversal of goodwill amortisation according to plan

10,268

Amortisation of goodwill

- 5,311 6,706

Tax share of associate’s profit and loss

- 415

Taxes on changes in component depreciation

- 498

Tax share of the associated company’s profit and loss

415 - 83

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E Q U I T Y R E C O N C I L I AT I O N S E K t h o u s a n d s 2004.12.31 Under Swedish GAAP

Effect at transition

2004.01.01 Under IFRS

Under Swedish GAAP

Effect at transition

Under IFRS

ASSETS

FIXED ASSETS INTANGIBLE FIXED ASSETS Goodwill

5,298

4,9574)

10,255

15,641

90,682

14,2325)

12,541

107,481

TA N G I B L E F I X E D A S S E T S Buildings and land Machinery and other technical facilities Equipment, tools and installations

104,914

94,940

2,974

31,227

27,633

136,141

125,547

121,909

14,232

12,541

138,088

FINANCIAL FIXED ASSETS Participating interest

5,386

5,033

Other financial assets

1,803

2,098

831

5,573

8,020

12,704

Other long-term receivables

I N C O M E TA X E S R E C O V E R A B L E

TOTAL FIXED ASSETS

12,413

506)

12,463

5,154

5,201

147,640

19,239

166,879

159,046

12,588

171,634

CURRENT ASSETS Inventories

205,917

230,885

Current receivables

228,607

198,912

Cash at bank and in hand

111,001

52,648

TOTAL CURRENT ASSETS

545,525

482,445

TOTAL ASSETS

693,165

19,239

712,404

641,491

12,588

654,079

EQUITY AND LIABILITIES

EQUITY Share capital

38,615

40,661

Other capital contributed

39,440

37,394

Surplus brought forward

274,200

8,9797)

283,179

313,012

9,018

322,030

57,446

6,208

63,654

409,701

15,187

424,888

391,067

9,018

400,085

Profit or loss for the financial year TOTAL EQUITY

40,661 37,394

LONG-TERM LIABILITIES Other long-term liabilities Provisions for pensions

11,686

2,254

1,791

Deferred tax liabilities

23,122

4,0526)

27,174

23,051

3,570

26,621

TOTAL LONG-TERM LIABILITIES

37,062

4,052

41,114

24,842

3,570

28,412

246,402

225,582

712,404

641,491

CURRENT LIABILITIES 246,402 TOTAL EQUITY AND LIABILITIES

693,165

19,239

225,582 12,588

654,079

Continued on next page

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Reversal of goodwill amortisation according to plan

Amortisation of goodwill

10,268 - 5,311 4,957

Calculated using component depreciation, January 1, 2004

Changes in component depreciation Foreign exchange translation differences

12,541 1,749 - 58 14,232

Income taxes recoverable

Deferred tax liabilities

50 - 4,052 - 4,002

Deferred tax on component depreciation as of January 1, 2004 Taxes on changes in component depreciation Foreign exchange translation differences

- 3,523 - 498 19 - 4,002

Impact on profits from transition to IFRS, January 1, 2004

Adjusted for foreign exchange translation differences — buildings and landbdiffer Adjusted for foreign exchange translation differences — deferred tax liabilities

9,018 - 58 19 8,979

IFRS 3 has been applied in the consolidated financial statements for business acquisitions from January 1, 2004, the date of transition to IFRS. From January 1, 2004, goodwill is not amortised. Goodwill is reassessed annually or if there is an indication that amortisation is required. Reporting of tangible fixed assets and division of the different depreciation periods of incorporated components, in accordance with IAS 16, has increased the reported amount by SEK 12,541 thousand as of January 1, 2004. Deferred tax liability increases by SEK 3,523 thousand related to the above. IMPACT ON CASH FLOW There are no material differences in the cash flow statement prepared under IFRS and the cash flow statement prepared under previously adopted accounting principles.

N O T E 2 7 . C H A N G E S I N A C C O U N T I N G P R I N C I P L E S , J A N U A RY 1 , 2 0 0 5 The application of IAS 32, 39 and IFRS 4 from January 1, 2005 has no effect on reported position and profit. The multiple currency clauses in OEM’s customer contracts have not been deemed to be embedded derivatives that are to be separated according to IAS 39. Information about the clauses is given in Note 22.

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Proposed allocation of profits THE PARENT COMPANY The following surplus is at the disposal of the Annual General Meeting Surplus brought forward

212,249,869.93

Profit or loss for the financial year

23,529,428.30 235,779,298.23

The Board of Directors proposes that the surplus be disposed of in such a way • that a dividend of SEK 7.00 per share is paid to shareholders • that the following be carried forward

54,061,721.00 181,717,577.23 235,779,298.23

TRANÅS, 28 FEBRUARY 2006

Hans Franzén Chairman

Orvar Pantzar

Lars-Åke Rydh

Ulf Barkman

Agne Svenberg

Gunnar Eliasson

Jörgen Zahlin Managing Director

A statement by the Board concerning the dividend proposal will be published on the Company’s website and can be obtained on request. The annual report and the consolidated financial statements have been approved for issue by the Board of Directors on the above date. The consolidated income statement and balance sheet and the Parent Company’s income statement and balance sheet will be matters for approval at the Annual General Meeting that takes place on April 25, 2006.

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Auditors’ report T O T H E A N N U A L G E N E R A L M E E T I N G O F O E M I N T E R N AT I O N A L A B ( P U B L ) C O R P O R AT E I D E N T I T Y N U M B E R 5 5 6 1 8 4 - 6 6 9 1 We have examined the Annual Report, the consolidated financial statements, the accounting records and the administration of the Board of Directors and the Managing Director of OEM International AB (Publ.) for the financial year 2005. The Board of Directors and the Managing Director are responsible for the accounts and the administration of the Company, and for ensuring that the Swedish Annual Accounts Act is applied when preparing the Annual Report and for ensuring that the international accounting standards IFRS, as approved by the European Union, and the Annual Accounts Act are applied when preparing the consolidated financial statements. Our responsibility is to express an opinion on the Annual Report, the consolidated financial statements and the administration based on our audit. We conducted our audit in accordance with generally accepted accounting standards in Sweden, which meant that we planned and performed the audit to obtain reasonable, but not absolute, assurance that the Annual Report and the consolidated financial statements are free of material misstatement. An audit includes

examining a selection of the documentation with respect to amounts and other information in the accounting records. An audit also includes assessing the accounting principles used and their application by the Board of Directors and the Managing Director, as well as evaluating the important assessments made by the Board of Directors and the Managing Director when preparing the Annual Report and the consolidated financial statements, as well as appraising the overall presentation of information in the Annual Report and the consolidated financial statements. As a basis for our pronouncement on discharge from liability, we have examined significant decisions, actions taken and circumstances at the Company in order to determine the possible liability to the Company of any Board Member or the Managing Director. We have also examined the question of whether any Director or the Managing Director has otherwise acted in contravention of the Swedish Companies Act, the Swedish Annual Accounts Act or the Company’s Articles of Association. We are of the opinion that our audit gives us reasonable grounds on which to pronounce as follows.

The Annual Report has been prepared in accordance with the Swedish Annual Accounts Act and, consequently, provides a true picture of the Company’s income and position in accordance with generally accepted accounting practice in Sweden. The consolidated financial statements have been prepared in accordance with international accounting standards IFRS, in line with the requirements of the European Union and the Swedish Annual Accounts Act, and provide a true picture of the Group’s income and position. The Directors’ Reportis consistent with the remainder of the Annual Report and the Consolidated Financial Statements. We recommend that the Annual General Meeting adopts the income statement and the balance sheet of the Parent Company and of the Group, appropriate the Parent Company’s surplus as proposed in the Directors’ Report and grant the Members of the Board and the Managing Director discharge from liability for the financial year.

TRANÅS, MARCH 3, 2006

KPMG Bohlins AB

Niklas Bengtsson Authorised Public Accountant

AUDIT REPORT ❚ OEM ANNUAL REPORT 2005

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OEM shares OEM International on the Stock Exchange

Sales

OEM’s shares were quoted on the Stockholm Stock

corresponding to a turnover rate of 10%. The

Exchange’s (Stockholmsbörsen) OTC List in

average shareholder in OEM therefore retains their

December 1983, and since then have displayed

shares for about ten (10) years. The corresponding

a healthy price trend. Anyone who purchased

figure for the Stockholmsbörsen as a whole in 2005

100 shares in OEM for SEK 12,500 at the time of

was 124% and for the O List 87%. OEM’s Class B

introduction onto the market would have had a

shares were sold on 89% of the trading days, with an

holding of 2,400 shares at a value of SEK 392,400

average turnover per day in 2005 of 2,348 shares.

on 31 December 2005, equivalent to an annual yield of 16%, excluding dividends. OEM’s shares were transferred to the O List in 2000. OEM International satisfies the demands

During 2005, 594,096 Class B shares were sold,

On 31 December 2005, OEM International had 2,586 shareholders, an increase of 35% since 1995. Institutional ownership stands at around 31%, while overseas ownership amounts to 24%.

stipulated by the Stockholm Stock Exchange for a listing on the A list. However, as shares on the

Repurchase of shares

O list are exempt from capital tax, and moving them

The repurchase programme for shares, which was

to the A list would have significant tax implications

adopted for the first time by the Annual General

for the shareholders, the Board of Directors has

Meeting in 2000, is intended to improve our capital

decided to allow OEM shares to remain quoted

structure and contribute positively to return on

on the O list.

shareholders’ equity and earnings per share. After implemented reductions the previous year

Price trends

there are 7,723,103 shares in the Company at

The price of OEM International shares rose during

year-end. The Company has acquired 154,000

the year by 39% to a closing price of SEK 163.50.

shares corresponding to 2% of the total number

The highest price paid during the year was SEK

of shares. The Board has been authorised by

164.00, recorded on 27, 29 and 30 December,

the Annual General Meeting to repurchase up

and the lowest price was SEK 114.00, recorded

to 10% of the total number of shares, that is,

on 4 and 5 January.

772.310 shares.

OEM’s market value at the end of 2005 was

The objective is to continue the repurchases up

MSEK 1,263. With the Company’s shareholding

to 10% of the total number of shares while the

excluded, OEM’s market value amounted to

Board considers the conditions to be attractive.

SEK 1,238 million. During the year, the Stock

The acquired shares will be retained, deregistered

Exchange’s OMXS PI index rose by 33% and

or used as payment in corporate acquisitions. We

the index for OMXS Industrials rose by 44%.

have minimised the disadvantages which this can entail, that is, that the number of shareholders is

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decreased and the liquidity of the share declines,

Dividend policy

by mainly purchasing large blocks of shares.

The Board of OEM International aims to propose a reasonable dividend of profits to the shareholders,

Liquidity boosting measures

by considering the financial position, the tax

OEM International has signed an agreement with

situation and any need for acquisitions or

Handelsbanken Capital Markets regarding liquidity

investments in the operation.

guarantees for Company shares. The aim is to reduce the difference between purchase and sales prices.

Dividend

The goal is to achieve a lower investment cost and

The Board proposes a dividend of SEK 7.00 per

to lower the share trading risk for present and future

share, equivalent to 14% of distributable equity in

shareholders. Commitments fall within the scope of

the Group.

the Stockholm Stock Exchange system with liquidity guarantees and started on December 1, 2004.

Financial information OEM aims to maintain high quality as regards

Risk

information to the market and the media.

OEM’s beta value — a measure of how a share

The goal is for the information to facilitate an

moves given a change in the stock exchange’s

accurate valuation and liquid trading of the shares.

OMXS PI index — is approximately 0.44.

The dates for the Annual General Meeting,

This means that the shares can be said to have

interim reports and annual report for the 2006

a low risk. The spread between the operations

financial year are shown on page 2 of this annual

within the Group entails a low business risk.

report. Financial information is also published on

At the same time, the financial risk is very low,

the Group’s website (www.oem.se).

due to the high equity/assets ratio. This means that

The Company offers shareholders the opportunity

the equity/assets ratio can be lowered to correspond

to receive interim reports and other press releases by

better with the business risk without the overall

e-mail, at the same time as they are made public

risk to OEM’s shares increasing significantly.

to the market. Please send an e-mail to: info@int.oem.se and state “Corporate Information” and you will be placed on our list for future mailings.

Shareholder structure OEM’S LARGEST SHAREHOLDERS AS OF 30.12.05

Number Class A shares

Number Class B shares

Pantzar Orvar

635,440

958,685

21.1%

33.4%

Franzén Hans and family

476,792

484,440

12.7%

24.0%

Svenberg Agne and family

476,800

181,987

8.7%

22.6%

SEB equity funds

424,500

5.6%

1.9%

AFA Försäkringar

416,290

5.5%

1.9%

Lannebo equity funds

395,567

5.2%

1.8%

Livförsäkringsbolaget Skandia

216,600

2.9%

1.0%

Didner & Gerge equity fund

195,800

2.6%

0.9%

Länsförsäkringar Jönköping

150,000

2.0%

0.7%

Industritjänstemannaförbundet

145,000

1.9%

0.7%

1,589,032

3,568,869

68.1%

89.0%

2,411,202

31.9%

11.0%

1,589,032

5,980,071

100.0%

Total, 10 owners Other Total Votes per share

Percentage share capital

Percentage votes

The Company’s own holding of 154,000 Class B shares is excluded from the above breakdown. This makes it easier for the reader to determine the various owners’ influence in the Company.

OEM SHARES ❚ OEM ANNUAL REPORT 2005

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Key indicators for OEM’s shares F O R T H E PA S T F I V E Y E A R S 2005

2004

2003

2002

2001

P E R F O R M A N C E K E Y I N D I C AT O R S

Sales per share

SEK

201

186

188

196

239

8.1

-1.0

-4.1

-17.9

5.3

Earnings per share*

SEK

11.73

8.41

4.14

1.88

4.32

Equity per share*

SEK

63.14

56.13

51.44

53.06

57.06

Proposed dividends

Increase in sales per share

SEK

7.00

5.50

4.50

Dividend/Income

59.7

65.4

109

239

104

Dividend/Shareholders’ equity

11.1

9.8

8.7

8.5

7.9

SEK

10.92

11.90

17.75

19.95

11.00

Cash flow per share*

R I S K K E Y I N D I C AT O R S

Beta values (48 months)

0.44

0.54

0.41

0.49

0.53

10.0

8.3

6.6

10.7

12.9

Exchange quoted price on 31 December SEK

163.50

118.00

102.00

77.00

92.50

1238

893

776

602

752

Rate of turnover for shares

VA L U AT I O N K E Y I N D I C AT O R S

Quoted value on 31 December

MSEK

P/S number

times

0.8

0.6

0.5

0.4

P/S number

times

13.9

14.0

24.6

40.9

21.4

162

Price/Shareholders’ equity

259

210

198

145

EV/Sales

times

0.7

0.6

0.5

0.4

0.5

EBIT multiple

times

9.4

9.3

13.4

16.4

12.7

4.3

4.7

4.4

5.8

4.9

Direct return

* Calculated on the basis of the number of shares, excluding own holding

10 8

6 4

4 25

2 0 Dividend per share, SEK

OEM ANNUAL REPORT 2005 ❚ OEM SHARES

0 Equity per share, SEK

Proposed dividend (SEK)

OEM 2005 SWE ENG s.37-84

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Sida 79

Shareholder statistics AS OF 30.12.05* Percentage of number of owners

Size class

Percentage of share capital

1-500

72.7

4.4

501-1,000

12.6

3.6

1,001-2,000

7.0

3.8

2,001-5,000

4.5

5.3

5,001-10,000

1.5

3.7

10,001-20,000

0.7

3.1

20,001-50,000

0.2

1.7

50,001-100,000

0.2

4.3

100,001-5000,000

0.6

70.1

100.0

Total Total number of shareholders in OEM is 2,586

Source: VPC AB. Directly and fund manager registered. In the table, ownership details may be a combination of several items in VPC’s statistics.

This combination is intended to show an institution’s or a private individual’s total ownership in OEM.

Share capital development Year

Transaction

Opening value

Change in share capital SEK THOUSAND

Total shareholders’ capital SEK THOUSAND

Total number shares, qty

Face value per share SEK

500

100

350

400

4,000

100

400

40,000

400

800

80,000

800

1,600

160,000

400

2,000

200,000

4,000

6,000

600,000

360

6,360

636,000

6,360

1,272,000

6,360

12,720

2,544,000

12,720

25,440

5,088,000

20,129

45,569

9,113,703

Reduction

-3,908

41,661

8,332,203

Reduction

-1,000

40,661

8,132,203

Reduction

-2,046

38,615

7,723,103

1981

Bonus issue

1983

Split

1983

Bonus issue

1983

New issue

1983

New issue

1986

Bonus issue

1986

New issue through translation

1994

Split

1994

Bonus issue

1996

Bonus issue

1997

New issue through subscription in kind

2001 2003 2004

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Notes

OEM ANNUAL REPORT 2005 ❚ NOTES

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NOTES ❚ OEM ANNUAL REPORT 2005

OEM 2005 SWE ENG s.37-84

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Notes

OEM ANNUAL REPORT 2005 ❚ NOTES

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NOTES ❚ OEM ANNUAL REPORT 2005

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Sida 84

Addresses of operational units THE PARENT COMPANY

OEM AUTOMATIC

OEM ELECTRONICS

OEM International AB Box 1011, 573 28 TRANÅS Tel.: 0140-36 00 00 Fax: 0140-36 00 99 e-mail: info@int.oem.se www.oem.se Org. no. 556184-6691

OEM Automatic AB Box 1011, Dalagatan 4 SE-573 28 TRANÅS, Sweden Tel.: 0140-36 00 00 Fax: 0140-36 00 89 e-mail: info@aut.oem.se www.oemautomatic.se

OEM Electronics AB Box 1025, Norrabyvägen 6B SE-573 29 TRANÅS, Sweden Tel.: 0140-360 600 Fax: 0140-360 699 e-mail: info@oemelectronics.se www.oemelectronics.se

OEM Automatic OY Telekatu 8, PL 9 FIN-201 01 TURKU, Finland Tel.: +358-207 499 499 Fax: +358-207 499 456 e-mail: info@oem.fi www.oem.fi

OEM Electronics OY Telekatu 8 FIN-203 60 TURKU, Finland Tel.: +358-207 499 402 Fax: +358-207 499 496 e-mail: info@oemelectronics.fi www.oemelectronics.fi

OEM Automatic AS Tomtegata 20, Postboks 564 Brakerøya N-3002 DRAMMEN, Norway New address from 01.05.06 Postboks 2144, Strømsø Bjørnstjerne Bjørnsonsgate 110 N-3003 DRAMMEN, Norway Tel.: +47-32-89 72 70 Fax: +47-32-89 72 80 e-mail: info@no.oem.se www.oem.no

OEM Electronics PL ul. Parowcowa 6B PL-02-445 WARSZAWA, Poland Tel.: +48-22-86 32 722 Fax: +48-22-86 32 724 e-mail: info@oemelectronics.pl www.oemautomatic.com.pl

OEM Automatic A/S Møllehaven 8 DK-4040 JYLLINGE, Denmark Tel.: +45 70 27 05 27 Fax: +45 70 27 06 27 e-mail: info@dk.oem.se www.oem-automatic.dk OEM Automatic Ltd Whiteacres, Cambridge Road Whetstone, LEICESTERSHIRE LE8 6ZG, UK Tel.: +44-116-284 99 00 Fax: +44-116-284 17 21 e-mail: information@uk.oem.se www.oem.co.uk OEM Automatic Sp. z o. o. ul. Parowcowa 6B PL-02-445 WARSZAWA, Poland Tel.: +48-22-86 32 722 Fax: +48-22-86 32 724 e-mail: info@pl.oem.se www.oemautomatic.com.pl OEM Automiatic OÜ Pärnu mnt 139d/1 Tallinn, 11317 Estonia Tel.: +358-20-74 99 371

OEM ANNUAL REPORT 2005 ❚ ADDRESSES

CYNCRONA

JMS SYSTEMHYDRAULIK

DEVELOPMENT

Cyncrona AB Tomtbergavägen 2 SE-145 67 NORSBORG Tel: 08-531 94 300 Fax: 08-531 94 310 Email: info@cyncrona.se www.cyncrona.se

JMS Systemhydraulik AB Datavägen 14 A SE-436 32 ASKIM Tel: 031-727 68 20 Fax: 031-727 68 37 Email: sales.g@jms.nu www.jms.nu

Internordic Bearings AB Box 105, Lerbacksgatan 3, SE-571 22 NÄSSJÖ Tel: 0380-56 59 56 Fax: 0380-56 59 40 Email: info@internordic.biz www.internordic.biz

Cyncrona Oy Hannuksenpelto 12 FIN-02770 ESPOO, Finland Tel: +358 207 528 700 Fax: +358 207 528 770 Email: info@cyncrona.fi www.cyncrona.fi Cyncrona A/S Sindalsvej 21 DK-8240 RISSKOV, Denmark Tel: +45 87 42 66 66 Fax: +45 87 42 66 77 Email: info@cyncrona.dk www.cyncrona.dk Cyncrona AS Tomtegata 20, Postboks 905 Brakerøya N-3002 DRAMMEN, Norway New adress as of 1 May 2006 Bjørnstjerne Bjørnsonsgate 110 Postboks 2144, Strømsø N-3003 DRAMMEN, Norway Tel: +47-32-20 25 10 Fax: +47-32-20 25 11 Email: info@cyncrona.no www.cyncrona.no Cyncrona Baltic States Pärnu mnt 139d/1 Tallinn, EE-11317 Estland Tel: +372 510 05 05 Email: baltic@cyncrona.fi www.cyncrona.com

IBEC Aartsdijkweg 111 NL-2676 LE MAASDIJK, The Netherlands Tel: +31-174 52 51 00 Fax: +31-174 52 51 06 Email: info@ibec.biz www.ibec.biz OEM Motor AB Box 1011, Dalagatan 4, SE-573 28 TRANÅS Tel: 0140-36 04 00 Fax: 0140-36 04 99 Email: info@motor.oem.se www.oem-motor.se Indoma AB Box 319, Fridhemsvägen 25 SE-551 15 JÖNKÖPING Tel: 036-30 64 00 Fax: 036-16 46 97 Email: info@indoma.se www.indoma.se Telfa AB Box 120 30, Karl Johansgatan 158 SE-402 41 Göteborg Tel: 031-775 19 50 Fax: 031-42 61 98 Email: info@telfa.se www.telfa.se

Definitions Earning capacity of total capital: Operating income plus financial income as a percentage of average total capital. Earning capacity of capital employed: Operating income plus financial income as a percentage of average capital employed. Capital employed refers to total assets minus non-interest-bearing liabilities, including deferred tax liabilities. Earning capacity of shareholders’ equity: Net profit for the year as a percentage of average shareholders’ equity. Average interest payable: Financial expenses as a percentage of total liabilities. Debt/equity ratio: Interest-bearing liabilities divided by calculated shareholders’ equity. Calculated shareholders’ equity comprises shareholders’ equity plus minority interests. Operating income/sales: Operating income before depreciation as a percentage of sales. Profit percent: Earnings after financial income as a percentage of sales. Profit margin: Profit before tax as a percentage of sales. Capital’s turnover rate: Sales divided by total assets. Sales per employee: Sales divided by average number of employees. Equity/assets ratio: Shareholders’ equity as a percentage of total capital. Cash liquidity: Current assets minuts inventories as a percentage of current liabilities. Earnings per share: The Group’s net earnings after deductions for both paid and deferred tax.

Direct return: Dividend per share divided by the quoted price at year-end. Sales per share: The Group’s sales divided by the number of shares on the market at year-end. Sales increase per share: Increase of the Group’s sales per share. Dividend/Income: Proposed dividend in relation to the year’s income. Dividend/Shareholders’ equity: Proposed dividend in relation to the Group’s shareholders’ equity and the minority interests. Cash flow per share: Cash flow for current operations divided by the number of shares. Beta values: Measure of historical change in the share price in relation to the price fluctuation of the general index. Rate of turnover for shares: The number of shares sold during the divided by the number of outstanding shares at year-end. P/S ratio: Stock market value in relation to the Group’s sales. P/E ratio: Quoted price as per 31 December divided by earnings per share. Price/Shareholders’ equity: Quoted price divided by shareholders’ equity per share: EV/Sales: Enterprise value (stock market value + net liability + minority interest) divided by Group’s sales. EBIT multiple: Enterprise value divided by the Group’s operating income after depreciation. Direct return: Dividend per share divided by the quoted price at year-end.

Shareholders’ equity per share: Shareholders’ equity and minority interests divided by the number of shares. P/ E (Price/ Earning): Quoted price as of 31 December divided by earnings per share.

DEFINITIONS ❚ OEM ANNUAL REPORT 2005

efinitions d to s es c c a sy ea r o F repor t, l a u n n a e h t g in d a while re y f lat. open t he f lap and la

CCJ Kommunikation

Box 1011, SE-573 28 Tranås, SWEDEN • Telephone +46 (0)140-360 000 • Fax +46 (0)140-360 099 • E-mail info@int.oem.se • www.oem.se