annual report 2005

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.

NotificationShareholders wishing to attend the Annual

General Meeting must:

❚ be entered in the share register held by the

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.:

OEM International AB,

Box 1011, SE-573 28 Tranås, SWEDEN,

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

Email: [email protected]

Shareholders who have registered their shares in

the name of an authorised agent must, no later

than Friday 19 April 2006 , temporarily register

the shares in their own name with VPC in order

to participate at the Annual General Meeting.

DividendThe 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.

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.

BusinessThe agenda and business of the Annual General

Meeting will be notified through advertisements in

the daily press and will also be available on

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

also be obtained from the company when regis-

tering to attend the meeting.

Future reportsQ1 Report, January-March 25 April 2006

Half-yearly Report 27 July 2006

Interim report 25 October 2006

Financial Statement,

financial year 2006 February 2007

Annual Report March/April 2007

Visit us at www.oem.seThe latest information about the company is

available on our website. Feel free to order a

newsletter to ensure you receive regular

e-mails about what is happening.

For easy access to contents

while reading the annual

report, open the flap and

lay flat.

OEM International is one of Europe’s leading

companies in the industrial components

and systems trade. The Group comprises

23 operational units in eight countries

with its head office in Tranås, Sweden.

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

thereby has marketing and sales responsibility for the products with

which the company deals. Customers are offered extensive product and

application knowledge and a broad spectrum of components and systems.

CUSTOMERSSUPPLIERS

This is OEM International

OEM has been listed onthe Stockholm Stock Exchange since1983. More information about OEM is

available on our website.

www.oem.se

Share trends

OEM Automatic OEM Electronics JMS SystemhydraulikCyncrona

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

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

Components for industrialautomation within the

business areas of ElectricalMachinery, Electrical

Cabinets, Safety, Cables,Pressure & Flow and

Pneumatics.

Appliance components, circuit board components

and EMC/microwave components.

Pumps, motors, valves,miniature units as well as

construction and productionof hydraulic units and

complete hydraulic systemsfor mobile and industrial

applications.

Production equipment, support and material forelectronics production as

well as test equipment for circuit boards,

microelectronics and printed circuit boards.

Warehouse and warehousesolutions, motors and transmissions, seals

and pumps

Development

1974

The agency company OEMAutomatic AB is founded bythe Franzén and Svenbergfamilies.

1981

The first overseas subsidiary isestablished in Finland.

1983

The company isintroduced on the StockExchange’s OTC list.Sales amount to about SEK 30 million.

1986

Industri AB Reflex isacquired.

1988

Sales exceed SEK 100 millionfor the first time.

1989

The first subsidiary outside Scandinavia is established in the UK.

1993

The A. KarlsonGroup isacquired.

1996

New Group structure.The companies are divided intotwo subgroups:OEM IndustrialComponents AB and OEM System-teknik AB.

1997

OEM Inter-national AB andCyncrona AB,also listed on the OTC list,merge.Cyncronabecomes a third subgroup.

1998

A number of corporate acquisitions are completed.

1999

The companyestablishes itself in Italythough one offour corporateacquisitionsmade this year.

2000

Jörgen Zahlin is appointed new MD.

2002

OEM suffers significant reduction in sales due todownturn intelecommunica-tions.

2003

The Group stabilises at sales 30% lower than in2001.Industri AB Reflex is sold off.

2004

2004 OEM celebrates 30th anniversary.Continuedrestructuring and streamliningincrease profit by 55%.

2005

Acquisition ofTelfa AB

1991

OEM InternationalAB is formed andbecomes theGroup’s parentcompany.The electronicsproduct areabreaks away fromOEM Automatic toform a separatecompany,OEM Component.

Contents

Annual General Meeting –

Future Reports 2

This is OEM International 3-4

History 3-4

2005 in Brief 5

The Managing Director’s Comments 6-7

Vision 8

Business concept 9

Financial objectives 10

Growth strategy 11

Employees 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

OEM Automatic and Partex 32

OEM Electronics and CashGuard 33

JMS Systemhydraulik and Holms 34

Cyncrona and Hansa Electronics 35

Financial reporting 36

Five-year Group overview 38

Key indicators for the last five years 39

Directors’ report 40

Financial reports – the Group

Income statement 41

Balance sheet 42-43

Changes in shareholders’ equity 44

Cash flow statement 45

Financial reports – Parent company

Income statement 46

Balance sheets 47-48

Changes in shareholders’ equity 49

Cash flow statement 50

Notes with accounting principles

and financial statements 51-73

Proposed allocation of profits 74

Audit report 75

OEM shares 76-77

Ownership structure 77

Key indicators for OEM shares 78

Ownership data 79

Share capital trend 79

Notes 80-83

Addresses 84-85

Definitions 86

Trend per company groupAutomation 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)

The Group in figures2005 2004

Net sales SEK million 1525 1406

Profit after net

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

Proposed dividend per share SEK 7:00 5:50

Return on shareholders’ equity % 19,7 15,4

Equity/assets ratio % 62,5 59,6

Quoted price at the end of

the period SEK 163:50 118

Market value at the end of

the period SEK million 1238 893

Average number of

employees Number 541 571

*) The key indicators are calculated based

on the number of shares on the market.

“OEM strives to be a leading player in thetrading of industrial components and systemsin northern Europe.”

2005 in Brief

Growth and continued streamlining

measures entailed:

� 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.

Årsredovisning 2005 0304eng 06-03-09 08.55 Sida 5

6 OEM ANNUAL REPORT 2005 � THE MANAGING DIRECTOR’S COMMENTS

I am both pleased and proud

to sum up yet another

prosperous year for OEM.

There was a good demand for our goods through-

out the year which, coupled with climbing market

shares generated an 8% growth in sales. Comparable

units increased sales by 13%. Profit climbed 38%

due to growth and continued streamlining initiatives.

2005 marks the fourth consecutive year of

substantial income growth. Subsequently, we have

realised our financial objectives of 15% income

growth, more than 20% return on shareholders’

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

These achievements are backed by intense

efforts to coordinate and concentrate business

activities, which in turn lead to better efficiency.

Escalating profits over all Automation, which answers for 40% of the Group,

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

with the strategy to focus business activities to

northern Europe, we sold off the business in Italy and

set up an organisation in Estonia. We have also

decided to set up businesses in Latvia and Lithuania.

Electronics was restructured with the merger

of six companies into three operating under the

name OEM Electronics. This improved efficiency

and made us a stronger partner for our suppliers.

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

activities are instead conducted based on each

company’s specific circumstances. The Group has,

after divesting parts of the business, diminished sales

from SEK 194 to SEK 172 million. However, profit

has dropped from SEK 6.1 million to SEK 5.1 million.

Within group Hydraulics, we decided in May to

merge the units into one company. This proved to

be a fortunate move. We have created a more effective

organisation and intensified our range of customer

products. The organisational restructuring has

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

market for electronic production equipment has

undergone major change. We have altered our

product range to adapt our business to the new

conditions. New suppliers have been launched,

others have been discontinued.

Greater focus on acquisition We again expanded our acquisition activities in 2005.

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

markets pumps. The company has a turnover of

about SEK 40 million and a profit of about SEK

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

and has so far fulfilled our expectations. We have

also evaluated about ten more acquisitions.

We found however that they lacked sufficient

The Managing Director’s Comments

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


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 communicationCoordination 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 ware-

house. Comparable changes are planned for Norway in 2006.

New Group structureThe 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 group’s ambition to create the necessary conditions to

develop new, strong brand concepts while allowing space for new ideas

and ventures.

Managing our successDevelopment 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.

Jörgen Zahlin


8 OEM ANNUAL REPORT 2005 � VISION

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

of industrial components and systems in northern

Europe.”

Being a leading player means:

� Having a level of knowledge and service-

mindedness that is among the very best in

each industry.

� 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

realise their ambitions.

The essence of our vision forms the basis for the

culture within the Group. We create a competitive

Group by constantly questioning and addressing

the essence of our vision.

Industrial components and systemsOur product range stretches from basic mechanical

components such as seals and couplings to

complete manufacturing systems for circuit

boards, for instance. OEM chooses to trade in

products that allow the company to add value

and gain a substantial market share by being an

alternative to suppliers’ own sales company.

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.

Northern EuropeMost 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 company has operations in Sweden, Finland,

Norway, Denmark Poland, Estonia and the UK.

While there remains great potential for growth on

these markets, new geographical markets will be

assessed.

Vision

“OEM strives to be a leading player in thetrading of industrial components and systems

in northern Europe.”


BUSINESS CONCEPT � OEM ANNUAL REPORT 2005 9

Our business conceptOEM 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.

The operating companies are to adapt their actions

to the specific conditions that apply in each business

area, and satisfy the interests of customers, suppliers,

employees and shareholders in an effective manner.

Business logicIn simple terms, OEM operates as an alternative to

the manufacturers’ own local sales companies.

The Group collaborates with around 300 suppliers

and has some 20,000 buying customers. OEM is

in charge of marketing and sales for products the

company trades.

To our suppliers, OEM is a partner that has:

� competence and financial strength to make market

investments

� knowledge of the market in question

� national organisations that transcend cultural

divides

To our customers, collaboaration with OEM means:

� access to a wide, extensive range from specialised

manufacturers

� quick, high delivery capacity via effective warehouses

� the possibility to reduce the number of suppliers.

� broad product and application knowledge

An efficient logistics apparatus enables us to adapt

purchasing volumes, stock levels and transport methods

for maximum competitiveness.

OEM’s wide, extensive product programme allows

the company to customise its offers to best suit the

needs of our customers. At the same time, suppliers

gain access to customer groups that they themselves

have difficulty contacting.

Group affiliation strengthenscompetitivenessBelonging to a group with a clear focus improves the

conditions for the company to grow. This means,

among other things:

� Economies of scale. A centralised infrastructure and

administration makes it more possible for operating units

to focus on business. Logistics, range development

and market communication is coordinated at company

groups level which intensifies our competitiveness

and makes us more cost effective.

� Stimulated by each other’s success.

The businesses are continuously compared and

internal ranking lists stimulate both cross-company

learning and better performance.

� Creating opportunities for employees to grow.

Developing a company means developing people.

As the company develops, career opportunities are

created for employees both internally within the

company and within the Group.

Business concept

CUSTOMERSSUPPLIERS

Alternative to suppliers’ own sales company


0

25

50

75

0

5

10

15

20

0

25

50

75

10 OEM ANNUAL REPORT 2005 � FINANCIAL OBJECTIVES

OEM’s objective, during a

period of strong and stable

growth, is to achieve good

return on shareholder’s equity

with limited financial risk.

Objectives for one business cycle are:

� 15% annual growth in profit

� 20% return on equity

� Equity/assets ratio must not fall below 35%

Three years marked by restructuring and stream-

lining have produced substantial growth in profit,

enabling us to achieve all financial goals in 2005.

To continue to achieve our objectives, our strategy

is to maintain a balance between growth and profit.

The growth strategy and growth target will be

adjusted annually. Changes in the surrounding

world, cyclical fluctuations and potential for

acquisitions are factors that mean the Group must

always be prepared for new conditions and not

hesitate to introduce structural reforms that

increase our competitiveness.

Over the last three years, we have achieved

the following targets:

Financial objectives

“Three years marked by restructuring andstreamlining have produced substantialgrowth in profit, enabling us to achieve

all financial objectives in 2005.”Growth

in profit

Return on

equity

Equity/assets

ratio


GROWTH STRATEGY � OEM ANNUAL REPORT 2005 11

Growth is central for the OEM

Group. Our growth strategy

is based on three parts:

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

be achieved by:

� Development of our product range

� Expanding our market shares

Increased focus on developing customer/supplier

relationships, product offers and service will

improve competitiveness and enable us to capture

further market shares. Organic growth is evidence

of satisfied customers and that what we offer is

also attractive to new customers. New supplier

cooperations are an essential aspect of organic

growth. To justify our existence, organic growth

is necessary over time.

Geographical expansionBy launching established brand concepts on new

markets, we create new expansion possibilities.

Our geographical expansion efforts in 2006 will

primarily be distinguished by continued work with

organisations still lacking a profitable, stable platform.

� OEM Automatic, Estonia

� OEM Electronics, Poland

� Internordic, Finland and Denmark

� Cyncrona, Estonia.

AcquisitionsThe Group has a history in which acquisitions have

played an important role in our growth strategy.

Telfa AB was acquired in 2005, marking the first

acquisition since the telecommunications market

plummeted. OEM has both the resources and

financial strength to continue to assess and carry

out acquisitions.

Acquisitions can be made at three different levels:

� Supplementary acquisitions

A company or product range are incorporated

into an existing company.

� Complementary acquisitions

A company that fits in and continues to

operate as an individual company within

Development.

� Strategic acquisitions

A brand-new product area with significant

turnover that becomes a new concept, or

a company on a new geographical market.

Regardless of the level, it is crucial that the

acquired company can develop positively

within the OEM Group and that our integration

strategy allows for both economies of scale

and aggressive initiatives.

Growth strategy

Telfa AB was acquired in 2005, marking

the first acquisition since the tele-

communications market plummeted.

See note 3, page 57 for more

information.


Everyone in the organisation

contributes to the image of OEM,

and our activities are based on

good relationships with suppliers

and customers.

12 OEM ANNUAL REPORT 2005 � EMPLOYEES

OEM needs skilled, compe-

tent employees to be able

to live up to its vision of

becoming a leading player in

the industrial components

and systems trade.

Everyone in the organisation contributes to the

image of OEM, and our activities are based on

good relationships with suppliers and customers.

For these relationships to work, our employees

must be satisfied and develop in the organisation

and we must create opportunities for our

employees to realise their own ambitions.

Strong corporate cultureOur strategy is to recruit young employees to train

in-house at OEM. Attracting, retaining and developing

good leaders and employees is top priority.

One objective is to recruit 75% of our managers

internally, which is a means of strengthening our

corporate culture. Our aim is over time to build a

culture that ultimately results in the content of the

vision also becoming our identity. It is our employees

that generate the results and long-term create

value for our shareholders. To retain and recruit

competent personnel, OEM must be able to offer

attractive terms and a good workplace with

excellent opportunities for growth.

Career opportunitiesThere are excellent opportunities to develop both

personally and professionally at OEM.

Vacant positions are often filled through internal

recruitment to maintain continuity for the customer

and give our employees the opportunity to develop.

For instance, an employee may start as a sales-

person, advance to sales manager and thereafter

become managing director of a company.

Personal commitment Flat organisations create responsibility, participation

and commitment. The reason for this is annual

development discussions between each employee

and manager. Moreover, we have an open,

continuous exchange of information in the

organisation. The work is controlled based on

individual targets, which gives the employee

greater freedom.

Competence developmentDuring the annual discussions between managers

and employees, the following aspects are discussed:

fulfilment of objectives, development and the need

for training. An individual in-service training plan

is prepared during the course of this discussion.

Competence development efforts are primarily

conducted at company level where various types

of in-house training programmes are arranged.

The Group also has is a well-developed concept

for sales training at different stages. OEM has its

own data support group for Movex business

systems, which continually provide in-house

training for administrative personnel. There are

several different types of management programmes

at management level.

Our sellers and product managers must always

be sensitive to market changes and requirements.

Market information is passed on to our suppliers,

Employees


0 100 200 300

Sweden

Finland

Other Nordic

countries

Outside the

Nordic region

Employees divided

per country (total 541)

EMPLOYEES � OEM ANNUAL REPORT 2005 13

which means that we form an important link in

the development of future products.

Our key product personnel regularly visit our

suppliers to pass on market information and

ensure quality in development and production,

and to receive training from the supplier.

Trainee programmesA trainee programme will begin in 2006 aimed at

ensuring long-term supply of employees in key

positions.

The programme will create the necessary

conditions for successful future efforts within the

OEM Group — a holistic outlook, broad network,

unique skills and personal growth.

Working environmentA good working environment is a prerequisite for

employees being happy at work. The foundation

is that employees must have a safe and healthy

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.

Equal opportunitiesWe currently have unequal distribution between

men and women. This is because most positions

in the Group require technical training and only a

few women apply for these jobs.

The reason for this is the low number of women

taking technical courses. Of around 320 employees

in the aforementioned positions, only a handful

are women.

Today, most of our female employees are

involved in finance, administration and marketing.

We are striving to ensure a more even distribution of

men and women in our companies and encourage

a greater interest in technical position from female

applicants.

Distribution

men/women (total 541)

100 Women

441 Men

Our sellers and product

managers must always be

sensitive to market changes

and requirements.


14 OEM ANNUAL REPORT 2005 � QUALITY, THE ENVIRONMENT AND ETHICS

OEM’s overall quality policy

means that products and

services must meet or exceed

customer expectations.

Our objective is that customers will associate

OEM with good products, high delivery

assurance, good technical support and a business-

like, positive reception.

During 2005 we have continued to work on

increasing delivery reliability from our suppliers.

This work is vital to ensure we maintain our own

quality objectives and live up to our quality policy.

It requires constant dialogue on subjects ranging

from product quality and product development to

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

proactively with environmental and quality targets

and continuously evaluate these based on customer

and market requirements. When discussing and

evaluating certification, the benefits to business

are always the main focus and determines

whether certification will be introduced.

The environmentThe 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

ecologically justified. The aim is to reduce the

impact of our business on the environment in

both the short and long term.

Today, one company in the Group is involved

in production activities. The others are involved

in the sale of components and systems from

manufacturers the world over. This means that our

greatest impact on the environment stems from

� transport of goods and personnel

� the content of environmentally-damaging

substances in products

� the printing and distribution of product

catalogues

� packaging material

� the heating, lighting and cooling of offices.

OEM is participating in Folksam’s Climate Index

Survey for 2005.

Transport and company cars 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

Quality, the environment and ethics


QUALITY, THE ENVIRONMENT AND ETHICS � OEM ANNUAL REPORT 2005 15

environment. When visiting suppliers, we review

their environmental work. There is a special form

for supplier review for companies already certified,

which is completed by our product managers.

Printing and distributionEach year the Group prints and distributes about

50,000 product catalogues and brochures.

When purchasing printing services, we only

consider environmentally-certified printers. Wherever

possible we try to print items on environmentally-

approved paper. We continue our efforts to publish

product information on the internet, which will

reduce the number of printed catalogues.

Environmental requirementsprovide business opportunitiesOn 1 July 2006, the ‘lead-free directive’ (RoHs*)

will be introduced which prohibits the use of lead,

mercury, cadmium and other hazardous substances

in electrical or electronic products. This will have

a huge impact within the EU and throughout the

rest of the world.

Our machinery customers have already begun

converting their production facilities and we are

seeing increased demand for new furnaces, wave

soldering systems and other machinery functions

affected by the new directive. The new ban will also

mean demand for training on the new machines.

Solder paste may no longer contain lead, which

means that we have to offer new products.

EthicsOEM’s activities are based on long-term relation-

ships with personnel, suppliers and customers.

The values of the management and employees

are evident in these relationships. It is therefore

vital to continually discuss ethical issuesd.

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

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

business is characterised by respect for employees

and business partners.

Environmentally-certifiedcompaniesAs the business does not have a heavy impact

on the environment in terms of production, we

currently only have three Swedish companies

certified in accordance with ISO 14001.

� OEM Automatic AB

� OEM Electronics AB

� Internordic Bearing AB

Quality-certified companies� OEM Automatic AB

� OEM Electronics AB

� Internordic Bearing AB

� JMS Systemhydraulik AB

� AB Indoma

OEM Automatic AB — one of three

Swedish OEM companies to be

environmentally and quality certified.

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


16 OEM ANNUAL REPORT 2005 � BOARD OF DIRECTORS

The Board of OEM Interna-

tional (publ) is comprised of

six board members and three

deputies elected by the AGM.

Five Board meetings were held in 2005, all of which

were recorded in the minutes. The work of the

Board complies with the rules of procedure

adopted by the Board. Once a year, the principal

auditor attends and reports on the auditing work.

Decisions and the division of responsibility between

the Board and the MD are regulated in written

instructions for the MD. Proposals for the Board’s

remuneration are presented to the AGM for

decision. Bonuses are not paid to the Board.

Amounts and other benefits are presented in note 4

in the income statement, page 57-59. Auditors are

proposed and appointed by the AGM for a four-

year tenure. The auditors’ work is debited within

negotiated price frames.

Nomination andRemuneration CommitteeThe Nomination and Remuneration committee is

comprised of Chairman of the Board Hans Franzén

and Board members Orvar Pantzar and Agne

Svenberg. The Committee nominates members to

the Board and provides guidelines for remuneration

to the MD. The Board approves remuneration

negotiated by the Chairman of the Board and the

MD. The Committee has convened once during

2005. Remuneration to Senior Management is

determined by the MD in consultation with the

Chairman of the Board.

Deputy Directors Tomas Franzén 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

Inger SvenbergBorn 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

Jerker LöfgrenBorn 1950

Deputy Director since 2003

Head Counsel Carnegie

Investment Bank AB

Not employed by OEM

No OEM shares

Board of Directors


BOARD OF DIRECTORS � OEM ANNUAL REPORT 2005 17

Auditor KPMG Bohlins AB KPMG, principal auditor: NIKLAS BENGTSSON Authorised Public Accountant

Hans FranzénBorn 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

Gunnar EliassonBorn 1951

Board member since 2000

Business Administrator

Not employed by OEM

Number of shares:

2,000 OEM Class B

Lars-Åke RydhBorn 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


Ulf BarkmanBorn 1957

Board member since 1997

Business Administrator

Not employed by OEM

Number of shares:

14,000 OEM Class B

Agne SvenbergBorn 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

Orvar PantzarBorn 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


OEM International is an

active owner.

In addition to setting clear goals, this means

contributing competence and resources within

the fields of IT, economic control, personnel

administration, market communication, quality and

environment control, as well as stock management.

OrganisationThe Group’s senior management consists of the

Managing Director, deputy Managing Director,

Finance Director and the five Directors in charge

of the Group's largest companies.

These five are the MD of OEM Automatic Sverige

and Business Director for OEM Automatic who is

in charge of business activities outside Sweden,

as well as the Business Director of OEM Electronics,

Cyncrona and JMS Systemhydraulik. The CEO is

head of company group Development and allocates

resources for each business activity within this group.

Management operational unitsThe board of an operational unit normally consists

of business directors, controllers and the MD.

We appoint external board members to companies

that need to reinforce the board within certain areas.

Group-wide resourcesThere are resources within the Group working

with specific functions across the entire Group.

There are resources for economic control,

business systems, tele/data, market communication,

quality and environment, as well as stock

management.

Senior Management

18 OEM ANNUAL REPORT 2005 � SENIOR MANAGEMENT

Jan Cnattingius

Finance Director

Mikael Thörnkvist

Business Director

OEM Automatic

Stefan Wik

Managing Director

OEM Automatic AB

Urban Malm

Business Director

OEM Electronics

Mattias Franzén

Business Director

Cyncrona

Fredrik Tengstrand

Business Director

JMS Systemhydraulik

Jan Hultman

Deputy MD

Jörgen Zahlin

MD/CEO

Development


SENIOR MANAGEMENT � OEM ANNUAL REPORT 2005 19

Stefan WikBorn 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)

Jan CnattingiusBorn 1955. Finance Director

Group employee since 1985. Economist


Holds 10,000 options in OEM

Urban MalmBorn 1962

Business Director for Group Electronics


Number of shares: 300 OEM Class B

Mattias FranzénBorn 1968

Business Director for Cyncrona.

Group employee since 2001. Engineer.

Number of shares: 5,600 OEM Class B.

Jan HultmanBorn 1945

Deputy MD OEM International AB

as of 1 Jan 2002

Group employee since 1980

Engineer

Number of shares:

7,023 OEM Class B

Mikael ThörnkvistBorn 1968. Business Director for OEM Automatic


No shares. Holds 10,000 options in OEM

Fredrik TengstrandBorn 1966. Business Director JMS Systemhydraulik


No shares. Holds 10,000 options in OEM

Jörgen ZahlinBorn 1964

MD OEM International AB as of 1 March 2000

CEO since 1 Jan 2002


Number of shares: 12,500 OEM class B

Holds 50,000 options issued by

the majority owner at market price


Group structure

20 OEM ANNUAL REPORT 2005 � 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

Components for industrial automation

within the business areas of Electrical

Machinery, Electrical Cabinets, Safety,

Cables, Pressure & Flow and

Pneumatics.

OEM Electronics

Appliance components, circuit board

components and EMC/microwave

components.


GROUP STRUCTURE � OEM ANNUAL REPORT 2005 21

JMS Systemhydraulik

Pumps, motors, valves, miniature units

as well as construction and production of

hydraulic units and complete hydraulic

systems for mobile and industrial

applications.

Cyncrona

Production equipment, support

and material for electronics production

as well as test equipment for circuit

boards, microelectronics and printed

circuit boards.

Development

Warehouse and warehouse solutions,

motors and transmissions, seals and

pumps

Company Group Products Number of countries

OEM Automatic, Automatic components 7

OEM Electronics Electronics components 3

Cyncrona Equipment and materials for

the electronics industry 5

JMS Systemhydraulik Hydraulic systems and components 1

Development Other businesses: 3


Mikael ThörnkvistBusiness Director

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.

OEM Automatic

Stefan WikManaging Director

OEM Automatic AB

22 OEM ANNUAL REPORT 2005 � OEM AUTOMATIC


0

200

400

600

0

20

40

60

80

0

100

200

300

Sales (SEK million)

Profit (SEK million)

Number of employees

Coordination within development of our product

range, logistics and market communication has

enabled us to quickly launch new product areas.

We are concentrating warehouse operations to

Sweden, Finland and the UK which will improve

our delivery capacity and level of service on all

markets. It will also make it possible to quickly

and cost-effectively set up organisations on new

markets.

In line with our strategy to become the leader

in northern Europe, OEM Automatic established

operations in Estonia and divested its business

in Italy.

Geographical collaboration has been expanded

with several suppliers in 2005. This includes

setting up the business area Pressure & Flow in

Norway and Denmark. Business area Cable

which was developed in Finland has also been

introduced in Sweden. We have also launched

several new product areas.

Goals and strategiesThe 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

start working the markets in Latvia

and Lithuania in 2006.

The strategy is:� A strong local presence with

face-to-face sales

� Streamlining through coordination

� Enhance our customer offer by expanding

our product range

� Represent our key suppliers on all markets

where we have market presence

� Geographical expansion in northern Europe

Market and customersWith the exception for the UK, the demand has

increased on all markets.

On the whole, the market for automation

components in Europe is relatively stable and

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

over a business cycle. As most of our customers

produce small to medium-sized volumes, there

is no drastic transfer of production to low-cost

countries. We expect a continued strong demand

throughout 2006.

CompetitorsWe compete with manufacturers such as Schneider

Electric, ABB and Omron, but also with trading

companies such as Indutrade and Addtech.

Operations OEM Automatic is comprised of seven

companies active in the sale of industrial

automation components.

Customers include machine and

appliance manufacturing industries,

wholesalers and strategic end users.

OEM Automatic represents some

60 suppliers that specialise and are

leaders within their respective fields.

Marketing is primarily conducted through

face-to-face sales where OEM provides

the customer with product and application

knowledge.

ProductsComponents for industrial automation

within the business areas of Electrical

Machinery, Electrical Cabinets, Safety

Cables, Pressure & Flow and Pneumatics.

Geographical marketOEM Automatic has operations in Sweden,

Norway, Denmark, Finland, Estonia,

Poland and the UK.

OEM AUTOMATIC, I � OEM ANNUAL REPORT 2005 23

Share of Group

sales

Connection system

from Brad Harrisson


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.

OEM Electronics

� Sales increased by 7% from SEK 285 million to

SEK 305 million.


Urban Malm Business Director OEM Electronics

24 OEM ANNUAL REPORT 2005 � OEM ELECTRONICS


0

200

400

0

15

30

0

50

100

Our product offers to Electronic Manufacturing

Services (EMS) customers has yielded good

results and OEM Electronics collaborates with

all major contract manufacturers in the Nordic

countries.

The restructuring measures, in which several

different companies became one company per

country, has made us more effective and improved

our customer offers. New structure enables

greater coordination within range development,

logistics and market communication.

Our investment in Poland is beginning to produce

results and higher growth.

Our own on-site personnel will handle

procurement in China during 2006. This means

shorter information routes, easier communication

and better service.

Goals and strategiesOur goal is a growth rate over 10% per year

and to become the strongest electronics

component player in northern Europe.

The strategy is:

� A strong local presence with

face-to-face sales

� Streamlining through coordination

� An organisation distinguished by service-

mindedness, extensive application skills

and various types of logistics solutions.

Market and customersProduction in the Nordic countries has stabilised

and reports lacklustre growth. We believe that

Poland will answer for greater growth in the

future.

CompetitorsOur 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

manufacturers’ own sales companies.

Operations OEM Electronics is comprised of three

companies active in the sale of electronics

and electromechanical components.

Our customers include appliance and

electronics manufacturers as well as

strategic contract manufacturers in

northern Europe.

OEM Electronics represents some

60 suppliers that are specialists in their

respective fields. Marketing is primarily

conducted through face-to-face sales

where OEM provides the customer with

product and application knowledge

alongside logistics solutions.

ProductsAppliance components, circuit board

components and EMC/microwave

components.

Geographical marketOEM Electronics has operations in

Sweden, Finland and Poland.

OEM ELECTRONICS � OEM ANNUAL REPORT 2005 25

“We have created a more effectiveorganisation and intensified ourrange of customer products.”

Sales (SEK million)


Number of employees

Share of Group

sales


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.

Cyncrona

26 OEM ANNUAL REPORT 2005 � CYNCRONA

Mattias FranzénBusiness Director Cyncrona

� Sales increased by 30% from SEK 218 million to SEK 284 million.

� Profit rose from SEK 7.2 million to SEK 18.5 million.


Operations Cyncrona is comprised of five companies

active in the sale of equipment and

materials for electronics production.

Cyncrona represents around twenty

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.

Marketing is conducted primarily

through face-to-face sales where

Cyncrona provides the customer with

both product and process knowledge.

ProductsProduction equipment, support and material

for electronics production as well as test

equipment for circuit boards, micro-

electronics and printed circuit boards.

Geographical marketCyncrona has operations in Sweden,

Finland, Denmark, Norway, Estonia,

Latvia and Lithuania.

CYNCRONA � OEM ANNUAL REPORT 2005 27

Fuji AIM machine scheduled for launch in 2006.

(All comparability figures are according to the new Group structure.)

Sales (SEK million)


Number of employees

Share of Group

sales

The success of the companies has fluctuated during

the year but all show positive growth. The Finnish

and Norwegian companies surpassed their targets,

while the Swedish and Danish companies did not

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

further boost conditions for internal efficiency and

inter-company cooperation.

Focus was directed to range development.

Cyncrona has through its geographical presence

in five countries a competitive advantage in

terms of attracting new suppliers.

In 2005, several suppliers

were substituted and two

suppliers launched within

new product areas.

Most of our second-

hand stock was sold off

during the year, reducing

capital tied-up by

SEK 2,5 million.

Goals and strategiesOur goal is to confirm our position as

the leading distributor in the Nordic and Baltic

countries of equipment, support and material for

electronics products and eventually realise a 7%

operating margin.

The strategy is:

� Increased efficiency through intensified

international cooperation.

� Continued range development to ensure

competitiveness

� Aggressive marketing of both existing

and potential customers

� Complementary acquisitions

Market and customersWe saw a general increase in demand on the

Nordic and Baltic markets compared with 2004,

largely due to the new EU directives concerning

lead-free production.

Our assessment is that the Nordic market will

remain stable throughout 2006 while demands

will increase in the Baltic

countries. As advances in

technology are made

and our suppliers launch

new machines, the

conditions necessary for

new business will evolve.

CompetitorsCyncrona competes with

manufacturers such as Siemens

and Mydata for surface-mounting

machines, and a handful of local distributors,

for example Scanditron and Sincotron, for other

parts of the range.


In 2005 sales rose 13% despite the 2004 wind up of

Hydroprodukter, and profits improved substantially.

JMS Systemhydraulik

� Sales rose 13% from SEK 139 million to SEK 157 million.


28 OEM ANNUAL REPORT 2005 � JMS SYSTEMHYDRAULIK

Fredrik TengstrandBusiness Director JMS Systemhydraulik


0

50

100

150

0

5

10

0

40

80

The company decided during the year to merge

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.

The share of outsourced work will increase

within unit and block production. We are also

looking for new partners, primarily in Eastern

Europe, to cut purchase prices.

Goals and strategiesThe goal is a 10% growth in terms of sales and

profit. The market situation still appears

favourable. We have yet to realise full effect of the

merger’s rationalisation and cost-cutting impact.

We deem there are excellent opportunities for

growth in Sweden which is why geographical

expansion has been down prioritised.

The strategy is:

� More market shares within units and blocks.

� Expand workshop’s assembly capacity

� Intensify existing customers’ component sales

Market and customersWe enjoyed robust demand throughout the entire

year. Customers within our most important

sectors of paper/pulp, marine/offshore and

mobile construction equipment have seen

positive development.

CompetitorsThe greatest competition in Sweden stems mainly

from the Dacke PCM Group. We also get

competition from such international players as

Parker Hannifin, Bosch Rexroth and Danfoss.

Operations JMS Systemhydraulik is active in the

sale of hydraulic systems and compo-

nents, primarily to Swedish OEM cus-

tomers.

We represent leading manufacturers

including Eaton, SUN, Casappa and

Walvoil. Strong competence throughout

the entire organisation and one of

Sweden’s foremost hydraulic workshops

makes JMS Systemhydraulik one of the

industry leaders.

ProductsPumps, motors, valves, miniature units as well

as construction and production of hydraulic

units and complete hydraulic systems for

mobile and industrial applications.

Geographical marketSweden

JMS SYSTEMHYDRAULIK � OEM ANNUAL REPORT 2005 29

Settima’s

low noise

rotor pump

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

Sales (SEK million)


Number of employees

Share of Group

sales


Companies within Development demonstrated varying

volume and turnover trends in 2004.

Development

� 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.

30 OEM ANNUAL REPORT 2005 � DEVELOPMENT

Estimated distribution of sales 2006


0

100

200

0

5

10

0

50

100

Telfa was acquired in September. The company

trades in pumps for industrial, marine and mobile

applications. During the period September-

December, Telfa reached sales and profits in line

with expectations.

Companies within Group Development

Internordic Bearing ABSales rose in Sweden from SEK 58.8 million to SEK

62.1 million.

During the autumn we put the Swedish organi-

sation 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.

IBECSales climbed from SEK 23.3 million to SEK 27.6

million.

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 ABSales climbed from SEK 31.0 million to SEK 32.7

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

conditions for continued positive growth.

Indoma ABSales dropped from SEK 39.1 million to SEK

37.5 million.

In 2005 the company further affirmed its strategy

of intensifying its orientation on OEM customers

and sealant solutions. Our OEM customer sales

climbed significantly during the year.

The company’s product range has been

refined to seals.

Telfa ABSales for the period September-December

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

product range over the next few years.

The sales organisation will be reinforced

during 2006.

Operations Companies group Development is

comprised of companies in various

stages of growth with the ambition

to evolve into a strong brand concept

or be modified to merge with another

company.

The group constantly evaluates

opportunities for acquisitions

within affiliated product areas, but also

within new product areas and on new

geographical markets.

ProductsWarehouse and warehouse solutions,

motors and transmissions, seals and

pumps

Incorporated unitsInternordic Bearings AB, IBEC,

OEM Motor AB, Indoma AB and Telfa AB.

Geographical marketInternordic operates in Sweden, Finland

and Denmark Ibec’s market is northern

Europe. The remaining companies

operate in Sweden.

DEVELOPMENT � OEM ANNUAL REPORT 2005 31

IBEC’s

aluminium

storage units

Sales (SEK million)


Number of employees

Share of Group

sales


32 OEM ANNUAL REPORT 2005 � OEM AUTOMATIC AND PARTEX

Partex Marking Systems AB

in Gullspång, Sweden

develops, manufactures and

markets marking systems for

cables, wires, pipes, and

electric components.

A conscientous focus on quality and delivery

assurance has ensured a very strong market

position.

In 2000, Partex and OEM Automatic embarked

on a successful partnership on the Swedish market.

Product and customer offers have been jointly

developed which resulted in strong sales growth.

The partnership was expanded in 2005 to include

all Nordic countries after Partex’ collaboration

with its former partner was concluded.

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

out with the German company that was in charge

of most of our marketing,” says Partex MD

TorBjörn Lööf. When they began marketing their

own competing products in Sweden, we opted

to allow OEM Automatic to sell our products in

parallel.

In charge of all Nordic countriesThe 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

or competing makes. Their division into business

areas makes them specialist in their individual fields.

We finally found a well-functioning organisation

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

with the German company. TorBjörn Löff feels that

OEM Automatic was highly professional and made

it possible to maintain the company’s sales level.

Synergy effects for OEMThe partnership is important for OEM Automatic

for several reasons.

“By gaining the trust to market Partex’ products

in all Nordic countries, we attain synergy effects

in both logistics and marketing that benefit all

parties. The marking system is in demand by

our customers and Partex, which is the leader

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

Director Mikael Thörnkvist.

A Nordic partner

Partex’ President TorBjörn Lööf is

pleased with the partnership with

OEM Automatic.

OEM Automatic and Partex Marking Systems AB

Partex Marking Systems AB in Gullspång, Sweden develops,

manufactures and markets marking systems mainly for customers

in the electric industry.

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.


OEM ELECTRONICS AND CASHGUARD � OEM ANNUAL REPORT 2005 33

Cooperation from concept to production

OEM Electronics and CashGuard

CashGuard develops and

sells systems for effective

and safe cash handling.

The system provides control of cash flows and

transactions and reduces the risks of robbery

and loss. Products are sold directly and through

partners to businesses active in trade, post and

bank, as well as security companies in the Nordic

countries and the rest of Europe.

Leading supplierCashGuard was founded in 1991 and has since

then evolved from an entrepreneurship to one of

the world’s leading suppliers of systems for safe

and effective cash handling. A collaboration was

initiated with OEM Electronics in November 2004.

“We have developed a function in our system

and OEM has actively participated from the concept

phase to the product launch. Among other things,

OEM has helped us with development tools and

technical support for implementing TCP-IP in

CashGuard’s products,” explains Patrik Hellqvist,

project manager for CashGuard’s R&D Department.

Participation and understandingSpring 2005, the project advanced from

development to production. Patrik Hellqvist is

very satisfied with the cooperation and support

supplied by OEM Electronics throughout the

project’s various phases.

“OEM has provided enormous support the

entire time and we feel they understand our

needs and wishes. This cooperation has enabled

us to develop a product much appreciated by

our customers.”

Parallell developmentOEM Electronics has chosen Digi International as

component supplier of CashGuard’s system.

The company, which is represented on the

North American Nasdaq stock exchange,

adheres to the principle that

hardware and software should

be developed in parallel to

become cost-effective,

good communications

solutions.

Patrik Hellquist, Cashguard, and

Yousef Abraham, OEM Electronics.

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.


34 OEM ANNUAL REPORT 2005 � JMS SYSTEMHYDRAULIK AND HOLMS

Holms Industri AB is a third-

generation family company.

Initially, the company was

one of Sweden’s leading

horseshoe manufacturers.

Today, Holms Industri is the market leader in

Sweden within front-mounted attachments for

sweeping and snow removal. The company is

also big in the US.

Quality and serviceFor many years JMS Systemhydraulik has been

the company’s supplier of hydraulic motors and

blocks. Mattias Ericsson, Procurement Manager

at Holms, explains why.

“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.

JMS Systemhydraulik offer good products that

are well known by our users.

We also have a good, trusting relationship

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 effortsThe 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.

”We have a sense of enormous committment

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

our partnership does not become routine.

Naturally, we also contact other suppliers with

requests for bids to boost competition, but so far

JMS has been our best alternative,” explains

Mattias Ericsson.

In the vanguard of new technology

JMS Systemhydraulik and Holms Industri AB

Mattias Ericsson, Procurement

Manager at Holms Industri AB

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


CYNCRONA AND HANSA ELECTRONICS � OEM ANNUAL REPORT 2005 35

Full-service solution generated major order

Cyncrona and Hansa Electronics

Clas Kagerup, MD for Cyncrona AB

The new production line with Fuji’s

new NTX assembly machines.

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.

A full-service supplierCyncrona was selected as partner in conjunction

with the new, complete production line investment.

“We wanted a complete supplier that could

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

MD of Hansa Electronics. It is an advantage to have

one single supplier that represents the technolgy we

require. To face tough competition both today and

in the future, we want the latest technolgy and Fuji

NXT is the leading technical solution for assembly.

The new production line is now equipped with

Fuji’s new NTX assembly machines. In addition to

two reflow ovens from SMT, two inspection ovens

from MVP and Nutek’s labeling and management

system. The total order value was about

SEK 20 million.

Positive trend“This order was important to us,” says Clas

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

NTX installation in the Baltic region and can pave

the way for more installations. We have excellent

experience of over ten NXT installations in the

Nordic countries and we now hope for market

expansion in the Baltic countries. The launch in

the Nordic countries started in 2004 and the

trend has been extremely positive.

Fuji NTX is designed to meet the new

specifications within modern electronics

production. The machines have the technology

and equipment to make them highly flexible

and allow them to be used for various assembly

needs.

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


36 OEM ANNUAL REPORT 2005

For easy access to definitions while reading the annual report,open the flap and lay flat.

Valve plate with SUN cartridge valve.


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

Financial reporting

FINANCIAL REPORTING � OEM ANNUAL REPORT 2005 37

This is an English translation of the Annual Report 2005

for OEM International AB (publ.).

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 37

38 OEM ANNUAL REPORT 2005 � FIVE-YEAR GROUP SUMMARY

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

Total amount invoiced 1,517,343 1,398,109 1,417,373 1,519,333 1,926,729

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

Profit before taxation 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

FROM THE BALANCE SHEET

Intangible fixed assets 18,198 10,255 15,641 32,635 59,184

Tangible fixed assets 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

Total assets 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

Current liabilities 255,667 246,402 225,582 304,212 482,510

Total shareholders’ equity and liabilities 764,143 712,404 641,491 746,726 988,295

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 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 38

KEY INDICATORS FOR THE LAST FIVE YEARS � OEM ANNUAL REPORT 2005 39

Key indicators for the last five years

THE OEM GROUP 2005 2004 2003 2002 2001

Net turnover MSEK 1,525 1,406 1,428 1,534 1,944

of which overseas % 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

Average interest payable % 3.9 4.4 2.2 3.1 3.0

Debt/equity ratio times 0.12 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

Capital turnover rate times/year 2.00 1.97 2.23 2.05 1.97

Turnover/employee MSEK 2.8 2.5 2.2 2.2 2.5

Equity/assets ratio % 62.5 59.6 61.0 55.5 47.0

Cash flow from operations MSEK 77.4 92.9 131 156 89.5

Quick ratio % 153 138 112 90 82

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

Equity per share* 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 thousands 7,569 7,569 7,603 7,817 8,132

Proposed dividends SEK 7.00 5.50 4.50 4.50 4.50

Exchange quoted price on 31 December SEK 163.50 118.00 102.00 77.00 92.50

P/E times 14.2 15.9 26.4 43.5 23.8

Direct return % 4.3 4.7 4.4 5.8 4.9

Number of employees number 541 571 636 701 773

Salaries and remuneration MSEK 178 184 197 220 244

*Equity per share = visible equity per share.

For easy access to definitions while

reading the annual report, open the

flap and lay flat.

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 39

40 OEM ANNUAL REPORT 2005 � 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

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.

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).

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

Environmental Code. The Group’s environmental

impact is described on page 14.

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.

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).

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.

DIRECTORS’ REPORT

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 40


GROUP PROFIT AND LOSS ACCOUNT SEK thousands

Note 2005 2004

BUSINESS INCOME

Net turnover 2 1,524,828 1,406,128

OPERATING EXPENSES

Trading stock - 1,004,432 -915,723

Other expenses - 120,525 -105,577

Personnel expenses 4 - 266,173 -275,976

Depreciation and write-down of tangible and

intangible fixed assets 5 -13,403 -21,701

OPERATING INCOME 2 120,295 87,151

FINANCIAL INCOME AND EXPENSES

Financial income 8 5,228 4,235

Financial expenses 9 - 3,213 - 3,161

Income from associate 7 1,313 1,103

PRE TAX PROFIT 123,623 89,328

Taxation 10 - 34,864 -25,674

PROFIT OR LOSS FOR THE FINANCIAL YEAR 88,759 63,654

ATTRIBUTABLE TO:

Parent Company shareholders 88,759 63,654

Minority interest - -

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

Dividends, SEK 7.00* 5.50

*Proposal

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 41

42 OEM ANNUAL REPORT 2005 � FINANCIAL REPORTING

GROUP BALANCE SHEET SEK thousands

ASSETS Note 31.12.05 31.12.04

FIXED ASSETS

INTANGIBLE FIXED ASSETS

Goodwill 11 9,398 10,255

Other intangible fixed assets 12 8,800 -

18,198 10,255

TANGIBLE FIXED ASSETS

Buildings and land 13 92,556 104,914

Equipment, tools and installations 13 29,925 31,227

122,481 136,141

FINANCIAL F IXED ASSETS

Participating interest 15 5,599 5,386

Other financial assets 2,632 1,803

Other long-term receivables 400 831

8,631 8,020

DEFERRED TAX RECEIVABLES 10 5,610 12,463

TOTAL FIXED ASSETS 154,920 166,879

CURRENT ASSETS

STOCK

Work in progress 3,270 2,905

Finished goods and goods for resale 214,891 203,012

218,161 205,917

CURRENT RECEIVABLES

Customer receivables 213,036 198,783

Receivables from associated companies 3 3

Other receivables 13,260 14,580

Prepayments and accrued income 16 14,721 15,241

241,020 228,607

LIQUID FUNDS 150,042 111,001

TOTAL CURRENT ASSETS 609,223 545,525

TOTAL ASSETS 764,143 712,404

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 42


GROUP BALANCE SHEET SEK thousands

EQUITY AND LIABILITIES Note 31.12.05 31.12.04

EQUITY 17

Share capital 38,615 38,615

Other capital contributed 39,440 39,440

Reserves 5,922 -

Surplus brought forward 305,203 283,179

Profit or loss for the financial year 88,759 63,654

TOTAL SHAREHOLDERS’ EQUITY ATTRIBUTABLE

TO HOLDERS OF SHARES IN THE PARENT COMPANY 477,939 424,888

LIABILITIES

LONG-TERM LIABILITIES

Interest-bearing liabilities

Other long-term liabilities 18 8,878 11,686

Provisions for pensions 19 48 2,254

Non interest-bearing liabilities

Deferred tax liabilities 10 21,611 27,174

TOTAL LONG-TERM LIABILITIES 30,537 41,114

CURRENT LIABILITIES


Overdraft 20 44,169 37,744

Other current liabilities 18 2,808 2,373


Advances from customers 826 443

Accounts payable 107,548 97,359

Liabilities to associated companies 1,046 1,156

Tax liability 2,270 7,883

Other liabilities 32,005 34,483

Accruals and deferred income 21 63,888 64,155

Guarantee provisions 1,107 806

TOTAL CURRENT LIABILITIES 255,667 246,402

TOTAL EQUITY AND LIABILITIES 764,143 712,404

PLEDGED ASSETS AND Note 31.12.05 31.12.04

CONTINGENT LIABILITIES

PLEDGED ASSETS FOR

OWN LIABILITIES AND PROVISIONS 20

Mortgages on property 27,650 42,650

Business mortgages 69,750 88,400

TOTAL PLEDGED ASSETS 97,400 131,050


Guarantee commitments 2,908 2,824

Location contribution - 346

TOTAL CONTINGENT LIABILITIES 2,908 3,170

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 43


GROUP CHANGES IN EQUITY SEK thousands

Share Other Brought forward Total

equity capital contributed Reserves profits equity

Opening equity 01.01.04 40,661 37,394 - 313,012 391,067

Adjusted for changes in accounting principles* 9,018 9,018

Adjusted equity 01.01.04 40,661 37,394 - 322,030 400,085

Translation differences - 1,329 - 1,329

Total changes in assets are recognised immediately in

shareholders’ equity, excluding transactions with owners - 1,329 - 1329


Total changes in assets, excluding transactions

with owners 62,325 62,325

Issued dividends -34,214 -34,214

Reduction of share capital - 2,046 2,046 0

Repurchase of own shares** -3,308 - 3,308

Closing equity 31.12.04** 38,615 39,440 - 346,833 424,888

Opening equity 01.01.05 38,615 39,440 - 346,833 424,888

Translation differences 5,922 5,922


shareholders’ equity, excluding transactions with owners 5,922 5,922


Total changes in assets, excluding

transactions with owners 5,922 88,759 94,681


Closing balance 31.12.05** 38,615 39,440 5,922 393,962 477,939

* 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 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 44


GROUP CASH FLOW STATEMENT SEK thousands

2005 2004

CURRENT OPERATIONS

Income after financial items 123,623 89,328

Adjustments for items not included in the cash flow 21,002 21,547

144,625 110,875

Tax paid - 40,477 - 18,604

OPERATING CASH FLOW BEFORE

WORKING CAPITAL CHANGES 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

Change in accounts payable 8,067 3,829

Change in other operating liabilities - 10,608 4,478

OPERATING CASH FLOW 77,406 92,911

INVESTMENT ACTIVITIES

Disposal of business 91 1,141

Acquisition of tangible fixed assets - 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 30 -

CASH FLOW FROM INVESTMENT ACTIVITIES - 9,077 -2,736

FINANCING ACTIVITIES

Loans raised 11,107 5,734

Dividends paid - 41,630 -34,214

Repurchase of own shares - - 3,308

CASH FLOW FROM FINANCING ACTIVITIES -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

Exchange rate difference in liquid funds 1,235 - 34

Liquid funds at the end of the year 150,042 111,001

Additional information, see Note 24

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 45


PARENT COMPANY PROFIT AND LOSS ACCOUNT SEK thousands

Note 2005 2004

BUSINESS INCOME

Net turnover 34,903 35,090

OPERATING EXPENSES

Other external expenses -18,365 - 18,614

Personnel expenses 4 -25,134 - 23,066

Depreciation of tangible and

intangible fixed assets 5 -1,725 - 1,871

OPERATING INCOME -10,321 - 8,461

INCOME FROM FINANCIAL ITEMS

Income from shares in affiliated undertakings 6 28,500 455

Income from shares in associated companies 7 1,100 750

Other interest income and similar income items 8 2,121 3,437

Interest expenses and similar expense items 9 - 14 - 10

INCOME AFTER FINANCIAL ITEMS 21,386 - 3,829

APPROPRIATIONS

Difference between tax depreciation and depreciation according to plan:

• Buildings and land 172 176

• Equipment, tools and installations - 326 47

Accruals fund, resolution 250 6,583

Accruals fund, allocation - - 13,000

PRE TAX PROFIT 21,482 - 10,023

Taxation 10 2,048 2,316

PROFIT OR LOSS FOR THE FINANCIAL YEAR 23,530 - 7,707

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 46


PARENT COMPANY BALANCE SHEET SEK thousands

ASSETS

Note 31.12.05 31.12.04

FIXED ASSETS


Buildings and land 13 18,786 19,303

Equipment, tools and installations 13 3,428 2,624

22,214 21,927


Shares in affiliated undertakings 14 176,544 170,020

Participating interest 15 1,200 1,200

Loans to affiliated undertakings - 7,000

Shares in tenant-owners’ society 1,018 1,018

178,762 179,238

TOTAL FIXED ASSETS 200,976 201,165

CURRENT ASSETS

CURRENT RECEIVABLES

Customer receivables 42 62

Loans to affiliated undertakings 211,358 193,736

Other receivables 3 -

Prepayments and accrued income 16 2,813 2,214

214,216 196,012

CASH AT BANK AND IN HAND 107,579 77,755

TOTAL CURRENT ASSETS 321,795 273,767

TOTAL ASSETS 522,771 474,932

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 47


PARENT COMPANY BALANCE SHEET SEK thousands

EQUITY, PROVISIONS Note 31.12.05 31.12.04

AND LIABILITIES

EQUITY

RESTRICTED EQUITY 17

Share capital 38,615 38,615

Restricted reserves 32,288 32,288

70,903 70,903

NON-RESTRICTED EQUITY

Non-restricted reserves 212,249 199,764

Profit or loss for the financial year 23,530 - 7,707

235,779 192,057

TOTAL EQUITY 306,682 262,960

UNTAXED RESERVES

Accumulated excess depreciation:

Buildings and land 13 67 239

Machinery and equipment 13 569 243

Accruals fund, allocated in conjunction with taxation for 2003 - 250

Accruals fund, allocated in conjunction with taxation for 2004 9,400 9,400

Accruals fund, allocated in conjunction with taxation for 2005 13,000 13,000

TOTAL UNTAXED RESERVES 23,036 23,132

PROVISIONS

Deferred tax liability 10 1,672 1,561

TOTAL PROVISIONS 1,672 1,561

CURRENT LIABILITIES


Accounts payable 1,903 1,028

Amounts owed to affiliated undertakings 164,199 171,645

Tax liability 11,490 3,217

Other liabilities 4,461 4,749

Accruals and deferred income 21 9,328 6,640

TOTAL CURRENT LIABILITIES 191,381 187,279

TOTAL EQUITY, PROVISIONS AND LIABILITIES 522,771 474,932

PLEDGED ASSETS AND Note 31.12.05 31.12.04


PLEDGED ASSETS FOR

OWN LIABILITIES AND PROVISIONS 20

Mortgages on property 7,500 7,500

TOTAL PLEDGED ASSETS 7,500 7,500


Security undertakings to the benefit of Group companies 139,414 172,436

TOTAL CONTINGENT LIABILITIES 139,414 172,436

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 48


PARENT COMPANY CHANGES IN EQUITY SEK thousands

Restricted equity Non-restricted equity Total equity

Share Legal Repurchase of Profit/loss

equity reserve own shares brought forward

Opening equity 01.01.04 40,661 30,242 - 8,895 207,318 269,326

Adjusted for changes in accounting principles* 3,052 3,052

Adjusted equity 01.01.04 40,661 210,370 272,378

Group contributions received 64,450 64,450

Tax effect on Group contributions received -18,046 - 18,046

Group contributions paid -14,712 - 14,712

Tax effect on Group contributions paid 4,119 4,119


shareholders’ equity, excluding transactions with owners- - - 35,811 35,811

Profit or loss for the financial year -7,707 - 7,707

Total changes in assets,

excluding transactions with owners - - - 28,104 28,104

Reduction of share capital -2,046 2,046 0

Issued dividends - 34,214 - 34,214

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 94,514

Tax effect on Group contributions received -26,464 -26,464

Group contributions paid - 8,650 - 8,650

Tax effect on Group contributions paid 2,422 2,422


shareholders’ equity, excluding transactions with owners- - - 61,822 61,822


Total changes in assets,

excluding transactions with owners - - - 85,352 85,352


Closing equity 31.12.05 38,615 32,288 - 12,203 247,982 306,682

Proposed dividends, SEK 7.00 per share 54,062

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

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 49


PARENT COMPANY CASH FLOW STATEMENT SEK thousands

2005 2004

CURRENT OPERATIONS

Income after financial items 21,386 - 3,829

Adjustments for items not included in the cash flow 5,388 5,651

26,774 1,822

Tax paid -13,771 - 8,195

OPERATING CASH FLOW BEFORE

WORKING CAPITAL CHANGES 13,003 - 6,373

Cash flow from working capital changes

Change in customer receivables 20 - 9

Change in other operating receivables - 11,224 39,116

Change in accounts payable 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

Sales of tangible fixed assets 11 -

CASH FLOW FROM INVESTMENT ACTIVITIES -12,038 -2,114

FINANCING ACTIVITIES

Group contribution 85,864 49,738

Dividends paid - 41,630 -34,214

Repurchase of own shares - - 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

Liquid funds at the end of the year 107,579 77,755

Additional information, see Note 24

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 50


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 “Supple-

mentary 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 Safe-

guarding of Pension Obligations (Tryggande-

lagen) 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”.

NOTES WITH ACCOUNTING PRINCIPLES AND COMMENTS TO THE FINANCIAL STATEMENTS

AMOUNTS IN SEK THOUSANDS UNLESS OTHERWISE INDICATED

NOTE 1. GENERAL ACCOUNTING PRINCIPLES

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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 denomi-

nated 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

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.

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 52


A receivable is individually assessed with

regard to its estimated loss risk and is entered

at the amount it is expected to generate. Write-

downs 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, stand-

alone 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.


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.


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 see below

• land improvements 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.


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


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 good-

will and internally generated trademarks are

reported in the income statement as the costs

are incurred.


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

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 53


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 denomi-

nated 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

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 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.

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 54


A receivable is individually assessed with

regard to its estimated loss risk and is entered

at the amount it is expected to generate. Write-

downs 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, stand-

alone 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.


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.


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 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 see below

• land improvements 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.


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


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 good-

will and internally generated trademarks are

reported in the income statement as the costs

are incurred.


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

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 55


NOTE 2. AREAS OF OPERATION AND GEOGRAPHIC AREAS

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 Directors’ 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 Elimination/

Automation Electronics Mechanics Hydraulics EP operations Undistributed Total

INCOME

External sales 601,209 302,063 166,486 156,978 284,304 13,788 0 1,524,828

Internal sales 3,624 2,542 5,266 336 1 42,713 -54,482 0

Total income 604,833 304,605 171,752 157,314 284,305 56,501 -54,482 1,524,828

PROFIT

Operating income 74,666 24,743 5,083 11,140 18,539 -13,876 0 120,295

Other financial items 3,328 3,328

Tax expenses -34,864 -34,864

Income 74,666 24,743 5,083 11,140 18,539 -13,876 -31,536 88,759

OTHER INFORMATION

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

Investments intangible

fixed assets 0 0 0 0 0 9,900 0 9,900

Investments material

fixed assets 2,648 593 1,486 836 2,237 13,484 0 21,284

Amortisation of goodwill 0 857 0 0 0 0 0 857

Amortisation of intangible

fixed assets 0 0 0 0 0 1,100 0 1,100

Depreciation material

fixed assets 2,059 479 925 510 1,813 6,760 0 12,546

2004 Other Elimination/

Automation Electronics Mechanics Hydraulics EP operations Undistributed Total

INCOME

External sales 549,621 282,903 187,337 138,627 239,349 8,291 0 1,406,128

Internal sales 5,369 1,909 7,031 280 0 38,200 -52,789 0

Total income 554,990 284,812 194,368 138,907 239,349 46,491 -52,789 1,406,128

PROFIT

Operating income 67,134 19,553 6,134 2,859 -555 -8,356 0 86,769

Other financial items 2,974 2,974

Tax expenses -26,089 -26,089

Income 67,134 19,553 6,134 2,859 -555 -8,356 -23,115 63,654

OTHER INFORMATION

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

Investments intangible fixed assets 0 0 0 0 0 0 0 0

Investments material fixed assets 1,978 143 1,005 234 4,383 8,357 0 16,100

Amortisation of goodwill 0 2,382 555 1,278 0 1,096 0 5,311

Amortisation of intangible fixed assets 0 0 0 0 0 0 0 0

Amortisation of material fixed assets 3,813 557 1,088 679 3,399 6,854 0 16,390

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 56

THE GEOGRAPHIC AREAS

External sales Assets Liabilities Investments

2005 2004 2005 2004 2005 2004 2005 2004

Sweden 950,867 906,154 507,618 444,677 132,630 102,503 16,460 10,674

Denmark 57,395 67,463 29,665 38,670 15,644 22,360 181 42

United Kingdom 60,012 59,555 51,573 44,303 19,403 19,653 137 178

Finland 364,774 288,248 123,895 115,185 65,363 61,192 2,614 4,206

The Netherlands 7,254 8,260 8,505 5,392 3,831 2,103 1,115 9

Italy 12,590 19,813 0 14,469 0 13,660 0 207

Norway 41,998 33,774 14,890 13,298 5,263 7,137 96 65

Poland 29,938 22,861 10,701 9,888 8,503 9,792 553 719

Estonia 0 0 535 0 1,299 0 128 0

Total 1,524,828 1,406,128 746,847 685,882 250,637 238,400 21,284 16,100


NOTE 3. ACQUISITION OF OPERATIONS

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 Fair value Fair value

in Telfa AB accounted for in the Group

Tangible fixed assets 1,163 1,163

Intangible fixed assets - 9,900 9,900

Inventories 6,801 6,801

Accounts receivable and other receivables 6,994 6,994

Accounts payable and other liabilities - 2,122 - 2,122

Other liabilities -12,736 - 12,736

Identifiable assets and liabilities, net 100 9,900 10,000

Group goodwill -

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

THE PARENT COMPANY

Sweden 21 81% 21 81%

SUBSIDIARY COMPANIES

Sweden 325 82% 363 82%

Denmark 26 73% 27 74%

United Kingdom 29 86% 25 88%

Finland 89 80% 87 80%

The Netherlands 2 50% 2 50%

Italy - - 10 60%

China 12 92% 6 83%

Norway 18 83% 16 81%

Poland 17 76% 14 79%

Estonia 2 100% - -

Total at subsidiaries 520 82% 550 81%

Group total 541 82% 571 81%

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 57


SALARIES, OTHER REMUNERATION AND SOCIAL SECURITY EXPENSES

2005 2004

Salaries and Social Salaries and Social

remuneration security expenses remuneration security expenses

The Parent Company 15,940 8,270 13,427 7,124

(Whereof pension expenses) 1) (2,429) 1) (2,116)

Subsidiaries 162,147 58,773 170,501 62,177

(Whereof pension expenses) (14,285) (14,029)

Group total 178,087 67,043 183,928 69,301

(Whereof pension expenses) 2) (16,714) 2) (16,145)

1)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.

SALARIES AND OTHER REMUNERATION DIVIDED BETWEEN COUNTRIES AND BETWEEN BOARD

MEMBERS ETC. AND OTHER EMPLOYEES

2005 2004

Board and Other Board and Other

Managing Director employees Managing Director employees

THE PARENT COMPANY

Sweden 4,073 11,867 3,226 10,201

(Whereof bonus) (990) (436)

SUBSIDIARIES

Sweden 5,696 92,490 7,626 98,474


Denmark 716 12,116 1,105 11,921

(Whereof bonus) (-) (31)

United Kingdom 757 7,714 801 7,772


Finland 3,479 26,766 3,429 25,817


The Netherlands 620 182 646 225

(Whereof bonus) (222) (-)

Italy - - 910 2,693

(Whereof bonus) (-) (-)

Norway 1,662 6,205 1,491 4,847


China - 253 – 266

(Whereof bonus) (-) (-)

Poland 669 2,599 541 1,937


Estonia - 223

(Whereof bonus) (-)

Subsidiary companies total 13,599 148,548 16,549 153,952

(Whereof bonus) (1,933) (1,659)

Group total 17,672 160,415 19,775 164,153

(Whereof bonus) (2,923) (2,095)

(CONT. NOTE 4)

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 58


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.

SICK LEAVE PARENT COMPANY

2005 2004

Total sick leave as a proportion of normal working time 0.5% 0.7%

Continuous sick leave of 60 days or more as a proportion of the total sick leave 0% 0%

TOTAL SICK LEAVE AS A PROPORTION OF

EACH GROUP’S NORMAL WORKING TIME

Sick leave by gender:

Men 0.3% 0.4%

Women 1.6% 1.5%

SICK LEAVE BY AGE CATEGORY:

29 years old or younger 0% 0%

30-49 years 0.6% 0.7%

50 years old or older 0% 0%

GENDER DISTRIBUTION

THE GROUP THE PARENT COMPANY

(Proportion of women) (Proportion of women)

2005 2004 2005 2004

Board of Directors 0% 0% 0% 0%

Other Senior Executives 0% 3% 0% 10%

FEES AND REIMBURSEMENT OF EXPENSES TO THE AUDITORS


2005 2004 2005 2004

KPMG

Audit assignment 1,079 1,212 200 228

Other assignments 129 3 129 3

OTHER AUDITORS

Audit assignment 594 612 - –

Total 1,802 1,827 329 231

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

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 59


NOTE 5. DEPRECIATION/WRITE-DOWN OF TANGIBLE AND INTANGIBLE FIXED ASSETS


2005 2004 2005 2004

Goodwill, write-down -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

Total - 13,403 -21,701 - 1,725 - 1,871

NOTE 6. INCOME FROM SHARES IN AFFIL IATED UNDERTAKINGS

THE PARENT COMPANY

2005 2004

Dividends received 32,000 4,000

Write-down shares -3,500 -3,545

Total 28,500 455

NOTE 7. SHARES IN EARNINGS OF ASSOCIATED COMPANIES/ INCOME FROM SHARES IN

ASSOCIATED COMPANIES


2005 2004 2005 2004

Dividends received - – 1,100 750

Income from shares in associated companies 1,313 1,103 - –

Total 1,313 1,103 1,100 750

NOTE 8. F INANCIAL INCOME/OTHER INTEREST INCOME AND SIMILAR INCOME ITEMS


2005 2004 2005 2004

Interest income 2,480 2,079 2,121 3,437

Other financial income 2,748 2,156 - -

Total 5,228 4,235 2,121 3,437

NOTE 9. F INANCIAL EXPENSES/ INTEREST EXPENSES AND SIMILAR INCOME ITEMS


2005 2004 2005 2004

Interest expenses -2,166 - 2,397 -14 -10

Other financial expenses - 1,047 - 764 - -

Total - 3,213 -3,161 - 14 -10

OEM 2005 SWE ENG s.37-84 06-03-13 13.24 Sida 60


NOTE 11. GOODWILL

THE GROUP

2005 2004

ACCUMULATED ACQUISITION VALUES

At the start of the year 15,566 15,566

New acquisitions - –

Total acquisition value 15,566 15,566

ACCUMULATED WRITE-DOWNS

At the start of the year -5,311 -

Write-down - 857 - 5,311

Total write-downs - 6,168 - 5,311

Residual value at the year-end 9,398 10,255

NOTE 10. TAXES


2005 2004 2005 2004

Current tax - 33,574 -32,558 2,159 2,690

Deferred tax - 1,290 6,884 - 111 - 374

Total reported tax expenses - 34,864 -25,674 2,048 2,316

Tax relating to items reported directly in equity - - - 24,042 -13,927

LINK BETWEEN TAX EXPENSES FOR THE YEAR AND INCOME BEFORE TAX

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

Amortisation of consolidated goodwill - 240 - 1,487 - -

Non-taxable share dividends - - 9,268 1,330

Write-down shares - - - 980 - 993

Other items - 10 825 - 225 - 827

Total reported tax expenses -34,864 -25,674 2,048 2,316

DEFERRED TAX CLAIMS

Deficit deductions 3,105 3,536 - -

Prepaid income - 7,343 - -

Goodwill 1,461 1,402 - -

Other 1,044 182 - -

Total deferred tax claims 5,610 12,463 - -

DEFERRED TAX LIABILITY

Buildings and land 4,754 4,819 1,672 1,561

Untaxed reserves 16,857 22,355 - -

Total deferred tax liability 21,611 27,174 1,672 1,561

For the Group there is SEK 2,558 thousand (2,439) in inactive deferred tax claims corresponding to deficit deduction, which, when valued in accordancewith 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.

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 61


(CONT. NOTE 11)

NOTE 12. OTHER INTANGIBLE ASSETS

THE GROUP

2005 2004


At the start of the year - -

New acquisitions 9,900

Total acquisition value 9,900 -

ACCUMULATED DEPRECIATION

At the start of the year - -

Depreciation - 1,100 -

Total depreciation - 1,100 -

Residual value at the year-end 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.

IMPAIRMENT TEST FOR INTANGIBLE ASSETS

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.

GOODWILL AND INTANGIBLE ASSETS

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.

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 62


NOTE 13. TANGIBLE FIXED ASSETS

2005.12.31 2004.12.31

GROUP Buildings Machines and Equipment, Buildings Machines and Equipment,

and land other technical tools and and land other technical tools and

facilities installations facilities installations

ACCUMULATED

ACQUISITION VALUE

At the start of the year 138,836 - 129,306 138,542 12,409 151,506

New acquisitions 2,179 - 17,942 807 - 15,293

Acquired through business combinations - - 4,496 - - -

Sales and disposals - 18,374 - - 26,993 - - 11,157 -30,966

Reclassifications - - - 938 - -1,252 -6,398

Translation differences for the year 2,969 - 2,321 -513 - -129

Total acquisition value 125,610 - 126,134 138,836 - 129,306

CUMULATIVE DEPRECIATION ACCORDING TO PLAN

At the start of the year -33,922 - - 98,079 -31,061 -9,435 -109,814

Acquired through company acquisitions - - - 3,333 - - -

Sales and disposals 4,273 - 15,541 - 8,439 21,444

Depreciation for the year according

to plan at acquisition values -3,014 - - 9,532 -2,951 -256 -13,183

Reclassifications - 1,207 1,252 3,236

Translation differences for the year -391 - - 2,013 90 - 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 2004.12.31

PARENT COMPANY Buildings Equipment, Buildings Equipment,

and land tools and and land tools and

installations installations


At the start of the year 26,814 18,188 26,012 17,139

New acquisitions 89 1,936 802 1,312

New acquisitions, Group companies - - – 8

Sales and disposals - - 649 – -271

26,903 19,475 26,814 18,188

CUMULATIVE DEPRECIATION ACCORDING TO PLAN

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

Planned depreciation for year on purchase values - 605 - 1,120 - 588 -1,283

- 8,116 - 16,047 - 7,511 -15,564

Planned residual value at end of year 18,787* 3,428 19,303* 2,624

ACCUMULATED EXCESS DEPRECIATION

At the start of the year - 239 -243 -415 -290

Change for the year 172 -326 176 47

-67 -569 -239 -243

BOOK VALUE 18,720 2,859 19,064 2,381

TAXATION VALUE 9,551 9,551

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 63


NOTE 14. SHARES IN AFFIL IATED UNDERTAKINGS

Corp. Registered Number Equity Face Book Annual

number office shares share value value change

OEM Industrial Components AB, Sweden 556051-4514 Tranås 100,000 100% 5,000 46,231

OEM Automatic AB, Sweden 556187-1012 Tranås – 100%

OEM Automatic AS, Norway – – 100%

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%

OEM Electronics OY, Finland – – – 100%

OEM Källving AB, Sweden 556220-5343 Borlänge – 100%

Indoma AB, Sweden 556326-5171 Jönköping – 100%

OEM Systemteknik AB, Sweden 556050-9076 Stockholm 1,000 100% 100 1,500

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%

OEM Electronics Production

Technology AB, Sweden 556038-8356 Stockholm 300 100% 300 78,350

Cyncrona AB, Sweden 556296-1838 Stockholm – 100%

LIF Produkter AB, Sweden 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 10,277

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% 100 100

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 42

Fotbromsen AB, Sweden 556150-4282 Karlskoga 5,000 100% 500 992 - 3,500

Telfa AB 556675-0500 Gothenburg 1,000 100 % 100 10,000 10,000

OEM Eesti Ou. , Estonia – – 10,000 100 % 40 24 24

Total 176,544 6,524

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 64


NOTE 15. PARTICIPATING INTEREST

Corp. Registered Number Equity Nom. Book Annual

number office shares share value value change

THE GROUP

Crouzet AB, Sweden 556197-1911 Stockholm 12,000 50% 1,200 5,599 213

THE PARENT COMPANY

Crouzet AB, Sweden 556197-1911 Stockholm 12,000 50% 1,200 1,200 -

SPECIFICATION FOR THE GROUP VALUES RELATED TO OWNED SHARE

OF INCOME, PROFIT, ASSETS AND LIABILITIES.

Owned share as % Land Revenue Income Assets Liabilities Shareholders’

equity

2005

Crouzet AB 50 % Sweden 25,815 1,313 11,453 5,854 5,599

2004

Crouzet AB 50 % Sweden 25,601 1,103 11,441 6,055 5,386

NOT 16. PREPAYMENTS AND ACCRUED INCOME


2005 2004 2005 2004

Accrued commission income etc. 775 2,608 - –

Other prepaid expenses 13,946 12,633 2,813 2,214

TOTAL 14,721 15,241 2,813 2,214

NOTE 17. SHAREHOLDERS’ EQUITY

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

2005 2004

Shares Votes Shares Votes

Class A shares 10 votes 1,589,032 15,890,320 1,589,032 15,890,320

Class B shares 1 vote 6,134,071 6,134,071 6,134,071 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. F INANCIAL 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.

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 65


NOTE 19. PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS

PROVISIONAL BENEFICIAL OBLIGATIONS AND VALUE OF ADMINISTRATION ASSETS.

2005-12-31 2004-12-31

The present value of entirely or partially funded obligations 8,495 7,563

Fair value of the administration assets -8,447 -7,070

Total entirely or partially funded obligations 48 493

The present value of non funded provisional defined benefit obligations - 1,761

Net amount in balance sheet (obligations + assets -) 48 2,254

The net amount reported in the balance sheet:

Provisions for pensions and similar obligations 48 2,254

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

Norway 48 493

Italy - 1,761

Net amount in balance sheet (obligations + assets -) 48 2,254

PENSION EXPENSES

Defined-benefit plans

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

Salary tax 51 51

Total expenses for remuneration after completed employment 404 673

RECONCILIATION OF NET AMOUNT FOR PENSIONS IN THE BALANCE SHEET

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 1,791

Effect of changing accounting principles to RR 29 716

Net amount as of 2004-01-01 2,507

Expenses for defined benefit plans 673

Payments of contributions from the Company -926

Net amount in the balance sheet as of 31/12/04 2,254

Expenses for defined benefit plans 404

Payments of contributions from the Company -849

Disposal of subsidiaries -1,761

Net amount in the balance sheet as of 31.12.05 48

ACTUARIAL COMMITMENTS

The following significant actuarial commitments have been applied when calculating the obligations:

(weighed average values)

Discount rate 6%

Expected return on administration assets 6%

Future salary increases 3%

Future increases of pensions 3%

Staff turnover 10%

Expected remaining length of service 20 years

Pledged assets for pension obligations None

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 66


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


2005 2004 2005 2004

Mortgages on property 27,650 42,650 7,500 7500

Business mortgages 69,750 88,400 - -

Total 97,400 131,050 7,500 7500

NOTE 21. ACCRUALS AND DEFERRED INCOME


2005 2004 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 34 34

Accrued supplier inv./commercial debts 7,829 8,659 - 1,280

Other accrued expenses 21,341 21,010 4,894 1,672

Total 63,888 64,155 9,328 6,640

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 67


NOTE 22. F INANCIAL 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.


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.

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 8% 8%

GBP 5% 6%

JPY 15% 5%

Other currencies 9% 7%

100% 100%

Exchange rate changes significant currencies

Currency Weighed Weighed Change

average average

2005 2004

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

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.

Currency rates are used in the Group’s

consolidated accounts for recalculating

foreign subsidiary’s income and net assets.

Currency Weighed December

average 2005

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 2.2920

EEK 1 0.6016 0.5983

Currency Weighed December

average 2004

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.

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 68


NOTE 23. OPERATIONAL LEASING


2005 2004 2005 2004

Leasing agreements where the Company is the lessee

Non-redeemable leasing payments amount to:

Within one year 7,507 9,875 857 2,452

Between one and five years 21,833 14,362 382 4,032

Longer than five years - - - -

Total 29,340 24,237 1,239 6,484

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

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 69


NOTE 24. CASH FLOW STATEMENT

ADDIT IONAL INFORMATION CONCERNING CASH FLOW STATEMENT:


2005 2004 2005 2004

SPECIFICATION FINANCIAL ITEMS

Rents received 2,480 2,079 2,121 3,437

Dividends received 10 5 33,100 4,750

Rents paid - 2,166 - 2,015 -14 - 10

SPECIFICATION ITEMS NOT INCLUDED IN THE CASH FLOW

Depreciation 13,403 21,701 1,725 1,871

Realisation profits 5,914 - - -

Other 1,685 - 154 163 235

Write-down shares - - 3,500 3,545

Total 21,002 21,547 5,388 5,651

ACQUISITION OF SUBSIDIARY COMPANIES - GROUP

ACQUIRED ASSETS AND LIABILITIES

Tangible fixed assets 1,163 -

Inventories 6,801 -

Operating receivables 6,994 -

Liquid funds 100 -

Total assets 15,058 -

Current operating liabilities 14,958 -

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 -

DIVESTMENT OF SUBSIDIARY COMPANIES - GROUP

DIVESTED ASSETS AND LIABILITIES:

Tangible fixed assets 674 653

Inventories 3,372 2,463

Operating receivables 10,398 201

Liquid funds 99 -

Total assets 14,543 3,317

Current operating liabilities 6,605 701

Current interest-bearing liabilities 7,055 -

Total liabilities 13,660 701

PURCHASE PRICE:

Sale price: 190 2,616

Deducted: Sales reverse - - 1,475

Purchase sum received 190 1,141

Deducted: Liquid funds in the divested business -99 -

Impact on liquid funds 91 1,141

LIQUID FUNDS

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

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 70

INCOME RECONCILIATION 2004 SEK THOUSANDS

Under Effect at Under

Swedish GAAP transition IFRS

Net turnover 1,406,128 1,406,128

OPERATING EXPENSES

Trading stock -915,723 -915,723

Other external expenses - 105,577 - 105,577

Personnel expenses - 275,976 - 275,976

Depreciation of tangible and

intangible fixed assets -28,407 6,7061) - 21,701

OPERATING INCOME 80,445 6,706 87,151

INCOME FROM FINANCIAL ITEMS

Participating interest 1,518 - 4152) 1,103

Financial income 4,235 4,235

Financial expenses - 3,161 - 3,161

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 7,738,795

Average number of diluted shares 7,778,795 7,778,795

1) Changes in component depreciation 1,749

Reversal of goodwill amortisation according to plan 10,268

Amortisation of goodwill - 5,311

6,706

2) Tax share of associate’s profit and loss - 415

3) Taxes on changes in component depreciation - 498

Tax share of the associated company’s profit and loss 415

- 83


NOTE 25. INFORMATION ABOUT THE PARENT COMPANY

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.

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 71


EQUITY RECONCILIATION SEK thousands

2004.12.31 2004.01.01

Under Effect at Under Under Effect at Under

Swedish GAAP transition IFRS Swedish GAAP transition IFRS

ASSETS

FIXED ASSETS


Goodwill 5,298 4,9574) 10,255 15,641 0 15,641


Buildings and land 90,682 14,2325) 104,914 94,940 12,541 107,481

Machinery and other technical facilities - - 2,974 2,974

Equipment, tools and installations 31,227 31,227 27,633 27,633

121,909 14,232 136,141 125,547 12,541 138,088


Participating interest 5,386 5,386 5,033 5,033

Other financial assets 1,803 1,803 2,098 2,098

Other long-term receivables 831 831 5,573 5,573

8,020 8,020 12,704 12,704

INCOME TAXES RECOVERABLE 12,413 506) 12,463 5,154 47 5,201

TOTAL FIXED ASSETS 147,640 19,239 166,879 159,046 12,588 171,634

CURRENT ASSETS

Inventories 205,917 205,917 230,885 230,885

Current receivables 228,607 228,607 198,912 198,912

Cash at bank and in hand 111,001 111,001 52,648 52,648

TOTAL CURRENT ASSETS 545,525 0 545,525 482,445 0 482,445

TOTAL ASSETS 693,165 19,239 712,404 641,491 12,588 654,079

EQUITY AND LIABILITIES

EQUITY

Share capital 38,615 38,615 40,661 40,661

Other capital contributed 39,440 39,440 37,394 37,394

Surplus brought forward 274,200 8,9797) 283,179 313,012 9,018 322,030

Profit or loss for the financial year 57,446 6,208 63,654

TOTAL EQUITY 409,701 15,187 424,888 391,067 9,018 400,085

LONG-TERM LIABILITIES

Other long-term liabilities 11,686 11,686 - -

Provisions for pensions 2,254 2,254 1,791 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

CURRENT LIABILITIES

246,402 246,402 225,582 225,582

TOTAL EQUITY AND LIABILITIES 693,165 19,239 712,404 641,491 12,588 654,079

Continued on next page

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 72

4) Reversal of goodwill amortisation according to plan 10,268

Amortisation of goodwill - 5,311

4,957

5) Calculated using component depreciation, January 1, 2004 12,541

Changes in component depreciation 1,749

Foreign exchange translation differences - 58

14,232

6) Income taxes recoverable 50

Deferred tax liabilities - 4,052

- 4,002

Deferred tax on component depreciation as of January 1, 2004 - 3,523

Taxes on changes in component depreciation - 498

Foreign exchange translation differences 19

- 4,002

7) Impact on profits from transition to IFRS, January 1, 2004 9,018

Adjusted for foreign exchange translation differences — buildings and landbdiffer - 58

Adjusted for foreign exchange translation differences — deferred tax liabilities 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.

NOTE 27. CHANGES IN ACCOUNTING PRINCIPLES, JANUARY 1, 2005

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.

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 73

74 OEM ANNUAL REPORT 2005 � PROPOSED ALLOCATION OF PROFITS

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 54,061,721.00

• that the following be carried forward 181,717,577.23

235,779,298.23

TRANÅS, 28 FEBRUARY 2006

Hans Franzén Orvar Pantzar Lars-Åke RydhChairman

Ulf Barkman Agne Svenberg Gunnar Eliasson

Jörgen ZahlinManaging 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.

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 74

AUDIT REPORT � OEM ANNUAL REPORT 2005 75

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

Auditors’ reportTO THE ANNUAL GENERAL MEETING OF OEM INTERNATIONAL AB (PUBL)

CORPORATE IDENTITY NUMBER 556184-6691

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 75

76 OEM ANNUAL REPORT 2005 � OEM SHARES

OEM International on theStock ExchangeOEM’s shares were quoted on the Stockholm Stock

Exchange’s (Stockholmsbörsen) OTC List in

December 1983, and since then have displayed

a healthy price trend. Anyone who purchased

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

introduction onto the market would have had a

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

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

stipulated by the Stockholm Stock Exchange for

a listing on the A list. However, as shares on the

O list are exempt from capital tax, and moving them

to the A list would have significant tax implications

for the shareholders, the Board of Directors has

decided to allow OEM shares to remain quoted

on the O list.

Price trendsThe price of OEM International shares rose during

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

The highest price paid during the year was SEK

164.00, recorded on 27, 29 and 30 December,

and the lowest price was SEK 114.00, recorded

on 4 and 5 January.

OEM’s market value at the end of 2005 was

MSEK 1,263. With the Company’s shareholding

excluded, OEM’s market value amounted to

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

Exchange’s OMXS PI index rose by 33% and

the index for OMXS Industrials rose by 44%.

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

corresponding to a turnover rate of 10%. The

average shareholder in OEM therefore retains their

shares for about ten (10) years. The corresponding

figure for the Stockholmsbörsen as a whole in 2005

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

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

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

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%.

Repurchase of sharesThe repurchase programme for shares, which was

adopted for the first time by the Annual General

Meeting in 2000, is intended to improve our capital

structure and contribute positively to return on

shareholders’ equity and earnings per share.

After implemented reductions the previous year

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

year-end. The Company has acquired 154,000

shares corresponding to 2% of the total number

of shares. The Board has been authorised by

the Annual General Meeting to repurchase up

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

772.310 shares.

The objective is to continue the repurchases up

to 10% of the total number of shares while the

Board considers the conditions to be attractive.

The acquired shares will be retained, deregistered

or used as payment in corporate acquisitions. We

have minimised the disadvantages which this can

entail, that is, that the number of shareholders is

OEM shares

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 76

OEM SHARES � OEM ANNUAL REPORT 2005 77

decreased and the liquidity of the share declines,

by mainly purchasing large blocks of shares.

Liquidity boosting measuresOEM International has signed an agreement with

Handelsbanken Capital Markets regarding liquidity

guarantees for Company shares. The aim is to reduce

the difference between purchase and sales prices.

The goal is to achieve a lower investment cost and

to lower the share trading risk for present and future

shareholders. Commitments fall within the scope of

the Stockholm Stock Exchange system with liquidity

guarantees and started on December 1, 2004.

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

moves given a change in the stock exchange’s

OMXS PI index — is approximately 0.44.

This means that the shares can be said to have

a low risk. The spread between the operations

within the Group entails a low business risk.

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

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

the equity/assets ratio can be lowered to correspond

better with the business risk without the overall

risk to OEM’s shares increasing significantly.

Dividend policyThe Board of OEM International aims to propose a

reasonable dividend of profits to the shareholders,

by considering the financial position, the tax

situation and any need for acquisitions or

investments in the operation.

DividendThe Board proposes a dividend of SEK 7.00 per

share, equivalent to 14% of distributable equity in

the Group.

Financial informationOEM aims to maintain high quality as regards

information to the market and the media.

The goal is for the information to facilitate an

accurate valuation and liquid trading of the shares.

The dates for the Annual General Meeting,

interim reports and annual report for the 2006

financial year are shown on page 2 of this annual

report. Financial information is also published on

the Group’s website (www.oem.se).

The Company offers shareholders the opportunity

to receive interim reports and other press releases by

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

to the market. Please send an e-mail to:

[email protected] and state “Corporate Information”

and you will be placed on our list for future mailings.

Shareholder structureOEM’S LARGEST SHAREHOLDERS AS OF 30.12.05

Number Number Percentage Percentage

Class A shares Class B shares share capital votes

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%

Total, 10 owners 1,589,032 3,568,869 68.1% 89.0%

Other 2,411,202 31.9% 11.0%

Total 1,589,032 5,980,071 100.0% 100.0%

Votes per share 10 1

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 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 77

78 OEM ANNUAL REPORT 2005 � OEM SHARES

Key indicators for OEM’s shares FOR THE PAST F IVE YEARS

2005 2004 2003 2002 2001

PERFORMANCE KEY INDICATORS

Sales per share SEK 201 186 188 196 239

Increase in sales per share % 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 SEK 7.00 5.50 4.50 4.50 4.50

Dividend/Income % 59.7 65.4 109 239 104

Dividend/Shareholders’ equity % 11.1 9.8 8.7 8.5 7.9

Cash flow per share* SEK 10.92 11.90 17.75 19.95 11.00

RISK KEY INDICATORS

Beta values (48 months) 0.44 0.54 0.41 0.49 0.53

Rate of turnover for shares % 10.0 8.3 6.6 10.7 12.9

VALUATION KEY INDICATORS

Exchange quoted price on 31 December SEK 163.50 118.00 102.00 77.00 92.50

Quoted value on 31 December MSEK 1238 893 776 602 752

P/S number times 0.8 0.6 0.5 0.4 0.4

P/S number times 13.9 14.0 24.6 40.9 21.4

Price/Shareholders’ equity % 259 210 198 145 162

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

Direct return % 4.3 4.7 4.4 5.8 4.9

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

0

2

4

6

8

10

12

0

25

50

75

0

2

4

6

8

Dividend per share, SEK Equity per share, SEK Proposed dividend (SEK)

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 78

OEM SHARES � OEM ANNUAL REPORT 2005 79

Shareholder statisticsAS OF 30.12.05*

Percentage of Percentage of

Size class number of owners 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

Total 100.0 100.0

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 Change in Total share- Total number Face value

share capital holders’ capital shares, qty per share

SEK THOUSAND SEK THOUSAND SEK

Opening value 50 50 500 100

1981 Bonus issue 350 400 4,000 100

1983 Split - 400 40,000 10

1983 Bonus issue 400 800 80,000 10

1983 New issue 800 1,600 160,000 10

1983 New issue 400 2,000 200,000 10

1986 Bonus issue 4,000 6,000 600,000 10

1986 New issue through translation 360 6,360 636,000 10

1994 Split - 6,360 1,272,000 5

1994 Bonus issue 6,360 12,720 2,544,000 5

1996 Bonus issue 12,720 25,440 5,088,000 5

1997 New issue through subscription in kind 20,129 45,569 9,113,703 5

2001 Reduction -3,908 41,661 8,332,203 5

2003 Reduction -1,000 40,661 8,132,203 5

2004 Reduction -2,046 38,615 7,723,103 5

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 79

80 OEM ANNUAL REPORT 2005 � NOTES

Notes

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 80

NOTES � OEM ANNUAL REPORT 2005 81

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 81

82 OEM ANNUAL REPORT 2005 � NOTES

Notes

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 82

NOTES � OEM ANNUAL REPORT 2005 83

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 83

84 OEM ANNUAL REPORT 2005 � ADDRESSES

THE PARENT COMPANY

OEM International AB

Box 1011, 573 28 TRANÅSTel.: 0140-36 00 00Fax: 0140-36 00 99e-mail: [email protected]. no. 556184-6691

OEM AUTOMATIC

OEM Automatic AB

Box 1011, Dalagatan 4SE-573 28 TRANÅS, SwedenTel.: 0140-36 00 00Fax: 0140-36 00 89e-mail: [email protected]

OEM Automatic OY

Telekatu 8, PL 9FIN-201 01 TURKU, FinlandTel.: +358-207 499 499Fax: +358-207 499 456e-mail: [email protected]

OEM Automatic AS

Tomtegata 20, Postboks 564BrakerøyaN-3002 DRAMMEN, NorwayNew address from 01.05.06

Postboks 2144, StrømsøBjørnstjerne Bjørnsonsgate 110N-3003 DRAMMEN, NorwayTel.: +47-32-89 72 70Fax: +47-32-89 72 80e-mail: [email protected]

OEM Automatic A/S

Møllehaven 8DK-4040 JYLLINGE, DenmarkTel.: +45 70 27 05 27Fax: +45 70 27 06 27e-mail: [email protected]

OEM Automatic Ltd

Whiteacres, Cambridge Road Whetstone,LEICESTERSHIRE LE8 6ZG, UKTel.: +44-116-284 99 00Fax: +44-116-284 17 21e-mail: [email protected]

OEM Automatic Sp. z o. o.

ul. Parowcowa 6BPL-02-445 WARSZAWA, PolandTel.: +48-22-86 32 722Fax: +48-22-86 32 724e-mail: [email protected]

OEM Automiatic OÜ

Pärnu mnt 139d/1Tallinn, 11317 EstoniaTel.: +358-20-74 99 371

OEM ELECTRONICS

OEM Electronics AB

Box 1025, Norrabyvägen 6BSE-573 29 TRANÅS, SwedenTel.: 0140-360 600Fax: 0140-360 699e-mail: [email protected]

OEM Electronics OY

Telekatu 8FIN-203 60 TURKU, FinlandTel.: +358-207 499 402Fax: +358-207 499 496e-mail: [email protected]

OEM Electronics PL

ul. Parowcowa 6BPL-02-445 WARSZAWA, PolandTel.: +48-22-86 32 722Fax: +48-22-86 32 724e-mail: [email protected]

Addresses of operational units

OEM 2005 SWE ENG s.37-84 06-03-13 13.25 Sida 84

CYNCRONA

Cyncrona ABTomtbergavägen 2SE-145 67 NORSBORGTel: 08-531 94 300Fax: 08-531 94 310Email: [email protected]

Cyncrona OyHannuksenpelto 12FIN-02770 ESPOO, FinlandTel: +358 207 528 700Fax: +358 207 528 770Email: [email protected]

Cyncrona A/SSindalsvej 21DK-8240 RISSKOV, DenmarkTel: +45 87 42 66 66Fax: +45 87 42 66 77Email: [email protected]

Cyncrona ASTomtegata 20, Postboks 905BrakerøyaN-3002 DRAMMEN, NorwayNew adress as of 1 May 2006Bjørnstjerne Bjørnsonsgate 110Postboks 2144, StrømsøN-3003 DRAMMEN, NorwayTel: +47-32-20 25 10Fax: +47-32-20 25 11Email: [email protected]

Cyncrona Baltic StatesPärnu mnt 139d/1Tallinn, EE-11317 EstlandTel: +372 510 05 05Email: [email protected]

JMS SYSTEMHYDRAULIK

JMS Systemhydraulik ABDatavägen 14 ASE-436 32 ASKIMTel: 031-727 68 20Fax: 031-727 68 37Email: [email protected]

DEVELOPMENT

Internordic Bearings ABBox 105, Lerbacksgatan 3,SE-571 22 NÄSSJÖTel: 0380-56 59 56Fax: 0380-56 59 40Email: [email protected]

IBECAartsdijkweg 111NL-2676 LE MAASDIJK,The NetherlandsTel: +31-174 52 51 00Fax: +31-174 52 51 06Email: [email protected]

OEM Motor ABBox 1011, Dalagatan 4,SE-573 28 TRANÅSTel: 0140-36 04 00Fax: 0140-36 04 99Email: [email protected]

Indoma ABBox 319, Fridhemsvägen 25SE-551 15 JÖNKÖPINGTel: 036-30 64 00Fax: 036-16 46 97Email: [email protected]

Telfa ABBox 120 30, Karl Johansgatan 158SE-402 41 GöteborgTel: 031-775 19 50Fax: 031-42 61 98Email: [email protected]

DEFINITIONS ❚ OEM ANNUAL REPORT 2005 86

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.

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.

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.

For easy access to definitions

while reading the annual report,

open the flap and lay flat.

CC

J K

omm

unik

atio

n

Box 1011, SE-573 28 Tranås, SWEDEN • Telephone +46 (0)140-360 000 • Fax +46 (0)140-360 099 • E-mail [email protected] • www.oem.se

annual report 2005

Documents

annual report marchapril

annual generalmeeting

company isavailable

interim report

annualgeneral meeting

oem isavailable

company deals

appliance components