CARDO AB: Report on Operations 2004

• Inflow of orders: SEK 7,743 million (7,669)
• Net sales: SEK 7,686 million (7,687)
• Net earnings: SEK 250 million (308)
• Earnings per share: SEK 8.32 (10.28)
• The Board of Directors proposes a dividend of SEK 8.00 (8.00)

Net sales amounted to SEK 7,686 million (7,687), an increase of 1 percent after adjustment for the effects of exchange rate movements. Net sales relating to customers outside Sweden accounted for 90 percent (90) of the Group's total net sales.

Operating earnings amounted to SEK 358 million (448). Net earnings for the year include a provision of SEK 70 million for reorganization at Cardo Pump, which is expected to give an annual net saving of approximately SEK 40 million, and a capital gain of SEK 40 million on the disposal of shares in SAB WABCO. Earnings were adversely affected by the product mix and by costs of increased activities in sales and product development.

Raw-material prices rose sharply. In the main, product-price rises and enhanced efficiency in purchasing could compensate for the element of the price rises that had an effect during the year.

Earnings after financial items amounted to SEK 336 million (428). Exchange rate movements had only a marginal impact on earnings.

Net earnings amounted to SEK 250 million (308), which is equivalent to SEK 8.32 (10.28) per share.

Cash flow from operating activities was SEK 467 million (656) after tax, which is equivalent to SEK 15.57 (21.87) per share.

Cardo Door

During the year, there was an increase in the inflow of orders for dock loading systems and service. For industrial doors, the inflow of orders was on a par with the previous year, while it was lower for garage doors, mainly owing to reduced demand in Germany during the second six months. For the business area as a whole, the inflow of orders increased by 2 percent after adjustment for the effects of exchange rate movements.

During the fourth quarter, Cardo Door's inflow of orders was lower than during the corresponding period the previous year, particularly in Germany and the UK.

Net sales amounted to SEK 4,829 million (4,805), an increase of 1 percent after adjustment for the effects of exchange rate movements.

Operating earnings amounted to SEK 245 million (266). Earnings were affected by costs of increased activities in both sales and product development.

Cardo Pump

The inflow of orders increased in the water and wastewater segment, while it decreased for building services and industry. For the business area as a whole, the inflow of orders increased by 2 percent after adjustment for the effects of exchange rate movements.

Net sales amounted to SEK 2,857 million (2,882), which adjusted for the effects of exchange rate movements is an increase of 1 percent.

Operating earnings amounted to SEK 131 million (243). Earnings were adversely affected by costs of reorganization, described hereunder, and of the product mix during the year.

In the half-yearly report, a reorganization within the Pump field was announced, aimed at increasing its competitiveness and rate of geographical expansion. The cost of the measures amounts to SEK 70 million and was charged to earnings for the third quarter. The measures will create better conditions for increasing organic growth at the same time as they are expected to bring an annual net saving of approximately SEK 40 million, whereof the main part as of 2005.

Most of the measures were carried through during the year, including implementation of a new, geographically based organization, which means that the sales resources have been moved nearer the customers. The marketing activities that have thus far been pursued under the ABS and Pumpex trademarks have been concentrated on a single sales channel, which means that the parallel sales organizations in Sweden, France, Germany and the USA have been merged. A sales company has been formed focusing on customers in the pulp and paper industry globally. An expansion of the organization in Asia is under way.

Liquidity and financing

At year-end, the Group's liquid assets amounted to SEK 213 million (171). In addition, there are unutilized credit facilities of approximately SEK 2.1 billion (approximately 1.5).

The Group's gross investments, exclusive of company acquisitions, stood at SEK 294 million (270).

Net interest bearing debt at year-end amounted to SEK 268 million (179).

Equity amounted to SEK 2,797 million (2,886), which is equivalent to SEK 93.23 (96.21) per share.

At year-end, the Group's equity ratio was 55.6 percent (57.9).

Personnel

The average number of employees in the Group was 5,947 (6,203).

Repurchase of shares

At the Annual General Meeting of Cardo AB in 2004, a resolution was passed authorizing the Board of Directors to acquire up to so many own shares before the next Annual General Meeting that the Company's holding at no time exceeds 10 percent of all shares in the Company. Acquisition is to be made on Stockholmsbörsen at the market value applying on the occasion of acquisition. The Board has yet to find reason to utilize the authorization and thus no repurchase has been made.

The Board of Directors has decided to recommend that the Annual General Meeting on April 11 2005 authorize the Board of Directors to acquire up to so many own shares before the next Annual General Meeting that the Company's holding at no time exceeds 10 percent of all shares in the Company. Acquisition is to be made on Stockholmsbörsen at the market value applying on the occasion of acquisition. The purpose of the repurchase is to give the Board the opportunity to adjust the capital structure of the Company during the period until the next Annual General Meeting.

Accounting principles

The report has been drawn up in accordance with recommendation RR 20 of the Swedish Financial Accounting Standards Council concerning interim financial reporting. The accounting principles used are the same as in the annual report for 2003 except in relation to accounting for defined-benefit pension plans, for which the change is described below.

As of January 1 2004, Cardo applies the Swedish Financial Accounting Standards Council's recommendation RR 29, Employee Benefits, which in all essentials agrees with IAS 19, Employee Benefits. Pensions and other post-retirement remuneration have previously been accounted for in accordance with the local regulations in each country. The application of RR 29 involves a change of accounting principle and the effect of the change has been recorded directly against equity. The changeover to RR 29 has involved the Group's provisions for pensions increasing by SEK 98 million, which, after taking deferred tax into consideration, has reduced the Group's equity by SEK 69 million net. In accordance with the transition rules of the recommendation, Cardo has not recalculated figures for previous financial years in respect of the new recommendation.

Financial reporting in accordance with IFRS in 2005

As of 2005, listed companies within the EU are to draw up their financial reports in accordance with IFRS (International Financial Reporting Standards), which have been approved by the EU commission. Enclosure 6 of the Report on Operations describes the most significant differences between the present accounting principles and IFRS and the most significant effects on Group performance and financial position if IFRS had been applied during 2004.

Parent company

The parent company's earnings after financial items amounted to SEK 521 million (437), gross investments to SEK 0 million (0) and liquid assets to SEK 0 million (0).

Dividend policy

The Board of Directors has decided to change the dividend policy. Under the new policy, the Board of Directors' objective is to propose dividend payments that correspond to at least 40 percent of the Group's net earnings for the year after tax after taking into account the Group's earnings trend, financial position and future development potential. Under the previous policy, the objective was to propose dividend payments that corresponded to 30-50 percent of the Group's net earnings for the year.

Dividend

The Board of Directors and President propose a dividend of SEK 8.00 (8.00) per share for the financial year 2004, which requires SEK 240 million (240). The dividend is equivalent to 96 percent (78) of earnings after tax and 51 percent (37) of cash flow from operating activities after tax.

Nominations committee

The Annual General Meeting has resolved to appoint a nominations committee consisting of the Chairman of the Board, who is to be the convener, and one representative of each of the Company's three largest shareholders at September 30 each year. The duties of the nominations committee are to submit proposals to the Annual General Meeting in respect of the election of the Board of Directors, auditors whenever applicable and fees. The election committee that has been appointed ahead of the 2005 Annual General Meeting consists of:

Fredrik Lundberg (Chairman of Cardo), L E Lundbergföretagen AB, Stockholm

Kerstin Hessius, National Swedish Pension Fund, 3rd Fund Board, Stockholm

Marianne Nilsson, Robur funds, Stockholm

Annual General Meeting and financial reports

The Annual General Meeting will be held on Monday, April 11 2005 at 5 pm at Slagthuset, Jörgen Kocksgatan 7A in Malmö, Sweden.

-The Annual Report will be distributed in early March

-The Interim Report January - March will be published on May 11

-The Interim Report January - June will be published on August 10

-The Interim Report January - September will be published on November 10

Previous market prospects

In the interim report that was published on November 2 2004, the following market prospects were presented:

The assessment that the general economic upturn seems more assured continues to apply. This is reflected in an increased demand for construction-related products, which it is assessed could continue.

Market prospects

After having shown an increase earlier during 2004, demand for construction-related products decreased during the fourth quarter. In the present situation, it is therefore difficult to make an assessment of the trend in the immediate future. For wastewater and water treatment applications, which are related to infrastructural investments, the assessment is that market growth will remain good.