CARDO AB: Report on Operations 2005

Fourth quarter

The fourth quarter saw the group developing positively with, after adjustment for the effects of exchange rate movements, a 6 percent higher inflow of orders compared with the corresponding period the previous year. Net sales for the fourth quarter rose by slightly more than 4 percent compared with the corresponding period the previous year after adjustment for the effects of exchange rate movements. Cardo Pump's earnings trend continued to be positive.

Cardo's earnings before tax for the fourth quarter have been charged with a restructuring cost of SEK 201 million in accordance with the changeover program that was announced during 2005.

Cardo Pump

For Cardo Pump, both the inflow of orders and net sales were 6 percent higher than for the corresponding period the previous year, adjusted for the effects of exchange rate movements. Operating earnings were 39 percent higher than for the fourth quarter the previous year.

Cardo Door

For Cardo Industrial Doors, the inflow of orders, adjusted for the effects of exchange rate movements, was slightly more than 4 percent higher than for the corresponding period the previous year, while net sales were 1 percent lower. For Cardo Garage Doors, the inflow of orders rose by 13 percent and net sales by 14 percent compared with the fourth quarter the previous year. Operating earnings for Cardo Door were on a par with the previous year.

Full year results January - December 2005

The group's inflow of orders amounted to SEK 7,990 million (7,743), an increase of 1 percent after adjustment for the effects of exchange rate movements. Cardo's inflow of orders in Europe was somewhat lower than the previous year, while several markets in Asia, the Middle East and North and South America have shown good growth.

Net sales amounted to SEK 7,880 million (7,686), a rise of 1 percent after adjustment for the effects of exchange rate movements. 91 percent (90) of the group's sales related to customers outside Sweden.

Operating earnings for the full year amounted to SEK 239 million (448). During 2005, the group underwent great changes. A new business strategy began to be implemented during the year, based on customer benefit and focusing on providing added value to strategically selected customers. A restructuring of the organization was begun and efficiency measures were initiated both to reduce the cost level and strengthen the marketing efforts. Costs of SEK 201 million for the reorganization of the group have been charged to the fourth quarter.

Earnings after financial items amounted to SEK 210 million (419).

Net earnings amounted to SEK 147 million (326), which is equivalent to SEK 4.91 (10.86) per share.

Cash flow from operating activities was SEK 214 million (467) after tax, which is equivalent to SEK 7.13 (15.57) per share. The lower cash flow is principally explained by the cash-flow effect of restructuring carried through and by the fact that the high level of invoicing late in the year will not give positive cash effects until 2006.

Cardo Pump

The inflow of orders to Cardo Pump rose by 4 percent compared with the previous year. The weak inflow of orders during the first quarter was followed by three quarters with a total organic growth in orders of 6 percent. The positive trend applied generally in all geographical markets. The inflow of orders rose in all Cardo Pump's product groups: equipment for wastewater applications, dewatering pumps and both pumping equipment and measuring instruments for the pulp and paper industry.

Net sales amounted to SEK 2,975 million (2,857), an increase of 2 percent compared with the previous year after adjustment for the effects of exchange rate movements.

Operating earnings for Cardo Pump amounted to SEK 284 million (220). Late in 2004 and early in 2005, a number of measures were adopted with a view to creating better conditions for organic growth. It was particularly pleasing that during 2005 Cardo Pump's companies in Germany, which is one of the largest markets for Pump, reversed a negative earnings trend lasting several years as a consequence of the changes implemented in working methods and organization.

Cardo Door

For Cardo Door, the inflow of orders and sales for the whole year were more or less on a par with the previous year.

The inflow of orders to Cardo Industrial Doors was lower than the previous year in the large German, UK and French markets, while there was an increase in Asia and the Middle East. The inflow of orders generally increased as far as service is concerned, while it decreased for industrial doors and docking systems. For Cardo Garage Doors, the inflow of orders rose within the EU as a whole.

Net sales for Cardo Door as a whole amounted to a total of SEK 4,905 million (4,829). In Industrial, sales were marginally lower than the previous year, while those in Garage rose by 3 percent.

Operating earnings for Cardo Door as a whole amounted to SEK 242 million (316), made up of SEK 261 million (272) for Industrial and SEK -19 million (44) for Garage. The decline in earnings in Garage is explained by excess capacity and price pressure in the industry, resulting in difficulties in compensating for the rises in the prices of raw materials.

Cardo reorganized as of January 1 2006

At the turn of the year 2005/2006, Cardo was reorganized into four divisions, which means that the separation into the former business areas Cardo Door and Cardo Pump no longer applies. The new group structure aims to increase transparency and clarity both in relation to customers and to the stock market and is as follows:

Door & Logistics Solutions

Formerly Cardo Industrial Doors, with operations under the corporate brand Crawford

Wastewater Technology Solutions

ABS operation from the former business area Cardo Pump

Pulp & Paper Solutions

Two parts of the former business area Cardo Pump: Measuring Instruments field, i.e. Lorentzen & Wettre, and Scanpump operation that was previously part of ABS

Residential Garage Doors

Formerly Cardo Garage Doors, with brands Crawford, Normstahl and Henderson

As of the interim report for January-March 2006, Cardo's results will be reported on the basis of the new structure, with comparative figures for 2005 recalculated in accordance with the new divisions.

In order to fully utilize potential synergies between the divisions, groupwide functions have been formed as of January 1 2006 in the following areas: purchasing, IT, finance & treasury, HR and marketing communications.

The objective is for the reorganization to reduce the cost level in the new, streamlined group by at least SEK 200 million annually, achieving full effect as of 2008.

Costs for the changeover of the group

Costs of SEK 201 million for the changeover of the group have been charged to earnings for the fourth quarter 2005. The costs include reorganizations and rationalizations of both sales and production organizations and largely involve staff cutbacks totaling a little less than 300 people. On the basis of the ambition to simplify operational and decision processes in the group, the number of decision levels in the organization has been reduced and efficiency measures have been adopted in both administration and production. The sales organizations in several major markets, particularly in Cardo Industrial Doors, have been changed with regard to sales channels and the approach to the market, based on strategic selection of customers.

In addition, costs include making use of synergies by means of the new groupwide functions. In the first instance, these costs relate to restructuring in IT, including outsourcing of infrastructure and efficiency measures as part of the process of achieving a standardized, joint IT platform for the group.

The restructuring is expected to result in slightly more than SEK 100 million in lower costs as early as 2006, whereof SEK 60 million relates to Door & Logistics Solutions and SEK 20 million to Wastewater Technology Solutions.

Liquidity and financing

At year-end, the group's liquid assets amounted to SEK 168 million (213). In addition, there are unutilized credit facilities of approximately SEK 2.0 billion (approximately 2.1).

The group's gross investments, exclusive of company acquisitions, stood at SEK 250 million (294).

Net interest bearing debt at year-end amounted to SEK 554 million (268).

Equity amounted to SEK 2,935 million (2,880), which is equivalent to SEK 97.83 (96.00) per share.

At year-end, the group's equity ratio was 53.0 percent (56.2).

Personnel

The average number of employees in the group was 5,845 (5.947).

Expanded group management

Fredrik Jönsson has been appointed head of Cardo's division Door & Logistics Solutions. Jönsson comes from a position as CEO of FlexLink AB. Fredrik Jönsson will take up his duties at Cardo in June 2006.

Peter Lindqvist has been appointed CIO (Chief Information Officer) at Cardo AB with responsibility for the new groupwide IT function. Lindqvist comes from a position as Deputy General Manager for Global IT, Toyota Industries. Peter Lindqvist will take up his duties on April 1 2006.

Both Fredrik Jönsson and Peter Lindqvist will be members of Cardo's group management team.

Repurchase of shares

At the Annual General Meeting of Cardo AB in 2005, 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 the Stockholm Stock Exchange at the market value applying on the occasion of acquisition. The Board has yet to resolve to utilize the authorization and thus no repurchase has been made.

The Board has resolved to propose that the Annual General Meeting on April 6 2006 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 the Stockholm Stock Exchange 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.