Further Reorganisation of Cardo

The Group's inflow of orders amounted to SEK 3,951 million (4,002), a decrease of 1 percent after adjustment for the effects of exchange rate movements. Cardo Door's inflow of orders was lower than the previous year, while the inflow of orders at Cardo Pump rose after a good trend during the second quarter.

Net sales amounted to SEK 3,575 million (3,691), which adjusted for the effects of exchange rate movements is a decrease of 3 percent.

Operating earnings amounted to SEK 68 million (146). The lower earnings are due to a weak trend for Cardo Door, principally in the Garage field, and to termination costs of SEK 26 million in connection with the changes in group management that occurred during the second quarter. Cardo Pump's earnings rose compared with the previous year. The impact of exchange rate movements on operating earnings was only marginal.

Apart from in the Garage field, it was in the main possible to compensate for higher raw-material prices by raising product prices.

Net earnings amounted to SEK 28 million (89), which is equivalent to SEK 0.93 (2.98) per share.

Cash flow from operating activities was SEK 56 million (126) after tax, which is equivalent to SEK 1.87 (4.20) per share.

Cardo Door

Cardo Door's inflow of orders decreased by a total of 3 percent after adjustment for the effects of exchange rate movements. In the Industrial field, the inflow of orders was 3 percent lower after a decrease for industrial doors and dock loading systems and an increase for service. The inflow of orders decreased by 3 percent for the Garage field too. The inflow of orders was weak in Germany, the UK and France.

Net sales amounted to a total of SEK 2,250 million (2,317), which is a decrease of 3 percent after adjustment for the effects of exchange rate movements. The decrease was 2 and 6 percent for Industrial and Garage respectively. Operating earnings for the business area as a whole amounted to SEK 38 million (100), made up of SEK 87 million (103) for Industrial and SEK -49 million (-3) for Garage. The decline in earnings at Garage is explained by the lower net sales and by difficulties in compensating for the rises in the prices of raw materials.

Cardo Pump

For the business area as a whole, the inflow of orders rose by 2 percent after adjustment for the effects of exchange rate movements. The inflow of orders rose in both wastewater and water treatment applications and construction industry, while it was lower in the pulp and paper industry segment.

Net sales amounted to SEK 1,325 million (1,374), which adjusted for the effects of exchange rate movements is a decrease of 3 percent. Operating earnings amounted to SEK 87 million (78). The reorganization that was implemented during 2004 is taking effect on earnings according to plan.

Liquidity and financing

At June 30, the Group's liquid funds stood at SEK 162 million (121) compared with SEK 213 million at the beginning of the year. In addition, there are unutilized credit facilities of approximately SEK 2.1 billion (approximately 1.0).

The Group's gross investments, excluding company acquisitions, stood at SEK 129 million (127).

Net interest bearing debt at June 30 amounted to SEK 581 million (547) compared with SEK 268 million at the beginning of the year.

Equity amounted to SEK 2,829 million (2,713), which is equivalent to SEK 94.30 (90.43) per share.

The Group's equity ratio at June 30 was 52.5 percent (52.6).

Personnel

The average number of employees during the period was 5,746 (5,935).

Repurchase of shares

At this year's Annual General Meeting of Cardo AB, 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 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. The Board has yet to resolve to utilize the authorization and thus no repurchase has been made.

Accounting principles

As of January 1 2005, Cardo draws up it financial reports for the Group in accordance with International Financial Reporting Standards (IFRS), which have been endorsed by the EU Commission. This interim report has therefore been drawn up in accordance with IAS 34, Interim Financial Reporting, which accords with the requirements of recommendation RR 31 of the Swedish Financial Accounting Standards Council concerning interim reports for groups. Cardo's transition date to IFRS is January 1 2004, which means that comparative figures for 2004 in this report have been recalculated as if IFRS had been applied then as well. For a description of the effects of the transition to accounting in accordance with IFRS, please see appendix 5.

In previous financial reports, Cardo has presented financial information for the two business areas Cardo Door and Cardo Pump in accordance with IAS 14, Segment Reporting. As of this interim report, separate information is also presented for the two fields Industrial and Garage within Cardo Door.

The parent company

The parent company's earnings after financial items amounted to SEK -5 million (-9), its gross investments to SEK 0 million (0) and its liquid funds to SEK 0 million (0) as against SEK 0 million at the beginning of the year.

Market prospects

The following market prospects still apply: it is difficult to assess the trend in the immediate future as far as demand for construction-related products is concerned, while for wastewater and water treatment applications, the assessment is that market growth will remain good.

Cardo to be reorganized into a purely operational industrial group

- commitment to the garage door operation to be reviewed

A decision has been taken to reorganize Cardo into a purely operational industrial group aimed at business-to-business customers. Activities will be more market-focused and cost-effective in order to create necessary conditions for good profitability and organic growth.

Background

The Group's organic growth and earnings trend have been unsatisfactory in recent years. The weak trend can to some extent be explained by a prolonged period of weak market growth for construction-related products, which account for a large part of Cardo's business. At the same time, market conditions have changed as far as both customer structures and the competition situation are concerned.

In order to meet the changes in the external environment, an extensive reorganization was implemented within Cardo Pump during the previous year including a new, geographically based organization and a concentration of the sales channels.

In Cardo Door, the weak market of recent years, in combination with large excess capacity in a fragmented industry with declining prices, has had an adverse effect on business, particularly in central Europe. In addition, Cardo Door has tried to compensate for the sharp price rises for raw materials by raising product prices, which has led to loss of market shares in Cardo's traditional big markets, namely Germany, the UK and France. The organization has not adapted sufficiently in order to meet the changes in the external environment.

Owing to the structure of the Group with its independent business areas, nor have potential synergies been fully utilized as far as support functions are concerned.

Cardo's future approach

The Cardo group's present operations are principally aimed at offering customer solutions and service to business-to-business customers. The exception is Cardo Door's garage door operation with products that are entirely aimed at the consumer market and where the aftermarket is essentially non-existent. In future, all activities will be aimed at business-to-business customers and service and the aftermarket will be an increasingly important aspect of the customer offering. This means that the garage door operation does not suit Cardo and the commitment to this operation will therefore be reviewed.

New organization

As of January 1 2006, the present business areas Cardo Door and Cardo Pump will be replaced by the following divisions:

Door & Logistics Solutions (current Industrial field within Cardo Door)

Head of division: Peter Aru

Wastewater Technology Solutions (main activity within current Cardo Pump/ABS)

Head of division: Fredrik Groth

Pulp & Paper Solutions (operation within Lorentzen & Wettre and Scanpump)

Head of division: Peter Uddfors

Residential Garage Doors (current Garage field within Cardo Door)

Head of division: Ove Bergkvist

In the new organization, operational and decision processes will be simplified and the activities of the divisions will be aimed at increasing organic growth by:

- utilizing Cardo's international organization for increased cultivation of big customers

- focusing on customer solutions with increased value-content based on Cardo's long experience and applications know-how

- better utilizing the strong aftermarket organization - increased service share for competing products

- to a greater extent concentrating own sales resources on big repurchasing customers - globally and nationally

- developing new sales channels to the big fragmented markets

- increasing the degree of product standardization

- increasing the rate of expansion in new geographical markets

In order to take full advantage of potential synergy effects, Group-wide functions will be formed in the areas of purchasing, IT, finance, HR and market communication for the direct support of the new divisions.

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. The costs of the changeover will be reported in the financial statements for 2005.

The financial targets for the new, streamlined Group are to have an operating margin of at least 10 percent no later than 2008 and an organic growth of at least 5 percent and a return on capital employed of at least 20 percent annually over a business cycle.