The CEO's address to the 2006 Annual Meeting

Ladies and gentlemen, honored participants and shareholders -


I am delighted to meet you all again to sum up the past year, describe our strategies and also present our results for the first quarter, which we published just prior to the meeting.

I am also delighted to be able to say that 2005 has been the best year in Nolato’s 68-year history. So far, I might add. After the weak years of the early 2000’s, we reported a gradual improvement in 2003, which was followed by a good 2004 and now a 2005 that was even better. In short: We are now back to our good old self again.

Our long-term financial objectives – an operating margin exceeding seven percent, return on capital employed of at least 15 percent and an equity/assets ratio of at least 35 percent – all on average over a business cycle – were achieved by a comfortable margin:
The operating margin was almost 10 percent, the return was 21 percent and the equity/assets ratio was 50 percent. As you can see: it’s the right direction in the Group highlights.

Today Nolato is a well-positioned, global group with a strong financial position and good opportunities for growth in all our business areas. We are strong contractors and close partners with our customers. Thanks to our committed employees, high level of technology and broad expertise, we have been able to affirm and further strengthen our strong position as development partner and systems supplier to leading customers all over the world.

As I said, 2005 has been the best year so far. All three profit centers had good growth in earnings and significantly strengthened their customer and market positions.

Total Group sales were just under SEK 2.3 billion, a slight decrease compared to 2004.

Operating income increased ten percent to SEK 221 million and income after financial items increased by 12 percent to SEK 208 million. Cash flow was SEK 158 million and the operating margin increased to 9.8 percent, compared to 8.4. Looking at earnings per share, the figure increased 34 percent to 6.88 kronor per share, compared to 5.15 kronor per share in 2004.

The Nolato Group today has 3,905 employees. Of these, 926 work in Sweden, 194 in Hungary, 382 in Estonia and 2,403 in Asia. Three fourths of all employees today work outside Sweden.

The Group is characterized by its decentralized organization but we have strong customer coordination. The Group consists of 16 companies or operations, organized into three profit centers: Nolato Telecom, Nolato Medical and Nolato Industrial, each with its own distinct profile. We have leading positions in each of these:

Nolato Telecom, which accounts for 52 percent of Group sales, is a leading global developer and manufacturer of systems products to customers especially in the mobile phone sector. The profit center has operations in Sweden, Estonia, Japan, China and now in Malaysia as well.

The mobile phone market is global, with a small number of customers and competitors. Operations are characterized by high technology content, extremely short manufacturing times, quick production starts and a short economic lifespan for each mobile phone model. Customers include Sony Ericsson, BenQ-Siemens and Nokia as well as contract manufacturers like Flextronics and Elcoteq. During the year, we added new customers, among them the world’s leading headset maker, GN Netcom. Ericsson is also a customer; we develop and manufacture base station products for them, including for their 3G networks.

Perhaps not everyone understands the expression ”systems products” right away – what we do for our mobile phone customers is develop and manufacture a large number of plastic components with highly advanced surface treatments, which we then assemble with purchased components, like loudspeakers, microphones and antennas, so that they form complete mechanical modules, ready for the customer’s final assembly of the mobile phones. Our task sometimes includes validating and testing the modules’ functioning. Every project is unique and has its own construction and component content. For instance, this is what the parts delivered to Sony Ericsson’s new P990 communicator look like.

In 2005, Nolato Telecom had sales of SEK 1,172 million, compared to SEK 1,342 million the year before. Earnings increased to SEK 137 million, compared to SEK 133 million, and the margin increased to almost 12 percent, compared to 9.9 percent.

Earnings improved as a result of greater volumes in Asia and cost-cutting measures implemented in Europe. During the year, Nolato Telecom took on a significant number of major new mobile phone projects, which started or will start production now in 2006. At the same time, there are intensive marketing efforts under way to expand the customer base with one or more of the leading mobile phone makers that are not currently customers of Nolato.

Nolato Medical is fully focused on the development and manufacture of medical devices, an area where we lead the market in Scandinavia. Operations are focused on complex products that are manufactured in large volumes over a longer period, especially in customer areas such as diabetes therapy, asthma and surgery. Because many of the products are surgically inserted into the human body or are used in other ways in healthcare, production is carried out to meet extremely high demands for tolerances, cleanliness and traceability. Customers include pharmaceutical and medical technology companies like Astra Tech, AstraZeneca, Coloplast, Hemocue, Novo Nordisk, Pfizer, Phadia and S:t Jude Medical.

In 2005, Nolato Medical continued its very strong growth. For the second year in a row, sales increased 34 percent, to SEK 184 million kronor (137), while earnings increased 68 percent to 42 million kronor (25). The operating margin was very high at 22.8 percent.

In July 2005, a major agreement was signed with the global Danish pharmaceutical company Novo Nordisk for production of the InnoLet insulin pen. The agreement is an important breakthrough in the market for outsourcing, which is one of Nolato Medical’s growth areas. Novo Nordisk is closing its own production of InnoLet and we are taking over all their equipment and moving it to our factory in Lomma outside Malmö, Sweden. The number of people employed there will increase by 30 to 35. Production began in the fall and has gradually increased, and will be running at full speed by the summer. On a yearly basis, when operations are running at full speed, the agreement is expected to bring an increase in sales for Nolato Medical of roughly 15 percent.

During the fall, Nolato Medical also began producing medical devices at Nolato Protec in Hungary. This expansion has been warmly welcomed by our customers and has already resulted in a number of new orders, with Nolato being able to benefit from the strategic opportunities created by having production in Hungary. As a result, we are located close to the major markets in Europe.

I see cross-border collaboration as a very good example of the strength and breadth that the Group offers our customers. I believe we will see more examples of this kind of collaboration in the years ahead.

Robot hos Gota, stora formsprutan Ungern] Our third “leg”, Nolato Industrial, consists of two business areas focused either on Scandinavia or Central Europe. Nolato Industrial is a clear market leader in Scandinavia, with the development and manufacture of polymer products for customers in the automotive industry, household appliances, gardening/forestry, the furniture industry and other general industrial sectors. The markets are highly fragmented and are characterized by the large number of both customers and suppliers. In the slides behind me, by the way, you can see Nolato’s largest injection moulding machine, which is in operation at Nolato Protec in Hungary. The machine, which in this case produces door frames for a new car model – weighs an impressive 23 tons.

Customers in Sweden include Electrolux, Flextronics, Haldex, Husqvarna, Ifö, Ikea, Lear, Lindab, Plastal, Saab Automobile, Sapa, Scania, TI Automotive, Volvo Car, Volvo Truck and Whirlpool. And among our customers in Hungary are Elring Klinger, Lear, Woco, Philips, Nilfisk and Solectron.

In 2005, Nolato Industrial had sales of SEK 911 million kronor, compared to SEK 936 million the year before, and improved its earnings to SEK 71 million kronor, compared to SEK 65 million kronor the year before, despite somewhat lower sales. The operating margin improved from 6.9 percent to 7.8 percent.

The restructuring in Hungary has been successful, with essentially a completely new customer base and a sharp improvement in earnings. In Sweden, earnings have been stable, as a result of efforts to improve efficiency and attract more customers. The Nolato companies have very efficient production, with each operator contributing to greater competitiveness by assuming considerable individual responsibility and being accountable for plans, improvements and deliveries. The level of automation is high, and during the year strategic investments were made in further fully-automated production cells, including six-axel robots, which perform a number of assembly tasks in conjunction with the moulding.

Absence due to illness is not a big issue at Nolato. For the entire Group, the rate of absence due to illness in 2005 was 3.7 percent, which was essentially unchanged from the year before. In the Swedish units, the average rate of absence due to illness (including long-term absence due to illness) was 6.1 percent, which is somewhat lower than the year before; in Estonia, it was 7.6 percent and in Hungary 10.9 percent. In Asia, there was hardly any absence at all due to illness; our operations in China had a rate of only 0.3 percent.

But back to Nolato Industrial, where collaboration at Nolato Automotive in 2005 resulted in a large number of new customer projects, including for Volvo’s new car models, both directly with automotive manufacturers and with their systems suppliers.

The greatest threat to operations is still whether our customers will be unable to handle the competitive situation and thus move production to countries with lower direct costs for labor. Electrolux’s closure of its plant in Västervik, Sweden, was a significant loss of activity for us, but we have been able to compensate for it with new customers.

Even though our three profit centers operate in markets of different natures, there are nonetheless a number of important common factors that allow the three together to constitute a unified Nolato: In-depth expertise in polymers, similar technologies both in development and manufacturing, and, not least, the down-to-earth, ethical, businesslike approach that is formulated in Nolato’s corporate philosophy, our Basic Principles.

These Basic Principles, which were in fact not put into writing by Krister Jorlén until the mid-1990s but which have essentially guided the Group’s development since 1938, are based on key concepts like Being Businesslike, Long-Term Customer Relationships, Decentralization, Expertise, Being Well Organized and Safeguarding the Environment. If you would like to study them more closely, they can be found in their entirety in our annual report and on our website. Our Basic Principles have been translated into English, Mandarin, Hungarian, Estonian and Russian so they can be used throughout Nolato. Now we will no doubt need to translate them into Bahasa Melayu, which is the language spoken by local employees at our new unit in Kuala Lumpur.

One of our Basic Principles concerns the inherent capabilities of people, that all Nolato employees are equally important to our success in reaching the goals we have established. This Basic Principle also means that, as far as possible, management will be recruited from within the Group.

So it is natural for me to say that we recently hired people from within the Group for two important management positions: Jonas Persson, who was hired in 1999 and has been Managing Director of Nolato Beijing for the last four years, assumed the position of Head of Nolato Telecom on March 1. And Christer Wahlquist, who has worked at Nolato Medical since 1996, in the last few years as Director of Marketing, was appointed the new Head of Nolato Medical last fall. These two are now part of the Group Management and together with me and CFO Per-Ola Holmström constitute the Group’s executive committee. With the appointment of Jonas and Christer, we have rejuvenated management while at the same time we have been able to maintain continuity, because they have been with the Group for a long time, but also because their predecessors, Tommy Johansson and Peter Krikström, are still with the Group as Global Director of Marketing and Sales for Nolato Telecom and Managing Director of Nolato Medevo, respectively.

Roughly sixty percent of Nolato’s sales are posted outside Sweden, which is also – as I said before – reflected in the fact that three fourths of our employees work in countries other than Sweden. Roughly sixty percent of our employees are in Asia, where our operations continue to have strong and profitable growth – growth that is generated by our customers setting up their own operations in Asia and by their desire to have Nolato’s production close to the final assembly of their own products.

In China, where we have 2,300 employees in Beijing, Nolato Telecom develops and manufactures systems products for mobile phone customers. During the year, we invested among other things in greater resources for project management, mould production and painting.

In order to increase sales to mobile phone producers in Malaysia, we began to set up a new factory in the capital of Malaysia, Kuala Lumpur, at the end of last year. The set-up is going as planned, and production will begin in the second quarter.

In 2005, Nolato Telecom also set up a technology and sales office in Tokyo, Japan, which has already resulted in new customer projects.

The customer-driven restructuring of Nolato Telecom’s operations also continued in 2005, which unfortunately meant that we had to let some 190 employees go, including in Kristianstad and Hallsberg, Sweden, which I deeply regret.

Because the product development of our mobile phone customers takes place largely in Europe, Nolato Telecom has significant development resources at its development center in Kristianstad. Strong technologies and a high technology content are very important criteria for success in the mobile phone sector. Cutting-edge technologies at Nolato Telecom, with patented solutions for rapid and flexible mould production as well as digital surface treatment and decoration of mobile phones, are thus generating great interest among both existing and potential mobile phone customers.

Without going into detail about these technologies, I can describe them as crucial in further speeding up production for mobile phone customers, which is an important competitive advantage in this market. Both technologies have been used in commercial operation in the last year and surpass all our expectations.

Throughout Nolato, we continue to invest in a high level of technology, broad development expertise and efficient production. Our corporate motto, ”Experience and Innovation,” therefore feels firmly grounded in our day-to-day work, where experience and innovation are the foundation of everything we do.

Before I move on to presenting the interim report for the first three months of 2006, I would like to briefly touch on some of the priorities that I consider to be important to Nolato in 2006:

Even though we performed well in every area in 2005 and the year was the best so far in terms of earnings, I am not satisfied with the growth at Nolato Telecom. Creating growth in this area is thus one of our absolutely most important priorities in 2006. Also included here, as I mentioned before, is an expansion of our customer base with another one or more of the major mobile phone producers.

Continued growth at Nolato Medical and a greater market share for Nolato Industrial are other important priorities. We will also work actively to make acquisitions, mainly at Nolato Medical and Nolato Industrial.

And so now over to the report for the first three months of 2006, which was published just prior to the meeting. The report ….

[See the interim report]

The stock market has been very positive about Nolato recently. Since we met here last year, the stock price has dubbled. But it has gone down about five per cent today.

My address is now coming to a close and before I open the floor to questions, I would like to take the opportunity to thank all the employees at Nolato for their dedicated and skilled efforts in 2005, efforts that have paved the way for Nolato’s best earnings ever and which are the basis on which we can achieve our objectives during the coming years.

Thank you.