The CEO's address to the 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 earlier today.

When I stood before you last year, we could look back on the best year in Nolato’s history. And I was rather certain then that this positive trend would continue as well in 2006. The first nine months of the year were also strong, with good growth in both sales and earnings. But this positive trend was unfortunately broken on September 28, when the Taiwanese electronics group BenQ announced that it would discontinue investing in its German mobile phone operations, BenQ Siemens, which it had acquired from Siemens just two years before. The result of this was that the German operations were forced to stop their production and file for bankruptcy protection.

This shutdown hit us hard because BenQ was by far one of our largest customers. Our collaboration with them was exceptionally good, and as late as March 2006, Nolato received BenQ’s “Best Supplier Award” in tough competition with other major global suppliers to the mobile phone industry.

After the shutdown, we were forced to quickly adjust production resources at Nolato Telecom to the lower volumes, in part by reducing the number of employees, mainly in the Beijing plant. But we were still forced to charged 125 million kronor to Nolato Telecom’s income for writedowns of inventories, project costs accrued, commitments to material suppliers, equipment and other items.

Obviously, the changes at BenQ were a great disappointment to us. But what happened with BenQ did not change the description I gave at last year’s Annual Meeting: Nolato is a well-positioned, global group with a strong financial position and good opportunities for growth. Thanks to our committed employees, high level of technology and broad expertise, we have achieved a strong position as a systems supplier and development partner to leading customers all over the world. If we disregard non-recurring items for BenQ’s expected bankruptcy, 2006 was a good year: Sales increased 20 percent compared with 2005 to 2.7 billion kronor. EBITA (which is an international term that stands for “earnings before interest, taxes and amortization” and which is roughly equal to our previous measure for profit, “operating income”) excluding non-recurring items was 209 million kronor, which is only marginally lower than in 2006, which was after all the best year in Nolato’s history.
Cash flow after investments, excluding acquisitions, was 142 million kronor, compared to 158 million kronor the preceding year, and the EBITA margin was 7.7 percent, compared to 9.8 percent in the preceding year. Return on capital employed, excluding non-recurring items, was 19.4 percent compared to 21.0 in the preceding year. Earnings per share were 1.82 kronor compared to 6.88 in the preceding year, and adjusted earnings per share were 6.08 kronor compared to 6.31 kronor in the preceding year.

Today, we have some 3,400 employees, with roughly 1,800 working in Asia. In Sweden, we have about 1,100 employees and elsewhere in Europe (mainly Hungary, Denmark and Estonia) we have almost 500 employees.

Nolato is characterized by decentralization which involves extensive coordination with customers. Today, business is carried out in 24 companies or operations, organized into three profit centers: Nolato Telecom, Nolato Medical and Nolato Industrial. They all share advanced technical know-how in polymers and similar technologies as well as an ambition to be involved early on in the customer’s development work. What distinguishes them is the particular nature of their market and customer demands, which require specialization and focus in order to achieve success.

Nolato Telecom, which accounted for 57 percent of Group sales in 2006 and 53 percent of earnings, is one of the world’s leading developers and manufacturers of polymer systems products mainly for the mobile phone sector. Nolato Telecom has operations in Sweden, China, Estonia, Japan and Malaysia. Operations are characterized by high technological content, extremely short development times, quick production starts and a short economic lifespan for products. The market is global and consists of a few dominant global mobile phone companies along with a small number of competitors, most of which are also global, but also a few locally-oriented competitors in Asia.

Among our customers in this area are Sony Ericsson, Nokia, Flextronics, Foxconn and Elcoteq. The world’s leading headset manufacturer, GN Netcom, and Ericsson are also customers. For Ericsson, we manufacture products for base stations, including for 3G networks.

Being a development supplier to mobile phone manufacturers means that we develop and manufacture a number of advanced plastic components, which we then assemble with purchased components, like speakers, microphones and antennas, so that they form complete mechanical modules, ready for the customers’ final assembly of the mobile phones. Every mobile phone project is unique and requires its own design, construction and development.

The parts that we deliver normally also include the mobile phone’s external, visible parts, which means that these are painted and decorated to meet the customers’ high demands for design. In 2006, we invested in technology for vacuum metallization, which allows us to coat the outside of the mobile phone with a thin layer of metal. We have also invested in expanding painting capacity.
In 2006, Nolato Telecom had sales of 1,588 million kronor, compared to 1,172 million kronor the year before. EBITA was 124 million kronor (excluding non-recurring items) compared to 137 million kronor the year before. The EBITA margin, also excluding non-recurring items, was 8.0 percent, compared to 11.7 percent.

Our customers in the mobile phone sector have moved their manufacturing to countries with low costs, which means that we as contractors must follow them and make the same move. We have long been aware of this trend and adjusted our operations early on to these changed circumstances. Essentially all of our mobile phone-related production thus takes place today in Asia, where operations have continued to grow sharply. Incidentally, it should be said that many of our competitors have now been forced to start the same process, with extensive closures of production units in Europe as a result.

The set-up of Nolato Telecom’s new plant in Malaysia has gone as planned, and the unit had small-scale production during the second half of 2006.

Nolato Lövepac, whose products include self-adhesive tapes and gaskets for mobile phones and other electronics, had a very successful year, with strong growth in sales and earnings. Along with the operations established earlier in Skånes Fagerhult and Beijing, we have also established production in Shenzhen, in southern China, Malaysia and Hungary.

With the loss of BenQ, there is extensive work under way to replace the lost volumes with new projects. It seems conditions are favorable because today Nolato Telecom is well-equipped, with a high level of technology and development and production resources that are located close to its customers. Extensive marketing has resulted in Nolato Telecom taking on major new mobile phone projects, with production start in the second half of 2007 and early 2008.

Nolato Medical, which accounted for nine percent of sales and 15 percent of earnings in 2006, is completely focused on the development and manufacture of complex medical devices mainly in diabetes therapy, asthma treatment, analysis & diagnostics, homecare and surgery. Production is carried out to meet extremely high quality standards. For instance, some products are used inside the human body, which entails very special requirements. Most of Nolato Medical’s production takes place in different types of clean rooms, with specially controlled conditions for particle quantity, air moisture and temperature. Customers also set exacting demands on traceability, which means that there must be complete documentation for each stage of the process and the raw materials that are used. In contrast to Nolato Telecom, operations here are characterized by long development times and long product life cycles, which place different demands on the organization for marketing and development.

Customers include global pharmaceutical and medical technology companies like Astra Tech, AstraZeneca, Coloplast, Gambro, Hemocue, Novo Nordisk, Nycomed, Pfizer, Phadia and St. Jude Medical.
Nolato Medical is a market leader in Europe and is in the midst of a very intense period of growth, both organically and through acquisitions. In 2006, Nolato Medical had sales of 244 million kronor, which is an increase of 33 percent compared to the year before. EBITA was 36 million kronor, compared to 42 the year before and an EBITA margin of 14.8 percent compared to an extremely high 22.8 percent the year before. Profitability was affected by production problems in connection with the ramp-up of new production during the first half of the year. A major cost-cutting program was implemented, which resulted in lower costs for the second half of the year.

When we met here a year ago, Nolato Medical consisted of one company, Nolato Medevo, with production operations just starting up in Hungary. Today, Nolato Medical consists of ten companies, six of which are producing.

For several years now, we have had an explicit strategy to create growth in the medical field, which is a very interesting one with great potential. The world’s aging population is generating a greater need for products like diabetes therapy, while there is a trend toward more elements of self-care, with hospitals becoming diagnostic and emergency centers while the actual care is provided in the home. This places high demands on medical devices, which favors us to a high degree as developers and producers. The continued strategy at Nolato Medical is to create organic growth through geographic expansion while at the same time taking over production from customers, known as outsourcing. We also intend to make several acquisitions in the field, in addition to the two we made recently – Medical Rubber and Cerbo.

I would like to take the opportunity to tell you a little more about these companies:
Let me begin with Medical Rubber, which has been part of Nolato since November first, 2006. Medical Rubber is one of Europe’s leading developers and manufacturers of medical precision components in soft polymer materials and specialized in fully-automated injection moulding of customized silicone components, with a cutting-edge modern production unit in Hörby, Sweden. The company is very well run, and its expertise and customer base complement Nolato Medical quite well and further expand the breadth of our customer offering.

Medical Rubber had sales of about 100 million kronor in 2006 and has some one hundred employees in Hörby. It has customers all across the world, and roughly 50 percent of the company’s production is exported. It also has agencies in Australia and the US. The company was acquired from the Persson family, which founded Medical Rubber in 1973. The acquisition has had a positive impact on Nolato’s earnings since the day of takeover.

The acquisition of Cerbo was completed on March fifth this year. Cerbo is a leading developer and manufacturer of pharmaceutical packaging in polymer and paper-based materials and is expected to have sales of about 350 million kronor this year. The company has some 240 employees in four manufacturing companies in Sweden and Denmark as well as sales companies in the Czech Republic, France, Norway and Poland.

Cerbo is active in both primary and secondary packaging. Primary packaging is quite simply the packaging that comes into direct contact with the medicine, that is, pill containers, whereas secondary packaging is the cardboard that protects the primary packaging.

Following Nolato’s decentralized basic philosophy, we have divided the original Cerbo Group into four independent companies, with three of these organized under Nolato Medical: Cerbo Trollhättan, which works with primary packaging, and Cerbo Göteborg and Cerbo Denmark, which work with secondary packaging. The fourth company, Cerbo Hertila, which is located in Åstorp, Sweden, is oriented toward general industrial customers and has been included under Nolato Industrial.

Cerbo was acquired from the English investment company Vision Capital. This acquisition is also expected to have a positive effect on our profit starting from the day of takeover.
The expansion at Nolato Medical has also entailed a major investment in medical production at Nolato Protec in Hungary. This company now divides its organizational structure between Nolato Medical and Nolato Industrial and has developed a medical flow in the factory, with its own fully-focused organization and specially-adapted resources in the form of hygiene and clean rooms. During the year, production started for products that include surgical suction devices for Astra Tech, in partnership with Nolato Medevo in Torekov, Sweden.

The development at Nolato Medical feels very positive, and as I will tell you more in conjunction with the interim report, our growth in the first quarter was a total of 129 percent! And we will continue our strategic expansion in this field. I see substantial growth ahead, both organically and through acquisitions. I likewise see Nolato Medical also setting up production in China in the near future and in the US over the long term as well.

Our third leg, Nolato Industrial, which accounted for 34 percent of sales and 32 percent of earnings in 2006, is a strong leading development and production partner for advanced industrial and automotive customers and consists of six companies in Sweden and one in Hungary. Its main focus is working in partnership with customers in the automotive industry (where we work, among other things, with exterior and interior fittings as well as components for fuel systems, engines and engine compartments), household appliances (like refrigerator interiors and microwave oven components), gardening/forestry products (including casings and engine components for lawnmowers and power saws) and other important industrial sectors like the furniture and building products industries. The markets are fragmented, with a large number of customers and suppliers.

Customers include companies like Electrolux, Flextronics, Haldex, Husqvarna, Ifö, Ikea, Lear, Lindab, Plastal, Saab Automobile, Sandvik, Scania, Seco Tools, Volvo Car, Volvo Truck, Whirlpool and Woco.

The operations at Nolato Industrial all share a high level of technology, with the companies enhancing their international competitiveness through extensive automation and a high level of efficiency. The companies all have a flat organization, with every operator contributing to cost-effectiveness by taking considerable personal responsibility, based on their high level of basic skills, continuing education, work in teams based on management by objective, and a decentralized way of working.

When dealing with customers in the automotive industry, the companies at Nolato Industrial collaborate under the name Nolato Automotive. In 2006, Nolato Automotive took a number of orders from both major automotive manufacturers and their systems contractors. It was especially exciting to get new orders which involve deliveries to the Ford Group’s engine plant in Wales and to Jaguar and Land Rover.

In 2006, Nolato Industrial had sales of 924 million kronor, compared to 911 in the preceding year. EBITA improved to 74 million kronor, compared to 71 in the preceding year and an EBITA margin of 8.0 percent, compared to 7.8 percent in the preceding year.

One reason for the improvement in earnings is the successful strategic change in the customer base carried out in Hungary. We have basically pulled out of the consumer electronics and household products segments, which are subject to intense price pressure and which were previously dominant, in order to instead focus operations on customers that require comprehensive solutions in the form of product development, a high level of technology, material expertise, complete assembly and advanced quality assurance systems.

On the whole, I strongly believe that it is Nolato’s technological know-how and efficiency that generate new business – naturally, combined with general business-like behavior and a sensitivity to the customer’s needs. All of Nolato’s operations are strongly driven by technology – just as our customers are. Our high level of technology, strong project management, an ability to handle many components involved in a product and our specialist expertise all attract customers. So we know that a basic prerequisite for us is investing in technology that customers demand.

Current examples of this include the equipment for vacuum metallization in China that I mentioned before, injection moulds that can produce large components, greatly enhanced resources in two-component injection moulding, the expansion of clean rooms and extensive automation in the form of six-axis robots, for instance, that perform a number of assembly procedures in conjunction with the injection moulding.

And while we give great credit to technology, what is of even greater importance is our strong, shared foundation of values, which developed from the down-to-earth, ethical and business-like philosophy which has characterized Nolato ever since its start here in Bjäre 69 years ago. It is important for us to take social responsibility by always complying with laws and regulations, respecting the rights of individuals and acting in accordance with good business practice, regardless of where in the world we have operations. Nolato’s Basic Principles and our Code of Conduct are important tools in conveying these basic values to every employee in the Group. For anyone who would like to study these in detail, they are available on our website at www.nolato.com.
Safeguarding the environment has also always been a matter of course for us at Nolato. Our operations are relatively clean and involve only a limited amount of emissions into the air and water. Environmental work in the Group is decentralized, and each company has responsibility for its own operations under the framework of legal requirements and Nolato’s environmental policy. All units, apart from the operations just started in Malaysia and Medical Rubber, have been ISO 14001 environmentally certified.

In order to enhance the supply of future managers in the Group, in the fall of 2006 we started a Young Managers Program, in which participants are given basic training in personal leadership, global awareness, organizational culture, Nolato’s visions and the Group’s future development.
I am convinced that our strong corporate culture, one in which employees feel that they have an opportunity to develop and further advance in the company, helps generate good business.
Absence due to illness has not been a major problem at Nolato either. The rate of absence due to illness for the entire Group in 2006 was 2.7 percent. One percent of this was long-term absence due to illness. In the Swedish units, absence due to illness was 6 percent, in Estonia 6.8 percent and in Hungary 8.6 percent. In Asia, there was hardly any absence due to illness: our operations in China had a rate of only 0.3 percent and in Malaysia it was 1.3 percent.

Before I move on to a presentation of the interim report for the first three months of 2007, I would like to briefly mention some of the priorities we see for the year.
As I said earlier, Nolato is strong financially and in terms of expertise, which gives us good opportunities for advances in 2007. Our motto, “Experience and Innovation,” is a good description of the basis of our operations.

For Nolato Telecom, the top priority is filling the gap entailed by the loss of BenQ, both by expanding the customer base and through higher sales to existing customers.
For Nolato Medical, it is a matter of continued growth, as well as the continued internationalization of operations.

And for Nolato Industrial, we will give priority to continuing increasing our market share.
Our strong balance sheet gives us good opportunities for carrying out a number of acquisitions during the year, both at Nolato Medical and Nolato Industrial.
And now over to the report for the first three months of 2007, which was published earlier today.

[Presentation Q1, see www.nolato.com]

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 2006, efforts that are the foundation of our success and, dear shareholders, the basis of you getting good growth in value on your investment.

Thank you.