The CEO's address to the 2008 Annual Meeting

Attendees and shareholders

My name is Hans Porat, and since the end of January I have been entrusted with the task of leading Nolato. I am very excited to be helping to lead the Group forward as only the fifth CEO in Nolato’s 70-year history. I am 52 years old. I have a Master of Science, in metallurgy, at the Royal Institute of Technology in Stockholm, and have previously held senior positions with companies such as ABB and the Trelleborg Group. For the last six years, I have been CEO of the highly-respected trading house Gadelius in Japan. I live in Helsingborg, am married to Lotta and have two grown-up children.

2007 was a good year for Nolato. Nolato Medical experienced strong growth. Nolato Telecom made continuous improvements, while Nolato Industrial continued to generate excellent earnings and a healthy cash flow. But before I talk about the past year, allow me to describe the Nolato Group as it is today.

Our business mission is: “The Nolato Group is a high-tech developer and manufacturer of polymer components and product systems for leading customers in telecommunications, automotive products, white goods, medical technology, pharmaceuticals, hygiene and other selected industrial sectors.”

The common denominator behind everything we do is our in-depth technical expertise within the field of polymers, that is to say products made from various plastic, silicone and rubber materials. Nolato is organised into three customer-oriented business areas: Nolato Medical, Nolato Telecom and Nolato Industrial.

As we embarked on 2007, we had the following targets for each of these business areas: The key word for Nolato Medical was “growth” – both organic growth and growth through acquisitions. For Nolato Telecom, it was a case of winning back business and expanding our customer base. This was particularly important, since the business area had been hit hard by the bankruptcy of Siemens-BenQ at the end of 2006. And for Nolato Industrial, our target was to continue to win market shares.

So now let us see how well we succeeded with these targets, starting with Nolato Medical: As the name suggests, this business area focuses solely on customers within the fields of medical technology, pharmaceuticals and hygiene. Nolato is a key partner for many large, global companies, such as Astra Tech, Boston Scientific, Coloplast, Gambro, Novo Nordisk and Nycomed.

Nolato Medical works within four product areas:
- Components and systems for medical devices, including those used for treating diabetes and asthma, as well as analysis/diagnostics and home healthcare.

- Nolato Medical’s second product area is injection-moulded silicone rubber precision components. Thanks to Nolato Medical Rubber, which we acquired a year and a half ago, we are now the market leader when it comes to injection-moulded silicone rubber precision components.

– The third product area is pharmaceutical packaging – a new area resulting from the acquisition of the Cerbo Group in March last year. You probably have containers like these at home, they are marked CERBO in the bottom. Nolato makes sixty percent of the containers of this type in Scandinavia. The acquisition of Cerbo represents a further strengthening of Nolato’s product offering.

– Nolato Medical’s fourth product area is products which are made using a process of liquid latex dipping, such as balloon catheters used in heart surgery. Nolato enjoys a world-leading position for this product. By inserting an uninflated balloon into a vessel near the heart and then inflating it, the heart surgeon can shut off the blood flow before performing surgery.

As I’m sure you will appreciate, highly exacting requirements are placed on medical products. Rigours such as medical testing, approval and certification requirements, as well as extreme thoroughness in terms of cleanliness, quality and traceability, are all part of the everyday work of Nolato Medical’s employees. The development work involved is highly demanding, but once a product has been approved it has a relatively long product lifecycle. Most of our production takes place in clean rooms, where there are strict requirements in terms of particle quantities, temperature and air humidity.

The medical field is a particularly important growth area for Nolato. Shifting population pyramids and lifestyle changes in the industrialised world mean that healthcare has to cope with a growing need for home care. As a result, hospitals are becoming diagnosis and emergency centres while the actual treatment and care increasingly takes place in the home. This trend places high demands on medical devices, which need to be functional, easy to use and 100% safe. Changes in usage patterns also involve greater demands in terms of design and appearance. Good functionality alone is no longer enough – today, patients also expect the colour and design of products to suggest something other than illness.

Nolato Medical recorded sales of SEK 559 M last year, representing an increase of 129 percent – more than double – compared with 2006. Organic growth was 23 percent. Operating income (EBIT) was SEK 79 M, corresponding to a margin of 14.1 percent. The business area includes four manufacturing units: Nolato Cerbo in Trollhättan, Nolato Hungary in Hungary, Nolato Medevo in Torekov and Lomma, and Nolato Medical Rubber in Hörby.

The target for 2007 was continued growth, and we met this target easily. Today, Nolato Medical accounts for a quarter of the Group’s sales and over a third of its earnings.

Now let me talk about Nolato Telecom.
Nolato Telecom is a world-leading global developer and manufacturer of polymer system products for customers such as Sony Ericsson, Nokia, RIM, Flextronics, Foxconn, Ericsson and Nokia Siemens.
Nolato Telecom carries out development and manufacturing for customers within four areas:
– System products for mobile phones and mobile platforms
– Self-adhesive tapes and packaging for mobile phones and other electronic items, or “converting”
– Materials and technical solutions for electromagnetic induction shielding
– And base-station components, e.g. for 3G networks.

Let’s concentrate on the largest area: mobile phones, where we help to make this Sony Ericsson phone. A typical project involves us working with the customer to develop and then manufacture a large number of components. These are then mounted alongside purchased components to give complete mechanical modules. Putting it simply, the mechanical module is the part of the phone which the user sees. Electronics, a battery, antenna and software are then added to create a working mobile phone.

Mobile phones are complex products, and are characterised by a high technological content and exacting requirements in terms of quality and appearance. Extremely short development times and fast production start-ups are also required, with flexible production since the product lifecycle is only around 6-12 months. Nolato Telecom is well positioned to meet these demands, with its global resource team for development and technical support, alongside highly flexible production capabilities in Asia.

The mobile phone is a consumer product where design and appearance are becoming ever more important. For example, combining plastic and metal has become increasingly commonplace. In order to be able to offer our customers fully-integrated development and production in this area too, Nolato Telecom formed a joint venture in 2007 with a Chinese metals specialist. This partnership means that Nolato Telecom can now also offer customers metal components for phones.

But not everything that looks like metal actually is metal. Metal covering a phone antenna would have a catastrophic effect on functionality, since radio waves cannot pass through metal. In order to address this issue, Nolato Telecom has invested in cutting-edge technology which coats plastic components with an extremely thin layer of metal. This means that the component looks like metal, but retains the qualities of plastic. The same technology can also be used to create other design effects, such as half mirrors, whereby text and symbols are only visible when needed or when required by the user.

Today, all Nolato Telecom’s mobile phone-related production takes place in Asia, often alongside our customers’ manufacturing units. This is essential in an industry where the shortest possible time to market is a survival factor.

Overall, 2007 was a good year for Nolato Telecom, with a strong recovery following the bankruptcy of BenQ Mobile. Margins improved steadily, particularly during the second half of the year. We were also successful in our drive to broaden our customer base, through an agreement with the Canadian company Research In Motion – RIM. The name of the company may not be familiar, but you will no doubt have heard of their main product: the BlackBerry. The BlackBerry is more than just a mobile phone – it calls itself a “mobile platform”, since it allows for various kinds of mobile communication. We have received an order for a small-scale project in 2008, and we hope to take this cooperation further. RIM’s advanced products are a close fit with our operations, with our focus on technology, advanced project management and high-quality production.

Nolato Telecom’s sales totalled SEK 920 M. This was considerably lower than the previous year, due mainly to the loss of sales to BenQ. Operating income (EBIT) stood at SEK 73 M, while the margin remained virtually unchanged at 7.9 percent. Today, the business area’s operations are based mainly in Asia, where we have production facilities in Beijing, Shenzhen and Kuala Lumpur, as well as a technology and sales office in Tokyo.

Here in Sweden, the business area develops and manufactures base-station components in Kristianstad and EMI shielding materials in Hallsberg. We also have a technology and sales office in the USA.

Our targets for 2007 were to win back business and expand our customer base. Were we successful? Yes, absolutely! Over the course of the year, volumes increased steadily, margins improved and we won an exciting new customer in the form of RIM.

So now to our third business area, Nolato Industrial. It might sometimes seem that this part of Nolato plays second fiddle to Medical and Telecom’s more glamorous operations. But the reality is very different. Nolato Industrial is a supremely proficient, highly efficient and internationally competitive developer and supplier of injection-moulded products. The business area’s customers are mainly within the automotive, white goods, gardening/forestry and furniture industries, as well as other selected industries, and include companies such as Electrolux, Haldex, Husqvarna, IKEA, Lindab, Scania, SKF and Volvo.

Unlike our other two business areas, Nolato Industrial operates in a fragmented and more local – mainly Northern European – market. The customers who choose to work with Nolato Industrial often attach great importance to development expertise, project management, efficient production and quality. Nolato Industrial’s competitiveness is constantly improving, thanks to innovative technical solutions and a high degree of automation. For example, during 2007 we invested in a new form of cutting-edge technology, whereby expanding nitrogen gas is used in the mould, allowing us to produce plastic components which hold their shape whilst being extremely lightweight. These properties are in particular demand within the automotive industry, where any reduction in weight means a reduction in fuel consumption and carbon dioxide emissions. Another innovative solution is in-mould labelling, which allows us to integrate preprinted, specially-designed labels into the surface of the plastic.
This gives the customer exciting new opportunities for cost-effective, individual profiling. Other examples of products delivered by Nolato Industrial include car interior components and engine parts.

During 2007, the business area’s operations expanded as a result of the acquisition of Cerbo Hertila, which was part of the Cerbo Group. The company, which has now been renamed Nolato Hertila, is based in Åstorp and offers an exciting range of products which have been developed in-house, primarily in the form of plugs and caps for protecting tool steel, drills, connections and machine ducts.

Nolato Industrial generated sales of exactly SEK 1,000 M, representing an 8 percent increase on 2006. Operating income totalled SEK 78 M, with a margin of 7.8 percent. Nolato Industrial consists of seven businesses in Sweden and Hungary.

And in terms of our target, Nolato Industrial has indeed continued to boost its position as a supplier to prioritised industrial sectors.

For the Group as a whole, sales totalled almost SEK 2,500 M. Operating income stood at SEK 207 M, in line with that for 2006, while the EBITA margin rose slightly to 8.4 percent. Earnings per share rose significantly to SEK 5.74.

The average number of employees for 2007 as a whole was 3,760. Of these, 74 percent were outside Sweden, mostly in China where we had around 2,300 employees.

As a newcomer to the company, I have been impressed by the down-to-earth, ethical and yet highly professional philosophy that has characterised Nolato as a matter of course ever since it was founded.

Today, these values manifest themselves in our five key value and policy documents:
- Nolato’s Basic Principles,
- Our Code of Conduct,
- Our Supplier Relationship Policy,
- Our Workplace Policy and, last but by no means least,
- Our Environmental Policy.

Our Basic Principles make up the common values platform for all our operations, and are thus the guiding force for all Nolato employees.

These Basic Principles consist of six fundamental concepts: professionalism, long-term customer relationships, decentralisation, expertise, good organisation and environmental awareness.
Nolato’s Code of Conduct is based on international conventions, and includes the following guidelines:
- We respect the rights of individuals and act in accordance with good business practice.
- We do not engage in illegal industry collaboration.
- We comply with legislation and regulations.
- We constantly strive to reduce our impact on the environment and people’s health.
- We will not tolerate bribes being offered, requested or accepted.

Our Supplier Relationship Policy is equally straight to the point. We require our suppliers to adhere to our business principles and our Code of Conduct.

Our Workplace Policy is also self-explanatory. The basic idea is that our workplaces should be safe and our employees should be well versed in working environment and safety issues. We insist that no employee may be treated differently for any reason at all, we respect employees’ rights to be represented by unions, and we will not allow child labour or forced labour. We are now in the favourable position of having all Nolato’s production units, including those outside Sweden, under the Group’s own management. This means that we set the standards that we want ourselves, and ensure that operations follow national legislation, customer requirements and our own policies.

The environment has also always been extremely important to Nolato, which should come as no surprise given that the company was founded here in Bjäre amid such beautiful countryside. A long-term environmental approach is important, and Nolato’s Environmental Policy therefore emphasises the concept of “sustainable development and constant improvement”.

The insurance company Folksam has recognised our efforts within these areas in its new report on responsible enterprise for 2007, awarding Nolato an extremely respectable fourteenth place among the 273 listed Swedish companies reviewed in terms of the environment, and 78th place when it comes to human rights.

In a similar vein, I also note that the Stockholm Stock Exchange named Nolato’s Annual Report 2006 as one of the top five in the country that year within the small business group. We accept these honours with thanks, and have been spurred on to become even better.

And with that, I will move on from 2007 to talk a little about our current position.
Earlier today we issued our interim report for the first quarter, and I will come back to this report shortly. But first, a few words about our future focus. In terms of Nolato Medical, we are striving for continued growth. Our main tasks for 2008 are to fully integrate our acquisitions into the business and to ensure that the organisation grows accordingly. Continued internationalisation is another key issue for Nolato Medical, which has resulted in a decision to start production in China for this business area, too. We have provided further details about this in today’s interim report.

It is important that Nolato Telecom concentrates on continuing to expand its customer base. We are also working hard to ensure that our cost level, production capacity and customer offering are constantly adapted in line with market requirements. Nolato Industrial must continue to focus on our selected segments and key customers, which constitute the business area’s basis for ongoing growth.

We must also continue to evaluate new acquisition opportunities, particularly within Nolato Medical, but also within Nolato Industrial. However, we will be extremely careful in terms of what we acquire and at what price.

And now to the report for the first three months of 2008, which was published earlier today. The year has got off to a good start. Consolidated sales for the Nolato Group rose to SEK 690 M, while operating income increased by almost 60 percent to SEK 59 M. The margin grew to 8.6 percent, with earnings per share up at SEK 1.56. Cash flow also improved, standing at SEK 47 M.

Looking at the individual business areas, Nolato Medical’s sales increased to SEK 147 M, corresponding to growth of 30 percent, of which 4% is organic growth. Volumes have generally been pleasing during the quarter, with the exception of insulin products where volumes were somewhat lower, at least in comparison with the excellent volumes experienced during the second half of 2007. Nolato Medical’s operating income rose to SEK 21 M, while the margin remained virtually unchanged.

Nolato Telecom saw an impressive growth in sales, up 54 percent to SEK 284 M. The production of new mobile phone products began during the quarter, for which volumes were excellent right from the start. Operating income showed strong growth, totalling SEK 27 M, as did the margin, which stood at 9.5 percent. Capacity utilisation was high.

Nolato Industrial experienced a stable quarter, recording sales of SEK 260 M. Operating income was SEK 20 M, with a margin of 7.7 percent – somewhat lower than during the corresponding quarter in 2007. However, such a comparison could be misleading, since the margin was extraordinarily high during the first quarter of 2007.

For those who would like a more in-depth review of the quarter, may I recommend reading the full interim report which we issued earlier today.

Finally, I would like to conclude by noting that the positive trends experienced in 2007, with continued growth for Nolato Medical, continuous improvements for Nolato Telecom and stable development for Nolato Industrial, have continued during the first quarter of 2008. With our expertise and the incredible commitment which I have encountered throughout the Nolato Group, I can say with confidence that we are well placed for the future.

Thank you!