ANNUAL REPORT
2007
Cardo is an international industrial group with leading brands, offering so- lutions with quality products, a high level of service and great applications know-how to industrial customers. Operations are pursued in the Group’s divisions: Door & Logistics Solutions, Wastewater Technology Solutions, Pulp & Paper Solutions and Residential Garage Doors, which all enjoy strong positions in their respective markets.
The Group has approximately 6,000 employees in more than 30 coun- tries and sales of approximately SEK 9,5 billion. Corporate headquarters are located in Malmö, Sweden.
Cardo has been listed on the Stockholm Stock Exchange since 1995 and its shares are traded under the designation CARD.
The number of shareholders is slightly less than 12,000. Institutional own- ers account for approximately 91 percent of the total number of shares and votes and non-Swedish investors hold approximately 20 percent.
Cardo is a Latin word with a number of different meanings. As a name, Cardo primarily expresses “being at the center” or “the core”. Cardo’s logotype, with a red dot in the middle of the “o”, symbolizes exactly that – being at the center.
Cover picture: Adnan Hama Amin, assembler at Door & Logistics Solutions’ unit in Heerhugowaard, Netherlands.
Cardo’s annual report is printed on paper produced at the Swedish paper mill Arctic Paper Håfreström. The mill is constantly working to develop ecofriendly production processes that have a minimal impact on the environment. The mill complies with inter- national standards and provides running reports on its environmental performance.
CARDO IN BRIEF
Continued growth in 2007 1
CEO’s comments 2
How Cardo is managed 4
Business model 8
The share 10
Group 2007 12
Door & Logistics Solutions 16
Wastewater Technology Solutions 20
Pulp & Paper Solutions 24
Residential Garage Doors 28
Employees 32
Cardo’s responsibility 34
Risk management 36
Annual report 2007
Report of the Board of Directors 39
Group: Income statement 42
Balance sheet 43
Cash flow statement 44
Change in Group equity 45
Parent company: Income statement 45
Balance sheet 46
Cash flow statement 47
Change in Group equity 47
Notes 48
Audit report 64
Corporate governance report 66
Board of Directors and auditors 70
Group management 72
Financial information 74
Contact Cardo 75
Annual General Meeting 2008 76
Group financial summary - multi-year review 77
Up-to-date information at Cardo’s website, www.cardo.com
CONTENTS
HIGHLIGHTS
NET SALES OPERATING EARNINGS NUMBER OF EMPLOYEES AT YEAR-END THE CARDO GROUP
SEK 9,308 million SEK 731 million
1) 2)6,251
48% 45% 51%
SEK 4,499 million SEK 364 million
1)3,168
29% 38% 30%
SEK 2,713 million SEK 301 million 1,868
9% 13% 6%
SEK 818 million SEK 105 million 393
14% 4% 13%
SEK 1,305 million SEK 31 million
2)763
WASTEWATER TECHNOLOGY SOLUTIONS Pumps, mixers, aerators and control and monitor- ing systems for customers that need complete solutions for wastewater treatment and handling applications, and dewatering pump solutions for the construction industry etc.
The corporate brand is ABS.
PULP & PAPER SOLUTIONS
Pumps, agitators and sophisticated measuring instruments for process optimization and quality control in the pulp and paper industry.
The corporate brands are Scanpump and Lorentzen & Wettre.
RESIDENTIAL GARAGE DOORS
Standardized and customized garage doors for the consumer market.
The corporate brands are Crawford, Normstahl and Henderson.
DOOR & LOGISTICS SOLUTIONS Complete door and docking solutions for stra- tegically selected customers in transport, logistics and retail.
The corporate brand is Crawford.
In addition to the sum of the divisions, the totals for the Cardo group are also made up of the elimination of intra-Group sales, central costs and employees in the parent company.
The percentage of Group operating earnings is exclusive of central costs.
1)
Excluding costs of SEK 107 million relating to restructuring of the production structure within the Door & Logistics Solutions division.
2)
Excluding impairment of SEK 210 million of goodwill attributable to the Residential Garage Doors division.
HIGHLIGHTS
RESULTS
Inflow of orders: SEK 9,459 million (8,840), up
O
8 percent adjusted for the effects of exchange rate movements
Net sales: SEK 9,308 million (8,556), up 10 per-
O
cent adjusted for the effects of exchange rate movements
Operating earnings excluding items affecting
O
comparability: SEK 731 million (598)
Net earnings including items affecting compar-
O
ability: SEK 170 million (401) Earnings per share: SEK 5.67 (13.38)
O
Proposed dividend for the financial year SEK
O
9.00 (SEK 9.00) per share
SIGNIFICANT EVENTS
Strong growth in countries outside the EU with
O
strongest trend in Asia-Pacific and Latin Amer- ica
Big breakthrough in relation to major interna-
O
tional key accounts
International service agreements with a number
O
of key accounts in Door & Logistics Solutions New production unit for docking solutions estab-
O
lished in Romania
Acquisition of rights to solutions for horizontally
O
sliding doors
Wastewater Technology Solutions signs global
O
agreement with world’s largest water company, the French enterprise Veolia
Pulp & Paper Solutions launches instruments for
O
measuring paper quality and new service con- cept for process pumps
Residential Garage Doors doubles the number
O
of exclusive retailers in the Nordic region and Europe and introduces two new doors
CONTINUED GROWTH IN 2007
INFLOW OF ORDERS
SEK million
0 2,000 4,000 6,000 8,000 10,000
2005 2006 2007
RETURNS
1)Return on capital employed Return on equity 0
2 4 6 8 10 12 14 16 18
%
2005 2006 2007
GROWTH RATE OF NET SALES
Organic Acquisitions
%
0 2 4 6 8 10
2005 2006 2007
SEK million
0 2,000 4,000 6,000 8,000 10,000
2005 2006 2007
NET SALES
SEK
0 3 6 9 12 15
2005 2006 2007
EARNINGS & CASH FLOW PER SHARE
Earnings
Cash flow from operating activities after tax
SEK million %
0 200 400 600 800
0 2 4 6 8
2005 2006 2007
OPERATING EARNINGS AND OPERATING MARGIN
1)Operating earnings Operating margin
1)
Excluding items affecting comparability.
“CLEAR STRATEGY, BUT MANY CHALLENGES”
CEO’S COMMENTS
During 2007, the contours of the new Cardo became clearer and the extensive process of change that we initiated in 2005 made its effects felt in a number of areas.
When I sum up 2007, I can note that growth con- tinued to increase. Sales rose by 10 percent during the year, and Cardo has now enjoyed ten quarters in succession with increased net sales. The inflow of orders rose by 8 percent on the previous year.
Cardo’s profitability, apart from items affecting com- parability, took a further step in the right direction and two of our divisions exceeded our 10 percent operating margin target.
DETERMINED EFFORT
Behind the positive trend, lie determined and intense efforts to implement our strategy. In order to gener- ate growth and profitability, we are working on the basis of two different agendas – a sales agenda and a cost agenda. The trend we are seeing verifies the fact that the sales agenda is biting. The seven prin- cipal points that we are working to are starting to produce clear results. We are seeing strong growth in key accounts, expansion in the service field and a positive trend in new markets. We are creating the new Cardo.
The cost agenda is also having an effect. The restructuring program that we launched in 2005 made a positive impact of SEK 45 million, although this did not fully meet our expectations for the year.
In order to improve our long-term competitiveness, we closed a production unit in Germany within Door
& Logistics Solutions and invested in a new plant for docking equipment in Romania. The long-term
positive effects of this are indisputable, but work on the new production structure had an adverse effect on earnings during 2007. The cost of restructuring amounted to SEK 107 million. In addition, we saw an impairment of SEK 210 million of goodwill within Residential Garage Doors.
WE ARE CREATING CUSTOMER BENEFIT The efforts we are now making are radically trans- forming Cardo. Even if I can summarize our ongo- ing activities in positive terms for the second year in succession, we can see that a lot still remains to be done. It is therefore crucial that we continue to equip ourselves for future challenges.
We are constantly working on continuous im- provements, focusing on our main processes. But the most extensive change that we need to make in the Company is in how we view the customer. Cardo’s customers no longer need just a door or a pump.
We will deliver complete solutions that facilitate and make more efficient the day-to-day work of the cus- tomer and provide added value. What was previously just a door is today a complete solution that includes both products and service. For us, this means that the business has become more complex as regards sales, delivery and development, but at the same time we are presented with new opportunities to be less price-sensitive and to enjoy greater margins.
Our organization has created a platform in its work with major key accounts: large national and in- ternational companies with a high service-intensity - companies that are faced with great challenges and that need solutions that are maybe still waiting to be invented. This type of customer is one of the bases
on which we will be able to generate volume and margins at a satisfactory level. It goes without saying that we are also continuing to serve smaller custom- ers, but it is a matter of being selective and choosing the right strategy for each target group.
We must continue to transform Cardo into an in- dustrial group that focuses on customer benefit to an even greater extent. We need to further strength- en the dialog with the customer, to select the right customers to an even greater degree and together with these customers develop new solutions that add greater value.
GREAT ACTIVITY IN ALL PARTS
In the divisions Pulp & Paper Solutions and Waste- water Technology Solutions, a comprehensive pro- cess of change has been carried out for several years. The 2007 results are historic for both these divisions, with records as far as both net sales and earnings are concerned. A lot of positive effects have been achieved as these divisions have been fundamentally remodeled, and it feels like the new Cardo has begun to root itself in.
Not unexpectedly, we are faced with our greatest challenges in our largest division, Door & Logistics Solutions. It takes a longer time here to alter habitual patterns of behavior. We did not succeed in switch- ing over sufficiently quickly in line with our volume growth. In combination with extensive changes in our production structure, we therefore suffered from production disturbances. In addition, costs of mater- ials were high and competition tough.
Enhancing the operating margin of Door & Logis- tics Solutions is in focus during 2008. We are well
2 CARDO ANNUAL REPORT 2007
CEO’S COMMENTS
aware of what needs to be done and a number of necessary initiatives are currently under way in all parts of the division. In order to generate satisfac- tory profitability, we must become more efficient in our principal processes. By virtue of its service op- eration, Door & Logistics Solutions enjoys a unique position in the market, and I am convinced that we will succeed.
As far as Residential Garage Doors is concerned, we have long been saying that this is under review, since it does not target industrial customers as does the rest of Cardo. Despite being subject to competi- tion in a tough sector, it managed to turn the business around from the losses of previous years to achieve a respectable plus of SEK 31 million for 2007.
THE FUTURE IN OUR HANDS
Across the Group, great efforts are being made every day to achieve our goals. I wish to thank all our peo- ple for these efforts during 2007. It is all of Cardo’s people who are creating the new Cardo. Developing our employees and managers is one of our most im- portant instruments to improve the Company in the long term. During 2007, we implemented a number of measures to further strengthen our focus on im- plementing the strategies and further developing the processes. We are working actively to implement the Group’s value base, reinforce internal communica- tions and, not least, strengthen our management on all fronts. Strong leadership is one of the absolutely
key factors as far as driving a continued positive trend for Cardo is concerned.
Our aim is clear, but the way there involves many challenges. Together with Cardo’s more than 6,000 employees, I have accepted the challenge of creat- ing a successful company in the long term. During 2008, our main focus is on improving margins and cash flow. We are determined to deliver in line with our long-term goals.
Malmö, Sweden, in March 2008
Peter Aru, President and CEO
OUR VISION CREATING THE NEW CARDO
HOW CARDO IS MANAGED
Cardo will be a customer-oriented solution provider and one strongly growing industrial group. This is Cardo’s vision and guiding star in creating the new Cardo. This vision is specified in values and a busi- ness idea and is concretized in financial targets.
The transformation that Cardo is carrying out was initiated in 2005. In that year, a seven-point strategy and financial targets were defined. During 2007, an extensive process was pursued in order to imple- ment and further develop the strategy.
VISION
Cardo will be a customer-oriented solution provider and a strongly growing industrial group.
VALUES
Cardo’s value base rests on three core values:
BUSINESS DEVELOPMENT
Cardo wants to constantly develop its business and its own abilities and skills. Each employee bears a responsibility for the development of the company and should be able to see and understand his or her role in the overall picture. All employees are interde- pendent and cooperate together to find the best so- lutions for the customers and to constantly exceed the customers’ expectations.
ENCOURAGEMENT
Every employee must feel that he or she is seen and appreciated. Only then will people feel that they are part of a greater context. Encouragement is the basis of creating curiosity and courage to dare try new ways. This develops the business in a positive direction.
CHALLENGER
Cardo wants to develop a culture in which its em- ployees challenge themselves and each other to think in new ways and to be creative. It is about questioning the accepted, how the Group operates and uses its resources – with the focus on delivering customer benefit.
BUSINESS IDEA
Cardo is an international group with leading brands, offering solutions with quality products, a high level of service and great applications know-how to in- dustrial customers.
FINANCIAL TARGETS
For the Group’s industrial divisions, i.e. excluding Residential Garage Doors, the following financial targets apply
At the end of 2008, the Group will have an oper-
O
ating margin of at least 10 percent
Annual organic growth of at least 5 percent over
O
a business cycle.
A return on capital employed of 20 percent over
O
a business cycle.
STRATEGY FOR GROWTH
During 2007, Cardo continued to focus on two dif- ferent agendas in order to achieve the financial tar- gets - a sales agenda and a cost agenda.
The sales agenda is divided into seven strategic points aimed at increasing Cardo’s growth:
moving from product focus to customer benefit
O
focusing on selected customer segments and ap-
O
plications
offering value-adding solutions with quality prod-
O
ucts, a high service content and great applica- tions know-how
building up a key account organization for large
O
returning national and international customers using our international service organization in a
O
broader and more efficient way investing more in emerging markets
O
making strategic acquisitions that either strength-
O
en our market presence or add products and so- lutions to our selected customer segments
The cost agenda includes both major restructuring and continuous rationalization measures.
4 CARDO ANNUAL REPORT 2007
SÅ STYRS CARDO
Sergio Gómez, research
and development
Lofi Fernández, finance
HOW CARDO IS MANAGED
SALES AND COST AGENDA 2007
During 2005, a strategic initiative was introduced focusing on increased growth and profitability. This initiative is one of the cornerstones of the creation of the new Cardo. The Group follows two agendas in parallel in order to achieve its financial targets: a sales agenda and a cost agenda.
The sales agenda comprises seven points for growth, while the cost agenda focuses on a continuous process of rationalization and efficiency measures in or- der to increase profitability. During 2005, a cost-saving program was initiated with a full effect of SEK 200 million annually expected during 2008. During 2006, a number of measures were adopted that resulted in savings effects of SEK 125 million, and further savings of SEK 45 million were made during the financial year. During 2008, the effects are expected to be SEK 10 million. This means that the full effect is estimated at SEK 180 million, i.e. we will not fully achieve the estimated savings.
SEK million
Restructuring costs incurred fourth quarter 2005 201
Estimated savings effect from 2008 200
Full-year effect 2006 125
Full-year effect 2007 45
Door & Logistics Solutions, SEK 27 million Wastewater Technology Solutions, SEK 8 million Pulp & Paper Solutions, SEK 0 million Residential Garage Doors, SEK 10 million
Estimated full-year effect 2008 10
Expected total savings effect 180
IMPROVED GROWTH AND PROFITABILITY
COST AGENDA SALES AGENDA
Willy Krom, material planner Sandra van den Nieuwenhof,
order office
6 CARDO ANNUAL REPORT 2007
HOW CARDO IS MANAGED
STRATEGIES FOR GROWTH EXAMPLES OF ACTIVITIES IN 2007 Moving from product focus to customer
benefit
New products and value-adding solutions were launched.
Increased number of agreements that include complete service solutions within Door & Logistics Solutions.
Introduced global product and marketing control within Wastewater Technology Solutions.
Focusing on selected customer seg- ments and applications
Continued prioritization and focus on the customer segments strategically selected on the basis of volume, service share and returning frequency.
Door & Logistics Solutions – transport, logistics and retail.
Wastewater Technology Solutions - public infrastructure and the construction industry.
Pulp & Paper Solutions - pulp and paper industry.
Residential Garage Doors - garage door specialists, building materials retailers and building con- tractors.
Offering value-adding solutions with quality products, a high service content and great applications know-how
System for delivery control and monitoring, the Crawford Monitoring System, and also servicing of automatic doors for pedestrian traffic were launched within Door & Logistics Solutions.
Continued product development within Pulp & Paper Solutions. New advanced system for auto- mated paper measurement, the L&W Autoline 400, was introduced.
Building up a key account organization for large returning national and interna- tional customers
The key-account organization enjoyed a breakthrough with several new global agreements.
Pulp & Paper Solutions deepened its collaboration with original equipment manufacturers (OEM), i.e. makers of machinery for the pulp and paper industry.
Focus within Residential Garage Doors on the exclusive retailers for joint and more efficient target- ing of the consumer.
Using our international service organiza- tion in a broader and more efficient way
Expanded service offering with, for example, servicing of automatic door systems for pedestrian traffic.
Increased integration between service and sales organization creates new sales opportunities in connection with service.
Training programs aimed at engineers being able to solve more and larger problems on the cus- tomer’s premises.
New service concept launched for process pumps.
Investing more in emerging markets Further expansion in eastern Europe by means of own companies and developed distribution network.
Door & Logistics Solutions - investment in new production plant in Romania.
Wastewater Technology Solutions – establishment of subsidiary and sales organization in Mexico and continued development of the organization in China.
Pulp & Paper Solutions – expansion in, among other places, China, India (through collaborative partner) and Brazil.
Residential Garage Doors – investment in markets in Russia, Poland and China.
Making strategic acquisitions that either strengthen our market presence or add products and solutions to our selected customer segments
Door & Logistics Solutions acquired the rights to the German company Fuhrrheydt’s solutions for horizontally sliding doors, to be integrated under the Megadoor brand.
Continued integration of Wastewater Technology Solutions’ acquisition Style Industries in Australia.
During 2007, the use of Cardo’s business model was intensified and further quality assured throughout the organization. Increased growth and profitability remain at the center of this business model.
Cardo is an international industrial group with lead- ing brands, offering solutions with quality products, a high level of service and great applications know- how to industrial customers. Operations are pursued in the Group’s divisions: Door & Logistics Solutions, Wastewater Technology Solutions, Pulp & Paper So- lutions and Residential Garage Doors, which all en- joy strong positions in their respective markets.
MANAGEMENT ENSURES HIGH QUALITY The basis of Cardo’s operations consists of the vi- sion, values, business model, objectives and strate- gies by which the Company is managed. At Group level, Cardo guarantees that the solutions that are developed for its customers maintain a high qual- ity. It does so by means of joint methodologies in respect of matters such as business development, management and processes. These processes are driven by the groupwide functions HR, Communica-
tions, IT, Purchasing, Finance & Treasury and Busi- ness Development.
By working on the basis of common processes throughout the Group, Cardo generates synergies in the form of higher efficiency, lower costs and high overall quality.
DIVISIONS
Cardo’s industrial divisions are bound together by a number of similarities in how their operations are run.
The divisions are international and the bulk of sales, approximately 90 percent, occur outside Sweden.
Cardo has three industrial divisions:
Door & Logistics Solutions – division for total
O
door and docking solutions, primarily in the trans- port and logistics sector and in retail
Wastewater Technology Solutions – division for
O
customers that need wastewater treatment and handling applications, and for customers that re- quire dewatering pump solutions in sectors that include the construction industry
Pulp & Paper Solutions – division concentrated
O
on solutions for customers in the pulp and paper industry
The fourth division, Residential Garage Doors, focus- es on garage doors, which are mainly sold via dis- tributors. This division targets the consumer market and therefore does not fit in with Cardo’s strategy in the long term. Cardo’s commitment to this operation is under review.
STRONG BRANDS WITH GREAT VALUE Cardo has strong brands that generate value for its customers. This is done by offering solutions involv- ing high-quality products, great applications know- how and a broad range of service and by a strong focus on relation-building with the customers.
The brands that are owned, managed and devel- oped by Cardo are some of the Group’s most im- portant assets. It is these brands that the customers recognize. By means of a number of acquisitions over the years, Cardo has acquired an extensive brand portfolio. In recent years, a determined ef- fort has been made in respect of brand strategy, with the focus on further developing fewer, globally strong brands. This means that a number of strate- gic brands have been selected, which are leaders in their respective market segments.
BUSINESS MODEL CENTERED ON
INCREASED GROWTH AND PROFITABILITY
HOW CARDO IS MANAGED
Thom Rehermann, senior purchaser Eric-Jan Harthoorn, R&D manager In all divisions, research and development
projects are pursued on an ongoing basis in order to broaden the customer offering with new solutions, products and services.
8 CARDO ANNUAL REPORT 2007
DOOR & LOGISTICS SOLUTIONS
Crawford is the corporate brand within Door &
O
Logistics Solutions.
Hafa is used in parallel with Crawford principally
O
in the German market as a brand for docking solutions
Combursa is used in parallel with Crawford princi-
O
pally in the Spanish market as a brand for docking solutions
Megadoor is used for advanced door solutions for
O
sectors that include the aviation industry
WASTEWATER TECHNOLOGY SOLUTIONS ABS is the corporate brand for wastewater treat-
O
ment and handling solutions and for dewatering pumps for the construction industry
Pumpex is used as a brand for dewatering pumps
O
for the construction industry
PULP & PAPER SOLUTIONS
Scanpump is the brand for process pumps and
O
agitators for the pulp and paper industry Lorentzen & Wettre is the brand for solutions in
O
the field of measuring instruments and process optimization for the same industry
RESIDENTIAL GARAGE DOORS
Crawford is used for garage doors in the Nordic
O
area and the Benelux countries in particular Normstahl is the brand in central Europe
O
Henderson is the brand in the UK
O
MARKET AND CUSTOMERS
Cardo’s strategy is to focus on volume-intensive customers with a great need for service. The three industrial divisions target large international or na- tional returning customers with great development potential. All the divisions operate in a significant aftermarket in which the customers’ extensive serv- ice needs are central. The business methodology and sales process in these divisions are similar and based on there being a specifier, a contractor and an end customer.
Residential Garage Door’s end customer is the consumer market and sales principally occur via re- tailers.
DIVISIONS & BRANDS
Door & Logistics Solutions - Crawford
- Crawford Hafa - Crawford Combursa - Megadoor
Wastewater Technology Solutions - ABS
- Pumpex
GROUPWIDE FUNCTIONS
HR Communications & Investor Relations IT Purchasing Finance & Treasury Business development CARDO
Business development Leadership Training Methodology Processes
Service and sales culture
MARKET &
CUSTOMERS Specifiers Contractors End customers Vision
Business idea Values Targets Strategies MANAGEMENT
HOW CARDO IS MANAGED
Pulp & Paper Solutions - Scanpump - Lorentzen & Wettre
Residential Garage Doors - Crawford
- Normstahl
- Henderson
THE SHARE
CARDO IN THE STOCK MARKET 2007
Cardo has been listed on the stock exchange in Stockholm since 1995 and its shares are traded un- der the designation CARD. Cardo belongs to the Mid Cap segment, which covers medium-sized compa- nies with a market value of between EUR 150 mil- lion and 1 billion. In addition, Cardo is categorized as belonging to the Industrial Machinery sector, which is often called “Industrials” or “Industrial Goods and Services” in stock exchange listings.
A round lot in Cardo amounts to 100 shares. On December 31 2007, the number of shareholders amounted to 11,646 (12,762).
SHARE CAPITAL
On December 31 2007, Cardo’s share capital amounted to SEK 300 million, divided into 30 million shares. Each share entitles the holder to one vote and carries the right to a corresponding share in the Company’s assets and earnings.
OWNERSHIP
At December 31 2007, the number of registered shareholders was 11,646 as compared with 12,762 at December 31 2006. Institutional owners ac- count for approximately 91 percent (89) of the total number of shares and votes. Non-Swedish investors hold roughly 20 percent (20). The largest portion of shares held by non-Swedish investors is in the UK, equivalent to 7.8 percent (6.5).
DIVIDEND POLICY
The Board of Directors’ objective is to propose divi- dend payments that correspond to at least 40 per- cent of the Group’s net earnings for the year after tax after taking into account the Group’s earnings trend, financial position and future development po- tential.
DIVIDEND
The Board of Directors proposes to distribute a dividend of SEK 9.00 (SEK 9.00) per share to the shareholders. The proposed dividend, which amounts to SEK 270 million, is equivalent to approximately
159 percent of earnings after tax for the financial year 2007.
SHARE PRICE TREND
Cardo’s share fell during 2007 by 22.7 percent and at the end of 2007 was quoted at SEK 201 (260).
The SIX general index fell by approximately 7 per- cent during the year. The year high and year low dur- ing 2007 were SEK 318 and SEK 189 respectively.
At December 31 2007, Cardo’s total market value amounted to SEK 6,030 million (7,800).
During 2007, 13,260,637 (12,087,442) Cardo shares changed hands, which is 44 percent of the total number of shares. On average, 53,042 (48,157) shares changed hands per trading day.
The rate of turnover, that is to say liquidity, was 44 percent (40).
During the past five years, the price of the Cardo share has risen by an average of 1.5 percent per year and the average dividend yield has been ap- proximately 7.2 percent.
REPURCHASE OF SHARES
At the 2007 Annual General Meeting of Cardo AB, a resolution was passed authorizing the Board of Di- rectors 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. 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 repur- chase has been made.
The Board proposes that the Annual General Meeting on April 7 2008 renew the authorization to repurchase shares under unchanged terms.
INCENTIVE PROGRAM
There is currently an option program for senior man- agement. This was issued by Cardo’s principal share- holder L E Lundbergföretagen AB on March 1 2006 and totals 295,000 call options for 13 members of
senior management within the Group. The call op- tions were issued on market terms and are equiva- lent to approximately 1.0 percent of the shares and votes in Cardo. Each call option carries the right to buy one share in Cardo during the period May 1 – October 1 2010 at an exercise price of SEK 259.
Cardo is not taking part in the option program, nor will it be charged with any costs attributable to the program.
INVESTOR RELATIONS
The process of providing financial information has a high priority, since the overall aim of Cardo’s activ- ities is to generate growth in value for Cardo’s share- holders. Cardo is constantly working to improve its financial information to shareholders, investors, employees and other interested parties. The aim of investor relations work is to increase confidence in Cardo and improve knowledge of the Group’s ac- tivities, strategy and goals with a view to providing the prerequisites for an objective valuation of Cardo.
This work includes continually holding meetings with analysts, institutions, share investors and media.
During 2007, more than 50 presentations and meetings were held with investors and analysts.
Among other things, Cardo arranged a Capital Mar- ket Day in Stockholm on June 12. Cardo also put on four road shows in locations that included Lon- don and New York. In connection with the report on operations and the interim report for January-June, presentations were held for analysts, investors and press. Conference calls were arranged in connec- tion with the interim reports for January-March and January-September.
Maria Bergving, Senior Vice President Commu- nications & Investor Relations, can be contacted on +46 40 35 04 25.
Financial information on Cardo is available on Cardo’s website at www.cardo.com under Investors.
Here it is also possible to put questions directly via info@cardo.com and to subscribe to financial infor- mation.
10 CARDO ANNUAL REPORT 2007
THE SHARE
ANALYSTS WHO CONTINUALLY MONITOR CARDO:
ABG Sundal Collier Tobias Ottosson, +46 8 566 286 49 Carnegie Adam Nyström, +46 8 676 88 00 Danske Markets Patrik Setterberg, +46 8 568 805 70
Handelsbanken Capital Markets Markus Almerud, +46 8 701 34 01
Linn Hansson, +46 8 701 12 75 Redeye Henrik Alveskog, +46 8 545 013 45 SEB Enskilda Equities Stefan Cederberg, +46 8 522 295 00
Swedbank Markets Mats Larsson, +46 8 585 925 42 SHARE PRICE TREND AND TURNOVER
TEN LARGEST SHAREHOLDERS AT DECEMBER 31 2007
Name % of all shares and votes Total
L E Lundbergföretagen AB 36.0 10,800,000
If Skadeförsäkring AB 10.0 2,999,000
HQ funds 4.2 1,256,955
Lannebo funds 3.6 1,075,081
AMF Pension 2.5 735,500
Swedbank Robur funds 2.1 623,113
Eikos fund 1.7 522,200
Orkla ASA 1.7 515,000
DFA funds 1.5 454,573
Carnegie funds 1.0 298,000
Total ten biggest owners 64.3 19,279,422
Other (11,636) 35.7 10,720,578
Total 100.0 30,000,000
DISTRIBUTION OF SHARES AT DECEMBER 31 2007
Holding, number of shares
Number of shareholders
Percentage of shareholders
Number of shares and votes
% of all shares and votes
1-1,000 11,077 95.1 2,126,237 7.1
1,001-10,000 460 3.9 1,204,896 4.0
10,001-100,000 85 0.7 5,007,354 16.7
100,001-1,000,000 20 0.2 5,530,750 18.4
1,000,001- 4 <0.1 16,131,036 53.8
Total 11,646 100.0 30,000,000 100.0
SHARE DATA
2007 2006 2005 2004
Number of shares, thousands 30,000 30,000 30,000 30,000
Market value Dec. 31, SEK million 6,030 7,800 5,835 5,715
P/E, times
1)35.4 19.4 39.6 17.5
Dividend yield, %
2)4.4
3)3.5 4.1 4.2
Dividend payout ratio, %
4)159
3)67 163 7.4
Number of shareholders 11,646 12,762 13,363 14,957
Data per share
Market value Dec. 31, SEK million 201.00 260.00 194.50 190.50
Year high, SEK 318.00 274.00 197.50 213.00
Year low, SEK 189.00 189.00 160.00 170.50
Change in share price
during year, % -22.68 +33.68 +2.10 -4.51
Equity, SEK 98.70 99.53 97.83 96.00
Net earnings excluding items
affecting comparability, SEK 14.83 13.38 9.60 11.17
Net earnings, SEK 5.67 13.38 4.91 10.86
Dividend, SEK 9.00
3)9.00 8.00 8.00
1)
Price/Earnings, market value at December 31 in relation to earnings per share.
2)
Regular dividend for the financial year as percentage of market value at December 31.
3)
Board of Directors’ proposal.
4)
Regular dividend for the financial year as percentage of earnings.
SWEDISH AND NON-SWEDISH OWNERSHIP
Sweden 80.5%
UK 7.8%
USA 5.3%
Other Nordic countries 3.8%
Other countries 2.6%
CORPORATE AND INDIVIDUAL OWNERS (NUMBER OF SHARES)
Corporate owners 91%
Individual owners 9%
500 1,000 1,500 2,000 2,500 3,000
2003 2004 2005 2006 2007
100 200 300 400 500 600 700 800
Number of traded Cardo shares, thousands (incl. post notifications) The share
SIX General Index SIX Industrial Index
© OMX AB
CONTINUED GROWTH
GROUP 2007
During 2007, Cardo took further steps towards its goals, and the Group shows good growth for the second year in succession.
Behind the change, lies a clear strategy and hard work to implement that strategy. The strategy was introduced in 2005 and an extensive process of change that aims to create the new Cardo has been under way since then.
The goal is for Cardo to be a profitable and grow- ing industrial group. During 2007, this extensive process led to continued successes in a number of areas, but a lot of work remains to be done.
Cardo’s long-term development is based on a number of key factors:
doing business with key accounts
O
increasing the service share of sales
O
developing business in new markets
O
constantly working to achieve cost savings that
O
will lead to Cardo having the lowest production costs in the industry
strengthening a common value base for increased
O
cooperation and synergies
FOCUS ON KEY ACCOUNTS AND SOLUTIONS Cardo is an industrial group whose products and solutions are principally targeted at companies. The exception is the Residential Garage Doors division, which targets the consumer market. Cardo’s divi- sions are all characterized by the fact that they oper- ate in relatively mature sectors where there is tough competition and a tight price squeeze. This results in a continuous need to reduce production costs.
In addition, the industrial divisions must to a great- er degree target global customers that need com- plex solutions and extensive service in order to be able to generate greater margins and improved prof- itability. Today, all the industrial divisions target pri- oritized key accounts and have built up key-account organizations. The aim is to strengthen the relation to the customer and take greater responsibility for the needs of the customer over a prolonged period of time. During the year, the Door & Logistics Solu- tions and Wastewater Technology Solutions divisions enjoyed breakthroughs for their international key ac- count organizations. Among other things, Door &
Logistics Solutions entered into a significant agree- ment relating to service and maintenance of 3,000
doors for DHL in the Benelux countries. Wastewater Technology Solutions signed an agreement with the world’s largest water company, the French enterprise Veolia.
All in all, 2007 was a further year with an in- creased inflow of orders and greater net sales.
The year was marked by the strong service growth shown by Door & Logistics Solutions in particular.
Pulp & Paper Solutions is showing that it can grow more than the market under tough conditions.
From a geographical perspective, Europe shows positive growth in eastern Europe. Other markets with a strong trend are Latin America, the Middle East and Asia-Pacific, while North America experienced a weaker trend. Divided into the largest regions, the in- flow of orders compared with the previous year rose for eastern Europe by 29 percent, Asia-Pacific by 12 percent and Latin America by 28 percent while it de- creased by 3 percent for North America.
RESTRUCTURING
The restructuring program for which SEK 201 mil- lion was charged to the fourth quarter of 2005 was expected to give a savings effect of SEK 55 mil-
12 CARDO ANNUAL REPORT 2007
OPERATIONS 2007
lion for 2007. The move of a production line did not give the expected outcome and the savings effects for the full year 2007 therefore amount to SEK 45 million. The division-specific aspects of the restruc- turing have therewith been completed and the re- mainder of the program relates to the new Group IT structure. The savings effects for 2008 have been estimated at SEK 20 million, but are expected to produce an outcome of SEK 10 million.
With the aim of further strengthening the com- petitiveness of the Door & Logistics Solutions divi- sion and as part of an optimization of the production structure, a decision was taken during the first quar- ter to close the unit for docking production in Wen- nigsen, Germany. During the year, a new production unit was established in Romania and was inaugur-
ated according to plan during the third quarter. The first quarter was charged with costs of SEK 83 mil- lion for the closedown in Germany whereof approxi- mately SEK 55 million relates to impairment of fixed assets. During the third and fourth quarters further costs were incurred for the changeover amounting to SEK 9 million and SEK 14 million respectively.
The total cost of restructuring therefore amounts to SEK 107 million.
The closedown in Germany in combination with the investment in Romania is expected to give a positive full-year effect of approximately SEK 45 million on the earnings of Door & Logistics Solutions from 2008. The effect on earnings for 2007, exclud- ing the costs of restructuring of SEK 107 million, is marginal.
SALES AND RESULTS
The inflow of orders amounted to SEK 9,459 million (8,840), up 8% after adjustment for the effects of exchange rate movements. Organic growth was 7%.
Net sales amounted to SEK 9,308 million (8,556), up by 10% after adjustment for the effects of ex- change rate movements. Organic growth was 9%.
The distribution of sales by division and geographical region is shown below.
Operating earnings excluding items affecting comparability improved to SEK 731 million (598).
Operating earnings were adversely affected by costs due to delivery disturbances and the weak US dollar.
The accumulated exchange rate effect amounts to approximately SEK -21 million.
Net earnings including items affecting compara- bility amounted to SEK 170 million (401), which is equivalent to SEK 5.67 (13.38) per share.
Cash flow from operating activities was SEK 406 million (184) after tax, which is equivalent to SEK 13.53 (6.13) per share.
2005 2006 2007
SEK million SEK million
0 500 1,000 1,500 2,000 2,500 3,000
6,500 7,000 7,500 8,000 8,500 9,000 9,500
2005 2006 2007
SEK million SEK million
0 500 1,000 1,500 2,000 2,500 3,000
6,500 7,000 7,500 8,000 8,500 9,000 9,500
NET SALES INFLOW OF ORDERS
2005 2006 2007
SEK million SEK million
-50 0 50 100 150 200 250 300 350
0 100 200 300 400 500 600 700 800 OPERATING EARNINGS
1)2005 2006 2007
%
0 5 10 15 20
RETURN ON CAPITAL EMPLOYED
1)The graph relates to values calculated on a moving 12-month basis.
The graph relates to values calculated on a moving 12-month basis.
1)
Excluding items affecting comparability.
The graph relates to values calculated on a moving 12-month basis.
The values are calculated on a moving 12-month basis.
NET SALES FOR NEW SALES & AFTERMARKET
New sales 69% (70)
Aftermarket 31% (30)
OPERATIONS 2007
GROUPWIDE FUNCTIONS HUMAN RESOURCES
The point of departure for Cardo’s HR efforts is to create a structure and processes that develop the personnel work at both a strategic and an opera- tive level in order to achieve Cardo’s overall business aims. HR work is controlled centrally from Cardo through four HR processes. Cardo has chosen a form of organization where most HR people have double functions. They are involved both in the over- all strategic HR work and with the operative divi- sions.
At an overall strategic level, HR started a group- wide management program during the year to train and quality assure the future leaders of the Group.
The HR function was also the driver of a number of customer-oriented and sales-oriented training pro- grams in order to enhance work and to increase un- derstanding of the customer. These initiatives are an important aspect of Cardo’s strategy for increased growth. During 2008, HR will, among other things, introduce a training program to develop the Group’s middle management.
In the day-to-day operative business, the HR function supports, challenges and encourages Car-
do’s managers in their work of developing the or- ganization and its people. HR is a speaking partner and possesses necessary specialist skills.
COMMUNICATIONS AND INVESTOR RELATIONS
Cardo’s communications and investor relations de- partment has responsibility for the Group’s brand strategy and internal and external communications in the form of PR, strategic market communications and investor relations (IR). The department therefore plays a central role when it comes to conveying the Group’s values both internally and externally. As far as internal communications are concerned, the de- partment’s main tools are the groupwide intranet, Hands-OnLine, and the in-house publication Hands- On Magazine.
The principal purpose of IR work is to create a fair and correct picture of the Company in the stock mar- ket. Financial communication is mainly done through Cardo’s website, press releases and meetings with investors and media.
The year saw events such as the production of a new communications policy, reflecting the over- all view of communications and providing tools for
a consistent implementation of the brand strategy through all channels of communication.
IT
Today, Cardo has a centralized IT function in order to coordinate the IT systems of the four divisions. The operation of the systems is outsourced. Cardo has a clear customer focus combined with a high de- gree of cost-awareness. Investments in new IT and business systems facilitate and make more efficient the internal processes and in the long term lead to reduced costs.
PURCHASING
Purchasing of direct material such as products and input goods occurs in each division, but Cardo has a groupwide function with responsibility for coordin- ation. On an annual basis, this is a matter of pur- chases for approximately SEK 2,000-2,500 million.
By means of coordinated purchasing, Cardo benefits from advantages of scale and achieves considerable cost savings.
The purchasing process is carried out directly vis-à-vis the Group’s suppliers. A great deal of the purchases have been made from suppliers in Asia
Key figures, excluding items affecting comparability 2007 2006 2005 2004 2003
1)Inflow of orders, SEK million 9,459 8,840 7,990 7,743 7,669
Net sales, SEK million 9,308 8,556 7,880 7,686 7,687
Operating earnings, SEK million 731 598 440 478 448
Operating margin, % 7.9 7.0 5.6 6.2 5.8
Earnings per share, SEK 14.83 13.38 9.60 11.17 10.28
Dividend for the financial year, SEK 9.00
2)9.00 8.00 8.00 8.00
Return on capital employed, % 16.7 15.2 12.4 14.3 12.6
Average number of employees 6,044 5,931 5,845 5,947 6,203
1)
Figures for 2003 have not been recalculated in accordance with IFRS. For a description of the differences between the accounting principles previously applied and IFRS, please refer to the 2005 annual report.
2)
Board of Directors’ proposal.
14 CARDO ANNUAL REPORT 2007
OPERATIONS 2007
and other low-cost countries for many years and to an increasing degree. Raw material prices have fluc- tuated greatly in recent years. For Cardo, it is cru- cial to negotiate prices and terms for agreements directly with steel mills and suchlike to the greatest possible extent. Deliveries can then be ensured and prices balanced in order to counteract price trends to a certain extent.
The purchasing of overheads such as travel, ve- hicles, IT, telephony, consultants, tools, stationery, training, etc. is done by a groupwide function.
The Group’s total purchasing volume relating to overheads amounts to approximately SEK 1,500 million. The function works together with all compa- nies in the Group, i.e. around 100 companies in more than 30 countries with operations in 200 locations.
The aim of the groupwide function is to reduce Group costs. This work includes procurement in various categories, support to other Group functions and work on policies so as to be able to influence the total cost. Today, the Group has common cen- tral and regional agreements and policies for several categories. A major effort was carried out recently to impact the Group’s total travel costs and to offer environmental alternatives to traveling.
By reducing the overhead costs, the function can help to achieve significant cost savings, which are an important part of Cardo’s strategy.
FINANCE & TREASURY
Cardo’s groupwide function for finance and treasury is responsible for consolidation, Group accounting, tax coordination, financing and support for the op- erative business in the form of financial risk man- agement.
The Group’s treasury activities are controlled by the treasury policy that is established by the Board.
This policy regulates responsibility and authorizations within the treasury function and how risks are to be limited. The financial information that is provided each month by the operative businesses is analyzed by Cardo’s central finance and treasury function.
Finance & Treasury is an important strategic func- tion that acts as a link between strategy and follow- up of the business.
BUSINESS DEVELOPMENT
At Cardo, business development is pursued at sever- al levels: partly at a strategic level that is comprehen- sive for the entire Group and partly project-oriented
in order to optimize processes in the operative busi- ness of the divisions. The basic purpose of the func- tion is to help Cardo to meet its business targets.
This may be done by the acquisition of companies, products or solutions, by developing existing activ- ities or by penetrating new markets.
During 2007, efforts were directed at creating good flows and work structures. This involves iden- tifying and then analyzing companies that may be suitable candidates for acquisition. Business intelli- gence is gathered on an ongoing basis in the divi- sions.
MANAGEMENT CHANGES
On April 2, Tomas Wängberg took up the post of head of the Wastewater Technology Solutions divi- sion.
On August 1, Ulf Liljedahl took up the post of CFO with responsibility for the Group’s common fi- nance and treasury function.
Fredrik Jönsson left his post as head of the Door
& Logistics Solutions division in September and in this connection Peter Aru, Cardo’s President and CEO, took over as head of the division.
SHARE OF GROUP NET SALES BY DIVISION Door & Logistics Solutions 48% (48) Wastewater Technology Solutions 29% (29)
Pulp & Paper Solutions 9% (8)
Residential Garage Doors 14% (15)
NET SALES BY GEOGRAPHICAL MARKET
Western Europe (Sweden 9%) 77% (79)
Eastern Europe 6% (5)
Asia-Pacific 6% (4)
North America 6% (7)
Middle East 2% (2)
Latin America 2% (2)
Other 1% (1)
DOOR & LOGISTICS SOLUTIONS
COMPLETE SOLUTIONS STRENGTHENING CUSTOMER RELATIONS
Under its corporate brand Crawford, Door & Logis- tics Solutions offers door and docking solutions to strategically selected customers.
Crawford focuses on service-intensive and volume-intensive customer segments, primarily in Europe, China and the Middle East, but also main- tains a presence in the rest of Asia and in the USA.
Headquarters are located in Malmö and the divi- sion has subsidiaries in about 20 countries. There are production units in Skellefteå and Strömstad in Sweden, Heerhugowaard and Scherpenzeel in the Netherlands, Barcelona in Spain, Hobro in Denmark, Kunshan in China, Hunedoara in Romania and At- lanta in the USA. The division has slightly more than 3,000 employees.
ADDED VALUE FOR THE CUSTOMER
Crawford’s vision is to be the natural first choice and the leading supplier of complete solutions as far as industrial doors, docking systems and service are concerned.
The basis of its strategy is to develop existing markets and focus on strategically selected cus- tomers. The focus is on generating added value for the customer and developing long-term relations.
At the same time, its international presence will be strengthened and its market offering optimized.
Improved internal processes throughout the supply chain will ensure reduced costs.
FROM PRODUCT SALES TO COMPLETE SOLUTIONS
The division bases its work on a key-account con- cept. Many customers in the strategically important transport, logistics and retail sectors enjoy a broad international presence and a potentially great need for service. These customers often require major undertakings from suppliers and partners – require- ments that can be met by an international key- account organization operating at global and local levels on the basis of central processes and support functions.
Today, customers are offered complete solutions that include service. The expanded range of service undertakings that the division now offers within, for instance, the field of automatic door systems for ped- estrian traffic exemplifies the services available.
Another example of adaptation to the customers’
need for complete solutions is the development of the Crawford Monitoring System. This is a monitor- ing system that provides more efficient management of the logistics processes at the customers’ distribu- tion centers. Crawford’s monitoring system guides traffic to the right dock in connection with loading and unloading. In this way, warehouse management is made more efficient, the waiting times for trucks are minimized and the number of errors falls con- siderably.
The large international key-account customers demand a lot of the salespersons in terms of skill and know-how in relation to both products and serv- ice. This led to the division investing in advanced training of these key people during the year, result- ing in a strengthening of relations with the custom- ers thanks to the dialog being pursued further up in the customers’ organizations. The division has one of Europe’s largest service organizations, which an- nually carries out more than 600,000 service visits, both to work on its own products and on those of its competitors.
Continued on page 19 The production unit in Heerhugowaard,
Netherlands, makes industrial doors that are part of the complete solutions that Crawford offers.
Hossein Askari, operator
16 CARDO ANNUAL REPORT 2007
Peter Aru, head of the
Door & Logistics Solutions division Q&A
How would you describe 2007 in your own words?
2007 has been a year with a lot of activities. Every- thing from new initiatives in the sales and service organizations to the major investment we made in Romania with a new production plant. We have enjoyed positive growth for a number of quarters, but have had delivery disturbances during the latter part of the year as an effect of the large volumes.
Is there anything special that you would like to highlight during 2007?
Our key-account organization has developed posi- tively. We have also taken a step into the market for automatic doors for pedestrian traffic. Our large service organization can offer customers complete solutions in service for both industrial doors and automatic doors. A new product is the Crawford Monitoring System, a control and monitoring sys- tem for efficient logistics management in distribu- tion centers. We are seeing great interest in this from our international key accounts.
How do you view 2008 for your division – what is the greatest challenge?
Our greatest challenges are primarily a tougher competitive situation and continued high prices of materials. We must improve our margins by raising our prices and working on our processes – orders, production, logistics, installation – and become as efficient as possible at every stage. On the sales and service fronts, we are continuing to work on prioritiz- ing and focusing on the right customers. Service is the key to success and in 2008 we will concentrate on generating even greater service growth.
What is the best thing about working in your division?
The challenges we see are tough, but inspiring and I am impressed by the work and commitment dem- onstrated by the people in the division. We have a good mix of experienced people in combination with new skills, making us well equipped to face the future.
DIVISION: DOOR & LOGISTICS SOLUTIONS
SALES AND EARNINGS
The inflow of orders amounted to SEK 4,608 million (4,273), up 9 percent on the previous year adjusted for the effects of exchange rate movements. Organic growth was 7 percent.
Net sales amounted to SEK 4,499 million (4,152), up 9 percent adjusted for the effects of exchange rate movements. Organic growth was 8 percent.
Operating earnings excluding restructuring costs amounted to SEK 364 million (342) for the full year.
The operating margin was adversely affected by delivery disturbances in connection with a new pro- duction structure, the weak US dollar and continued high prices of raw materials.
SIGNIFICANT EVENTS
Agreement with Dutch facility management com-
O
pany on service and maintenance of automatic entrance doors for pedestrian traffic
Three-year agreement with DHL for service and
O
maintenance of doors in the Netherlands, Bel- gium and Luxembourg
Order for five hangar doors from the US Airforce
O
Order for door for maintenance hangar at Sydney
O
Airport
Acquisition of rights to the German company
O
Fuhrrheydt’s solutions for horizontally sliding doors
Closedown of Crawford’s unit for docking pro-
O
duction in Wennigsen, Germany
New production plant for docking solutions in
O
Hunedoara in Romania
SEK million unless
otherwise indicated 2007 2006
Inflow of orders 4,608 4,273
Organic growth % (sales) 8 5
Net sales 4,499 4,152
Operating earnings 364
1)342
Operating margin % 8.1
1)8.2
Investments 97 54
Depreciation and amortization 84 89
Average number of employees
at end of period 3,168 3,016
2005 2006 2007
SEK million
0 200 400 600 800 1,000 1,200 1,400 1,600
INFLOW OF ORDERS
2005 2006 2007
SEK million
0 200 400 600 800 1,000 1,200 1,400 1,600
NET SALES
2005 2006 2007
SEK million
0 20 40 60 80 100 120 140 160
OPERATING EARNINGS
1)NET SALES FOR NEW SALES
& AFTERMARKET
New sales 59% (60)
Aftermarket 41% (40)
NET SALES BY GEOGRAPHICAL MARKET Western Europe (Sweden 11%) 85% (87)
Eastern Europe 6% (5)
Asia 4% (3)
Middle East 3% (3)
North America 2% (2)
1)
