AnnuAl RepoRt
2006
Opcon is an energy and environmental tech- nology Group developing technology that
improves energy efficiency. Opcon is helping
build a society no longer dependent on oil.
Opcon is an energy and environmental technology Group that develops systems for produ- cing electricity from surplus heat, transport syste ms for natural gas, ignition systems for engines powered by alternative energy sources su ch as natural gas, biogas, hydrogen and ethanol, air supply systems for fuel cells and tech nology for electrical vehicle platforms.
Opcon Autorotor has supplied air systems for fuel cell buses operated on routes in seve-
Opcon is an energy and environmental technology Group that develops systems for produ-
cing electricity from surplus heat, transport syste ms for natural gas, ignition systems for
engines powered by alternative energy sources su ch as natural gas, biogas, hydrogen and
ethanol, air supply systems for fuel cells and tech nology for electrical vehicle platforms.
CONTENTS
2006 in brief 6
Annual General Meeting 7
CEO’s statement 8
This is Opcon 11
Opcon Energy Systems 14
Mechanics business area 16
Electromechanics business area 17
Opcon 2007 and onward 18
5-year Group summary 22
Directors’ report 25
Consolidated balance sheets 28
Consolidated profit/loss statements 30 Changes in consolidated shareholders’ equity 31 Consolidated cash flow statements 32
Notes, Group 33
The Opcon share 46
Parent company’s profit/loss statements 47 Parent company’s balance sheets 48 Changes in parent company’s shareholders’ equity 50 Parent company’s cash flow statements 51
Notes, Parent company 52
Board’s signatures 58
Auditors’ report 59
Board of Directors 60
Senior Executives 61
Definitions 62
Addresses 63
2006 in brief ➤ Sales tur nover climbed 21 % to reach SEK 416.9 million (343.8 m)
➤ Operating profit was SEK 49.0 million (–6.9 m) ➤ Profit after financial items reached SEK 43.9 million (–12.5 m) ➤ Pr ofit after tax was SEK 47.0 million (–12.7 m) ➤ Earnings per share after tax were SEK 3. 29 (–1.11) ➤ New strategy decided: focus on energy and environ- mental technology ➤ Opcon ’s factory in China fully operative ➤ All production of small igni- tion systems transferred to Opcon’s factory in China ➤ Opcon Energy Systems formed
➤ Opcon’s technology for ge nerating electricity from surplus heat ready for launch ➤ Opcon share soars 109 %
Important events after the e nd of the year ➤ New organisation implemented ➤ Commercial breakthrough for Opcon Ener gy Systems ➤ Process of additional company acquisitions initia- ted ➤ Decision taken to sell activities within Lysholm Technologies ➤ Opcon share continues impressive rise
Financial information
Financial information about Opcon AB is pro- vided in Swedish and English. Reports can be obtained from the company’s website, www.opcon.se or by ordering them via telefax +46 532 120 19, or email info@opcon.se.
Distribution will be via email.
The annual report can also be ordered from Opcon AB, Box 30, SE-662 21 Åmål, Sweden.
fiNANCiAl rEPOrTS iN 2007
• The AGM will be held on 19 April 2007
• The Q1 report will be published on 19 April 2007
• The Q2 report will be published on 23 August 2007
• The Q3 report will be published on 19 October 2007
• The latest information is published on Opcon’s website, www.opcon.se
2006 in brief ➤ Sales tur nover climbed 21 % to reach SEK 416.9 million (343.8 m)
➤ Operating profit was SEK 49.0 million (–6.9 m) ➤ Profit after financial items reached SEK 43.9 million (–12.5 m) ➤ Pr ofit after tax was SEK 47.0 million (–12.7 m) ➤ Earnings per share after tax were SEK 3. 29 (–1.11) ➤ New strategy decided: focus on energy and environ- mental technology ➤ Opcon ’s factory in China fully operative ➤ All production of small igni- tion systems transferred to Opcon’s factory in China ➤ Opcon Energy Systems formed
➤ Opcon’s technology for ge nerating electricity from surplus heat ready for launch ➤ Opcon share soars 109 %
Important events after the e nd of the year ➤ New organisation implemented ➤ Commercial breakthrough for Opcon Ener gy Systems ➤ Process of additional company acquisitions initia- ted ➤ Decision taken to sell activities within Lysholm Technologies ➤ Opcon share continues impressive rise
2007 annual general meeting
The Annual General Meeting will be held on Thursday 19 April 2007 at 4 p.m. at Ingenjörshuset, Citykonferensen, Cel- siussalen, Malmskillnadsgatan 46, Stockholm, Sweden.
The premises will be open for registration at 3 p.m. Regis- tration must be completed by 4 p.m. for shareholders to be included in the share register.
PArTiCiPATiON
Shareholders wishing to take part in the AGM should: a) be registered in the Shareholders’ Register held by VPC AB (the Swedish Central Securities Depository) by Friday 13 April 2007; b) notify the Board of their intention to attend via the following address:
Opcon AB, Box 30, 662 21 Åmål, Sweden, telefax +46 532 120 19, telephone +46 532 611 00, or email agren@opcon.se, by 12 noon on Tuesday 17 April 2007 at the latest. The notifi- cation shall include name, personal code number/organisation number and day-time telephone number.
NOMiNEE ShArEhOlDErS
Shareholders owning shares registered with a nominee must re- register the shares in their own name, before 13 April, in order to participate at the meeting.
rEPrESENTATivE
Shareholder rights at the AGM may be exercised by a repre- sentative. A person representing a legal entity must submit a copy of the registration document indicating persons author- ised to sign on behalf of the company. Authorisation shall be enclosed with notification to attend the meeting.
ANNuAl rEPOrT
The annual report and auditors’ report along with the com- plete proposals of the Board concerning points 14-16 will be made available at the company’s office from 5 April 2007.
Copies of documents will be sent to shareholders who request them and provide a postal address. They will also be made available on Opcon’s website at www.opcon.se
Ceo’S StAteMent
2006 was a record year for Opcon. We reported a profit before tax of SEK 43.9 million. We have performed a turnaround and, among other factors, we received the full benefit of our factory in China in 2006.
It’s also important that we have achieved everything we said we would do, both in terms of profitability and new orders. We deliv- ered in 2006 and we intend to carry on delivering.
The most important external factor that affected us in 2006, and will continue to do so, was the leap in public opinion con- cerning climate issues. During the past year awareness of climate threats cut broader and deeper, in Sweden and abroad. We saw electricity and oil prices reach levels we previously considered untenable for the global economy. The political and economic insights that followed have created a growing interest in energy and environmental technology, something that Opcon has noted directly in the form of increased interest in our products and systems. During the first quarter of 2007 Opcon Energy Systems, OES, received its commercial breakthrough for tech-
nology that produces electricity out of surplus heat. This helps to convince me that our sales turnover will reach at least SEK 1 billion by 2011.
In early 2006 Opcon’s Board established three criteria that will act as guidelines for how Group operations will be man- aged: predictability, profitability and growth.
We will be predictable in our financial objectives and our other commitments.
We will be profitable. Our internal target is an EBIT margin of at least 10% over time. This does not mean that all our sub- sidiaries must meet this target at all times. However, the targets set for each company will take into consideration our overall objectives, and corrective programmes will be built into the strategies for units not meeting requirements. Consideration will also be given to market conditions, of course, as well as the individual company’s development needs.
We will make sure that the company grows, both organically and through complementary and strategic acquisitions. Setting a quantified growth target is difficult considering the difficulty
We are building a platform
for growth in energy and
environmental technology
in assessing the speed with which Opcon’s new energy and envi- ronmental technology products and systems will make their breakthroughs. However, the markets that we have chosen have potential that enable us to set an overall target of sales turnover for the entire Group of SEK 1 billion by 2011.
Work aimed at further developing Opcon’s growth strategy intensified in 2006 and resulted in a new organisation structure that was announced early in 2007. The Group is now divided into three new business areas with its own growth strategies and its own profitability responsibility: Renewable Energy, Engine Efficiency and Mobility Products.
rENEWABlE ENErGY
Possibly the largest growth potential in the Group is within Renewable Energy, which is where Opcon Energy Systems (OES) is active. OES‘s so-called ORC system for generating electricity out of surplus heat mainly in the process and power industries has aroused great interest among customers and the commercialisation of this system started in the first quarter of
2007. The Swedish market alone is worth several billion kronor and may lead to sales turnover for OES of several hundred mil- lion kronor in 3-5 years. Business opportunities in this area are global, and the market potential correspondingly very large.
Opcon is a small Group and we naturally have great respect for the problems involved in industrialising new technology among what are for us new customer groups. Building a new organisation and integrating acquired companies with project organisations must proceed hand in hand with marketing if the commercialisation of OES systems is to succeed.
Another potential growth area is in air supply systems for fuel cells used in vehicles. Over the past 15 years, Opcon Autorotor has had a market share of around 50% for air supply systems installed in cars running on fuel cells. Even if the market today remains limited, the overall market forecast is that large volumes of components for these systems will be delivered in around 2025.
By this time it is estimated that the market will be worth tens of billions of US dollars. Opcon Autorotor will be supplying
Ceo’S StAteMent
four-wheel vehicles for the elderly and disabled, as well as elec- trically powered cars for suburban environments.
A STrONG PlATfOrM
The strategic work carried out within the Group in 2006 was focused on energy and environmental technology. The grow- ing awareness in society of the environment problems posed by global warming has, together with rising fuel prices, given Opcon a unique opportunity to use its own technology, systems and products to build a strong positions in expanding markets.
Today’s global energy supply problems are putting pressure on energy prices in the form of rising oil and electricity prices over time. Several factors lie behind this development. Strong global growth, with extreme expansion in China and India, is driving demand, while political uncertainties, including con- cerns in the Middle East, are working to limit supply.
In the EU there is surplus demand for electricity. The global environment and our Kyoto commitments require that we cut emissions of greenhouse gases. In Sweden and Germany voters have decided to close down nuclear power production. In Sweden pressure on electricity prices is growing as the electricity market in Europe is deregulated gradually starting in 2007. The list can be made longer but the conclusions are clear.
Environmental issues and the cost consequences of rising energy prices are converging as a problem area. Society and energy-intensive businesses must act to secure the future envi- ronment while also trying to remain competitive. The improved efficiency of energy utilisation at all stages of consumption will become a business-critical strategic area for successful enterprise.
Companies that develop the right technology and products will be the growth companies of the future. Opcon’s transformation into an energy and environmental technology company creates a strong platform for growth. We will be actively involved in building a society no longer dependent on oil.
products, systems and technology to other established compo- nent suppliers on this market.
Svensk Rotor Maskiner is involved in a number of customer- specific development projects that have good potential for growth, but the main focus is on dimensioning, developing and producing expander units for our OES activity.
ENGiNE EffiCiENCY
There is great potential in the projects managed by SEM in the markets for industrial and auto engines powered by biogas and natural gas. Ignition systems for natural gas engines are cur- rently the Group’s fastest growth area even if the starting point was from low volumes. The biogas market is judged to be a large growth area and the breakthrough order SEM won at the start of 2007 provides a stable platform for growth. The German market alone has large potential and the forecast is that 17%
of all electricity produced in Germany in 2025 will come from biogas. Ignition systems combined with small ORC systems developed by OES look capable of developing into significant volumes. SEM has a market share of around 30% for ignition systems on the Swedish eco-car market, which itself expanded by 150% in 2006.
Newly developed digital ignition systems for small engines are now being produced at Opcon’s factory in China and the market potential is assessed as being very positive.
Opcon’s strategic assessment of activities in relation to the main focus on energy and environmental technology also includes determining whether individual companies have a better development potential than others. As part of this process Opcon decided during the first quarter of 2007 to sell activities within Lysholm Technologies.
MOBiliTY PrODuCTS
The actuator business within REAC constitutes a platform for growth from which the Group can expand within the sector for electrical vehicles. Our strategy is based on acquisitions to strengthen the Group’s position as a supplier of actuators and steering systems for electrical vehicles. Since the autumn of 2006 REAC has been a supplier to the California-based Tesla Motors, which is building the world’s first electrically-powered sports car – the Tesla Roadster, a good example of the technical skills REAC has. The electrical vehicle sector is expected to grow
considerably, especially among simpler vehicles such as small Rolf Hasselström
President and CEO
the improved efficiency of energy utilisation at all stages of consumption will
become a business-critical strategic area for successful enterprise.
OPCON’S BuSiNESS CONCEPT
Opcon is an energy and environmental technology Group that develops, produces and markets products and systems for effi- cient and environment-friendly energy consumption for cus- tomers in the auto, process and engineering industries.
OPCON’S OBJECTivES
The Group will generate good and sustainable profitability and aim for growth in order to create long-term growth in value for shareholders, create value for customers and offer a stimulating workplace for staff.
OPCON’S viSiON
Opcon will be actively involved in building a society no longer dependent on oil.
With high tech products and services Opcon will contribute to global development towards a more energy-efficient and eco- friendly society.
GuiDiNG CriTEriA fOr ThE OPCON GrOuP
– Profitability, with the target that all subsidiaries report good profitability, EBIT > 10 % over time.
– Growth, organic growth and growth via acquisitions. The target is sales turnover for the Group to reach at least SEK 1 billion by 2011.
– Predictability.
OrGANiSATiON
At the start of 2007 Opcon reorganised activities in three new business areas. The aim is to provide a sharper strategic focus on the Group’s products and systems for more efficient energy consumption and eco-friendly technology. The new business areas act as independent units with full responsibility for prof- its.
As of March 2007 the Opcon Group comprises the parent company, Opcon AB and nine subsidiaries: Svenska Rotor Maskiner AB (SRM), Opcon Energy Systems AB (OES), Opcon Autorotor AB, SEM AB, Opcon Technology Suzhou Co., Ltd, Lysholm Technologies AB, Laminova Production AB, Opcon Inc., REAC AB.
At the end of 2006 the Opcon Group had 400 (440) employ- ees.
The company has its registered office in Stockholm and was listed on the O-list of the Stockholm stock exchange on 31 December 1998. The share is now listed on the Small Cap list of OMX Stockholm exchange.
TWO iNDuSTriAl BASES WiTh lONG hiSTOriES
The Opcon Group rests upon two industrial bases, each of which has a history stretching back over nearly a century.
Up until the acquisition of Svenska Rotor Maskiner and Lysholm Technologies in 2003, the core of the Opcon Group was built around 92 years of experience producing ignition sys- tems, transformers and electro-magnets. The foundations were laid in connection with the First World War when imports of ignition devices for boats and cars came to a halt. Production of these devices was started in Åmål in 1915 by Aktiebolaget Svenska Elektromagneter (SEM).
100-YEAr ANNivErSArY iN 2008
The compressor section of the Opcon Group is concentrated on SRM and Lysholm Technologies which are based on AB Ljungströms Ångturbin (ALÅ), formed 99 years ago in 1908 to develop the twin-rotating steam turbine invented by Birger Ljungström. n
tHIS IS opCon
0 50 100 150
2002 2003 2004 2005 2006 200
250 300 350
Sales turnover trends (SEK m)
400 450
3
new business areas from 2007 create opportunities for opcon’s strategic development into a Group focused on energy and environ- mental technology.
renewable Energy
The Renewable Energy business area focuses on eco- friendly technology that contributes to low-resource and efficient energy usage.
Key activities in this business area are expander-pow- ered systems for generating electricity from waste heat, advanced products for transportation of natural gas, and air supply systems for fuel cells.
Growth will primarily be organic based on proprietary technologies and products, as well as through comple- mentary acquisitions.
The Renewable Energy business area includes the sub- sidiaries Svenska Rotor Maskiner (SRM), Opcon Energy Systems (OES) and Opcon Autorotor.
Svenska Rotor Maskiner (SRM) is the Opcon Group’s technology centre for screw compressors, and is a world leader in its field. SRM develops proprietary systems, develops applications in close co-operation with OES and Opcon Autorotor and also works globally with licensing of technology.
In co-operation with SRM, OES develops systems for generating electricity from surplus heat in the power, process and marine industries.
Opcon Autorotor develops air supply systems for fuel cells used in the auto industry and for fuel cell engine makers. The company is a world leader in its field.
SRM, OES and Opcon Autorotor are based in Nacka, outside Stockholm.
In the first half of 2007 Opcon aims to acquire two companies, REF Technology Scandinavia AB and Mitec Instrument AB, as part of its strategy of growth based on proprietary technology within OES for generating electric- ity from surplus heat.
REF Technology Scandinavia is active as an advanced supplier of complex products, systems and consulting services to the process industry, among others. Mitec is an advanced supplier of proprietary products and systems for measurement, measurement, control, regulation, mobile data collection and wireless internet-based opera- tional surveillance of complicated products and industrial systems.
tHIS IS opCon
The Engine Efficiency business area focuses on compo- nents that efficiently initiate, generate and convert power.
The products and systems in this business area are primarily used in the automotive industry. In addition to traditional fuels, development focuses on alternative fuels such as ethanol, biogas, natural gas and hydrogen.
Growth will be organic, complemented by acquisitions.
The Engine Efficiency business unit comprises the following subsidiaries: SEM, Opcon Technology Suzhou, Lysholm Technologies, Laminova Production and Opcon Inc., USA.
SEM is the Opcon Group’s technology centre for ignition systems. SEM develops ignition systems for combustion engines for vehicles and stationary engines, and small ignition systems for combustion engines for hand-held equipment, such as chainsaws and trimmers.
Ignition systems for vehicles and stationary engines include those powered by petrol, diesel, ethanol, natural gas, hydrogen and biogas. Production of larger ignition systems is carried out in Åmål, Sweden, while smaller ignition systems are produced by Opcon Technology Suzhou, China.
SEM’s activities are based in Åmål, Sweden.
Opcon Technology Suzhou produces small ignition systems for hand-held equipment.
The company is located in Suzhou, China.
Lysholm Technologies produces superchargers for com- bustion engines. Opcon is planning to sell activities within this business in 2007.
Lysholm Technologies is located in Nacka, near Stock- holm, Sweden.
Laminova Production produces intercoolers and heat exchangers for the auto industry.
Laminova Production is located in Åmål, Sweden.
Opcon Inc. is the Group’s sales company in the US. The company is located in Michigan, USA.
Engine Efficiency
The Mobility Products business area focuses on technol- ogy for positioning, movement and regulation.
The business specialises in the development and production of products and systems for electric vehicle platforms, ranging from electric wheelchairs and other advanced equipment for the disabled to components for electric vehicles, including the American electric sports car, Tesla Roadster, and specialist applications.
Growth will primarily be achieved through identified acquisitions. The Mobility Products business area com- prises the REAC subsidiary, which is located in Åmål, Sweden. Mitec Instrument AB, a company which Opcon is acquiring during the first half of 2007, will add specialist technology to REAC’s actuator business.
Mitec is an advanced supplier of proprietary products and systems for measurement, measurement, control, regulation, mobile data collection and wireless internet- based operational surveillance of complicated products and industrial systems.
Mobility Products
opCon eneRGy SySteMS
Opcon Energy Systems, OES, develops technology for recycling energy from surplus heat,
such as hot waste water used in industrial proces ses. This heat has previously been wasted.
OES technology makes industrial processes more efficient and improves the environment.
Market forces favour electricity generated from surplus heat
➤ Rising energy prices in Sweden and Europe
➤ Strong global growth causing oil shortages
➤ 80 % of world electricity production is based on fossil fuels
➤ General goal in industrial countries of reducing dependency on fossil fuels
➤ Nuclear power remains controversial
Markets for Opcon Energy Systems
➤ Process industry (pulp, chemical, steel) power industry (nuclear, district heating), ships
➤ In Sweden around 10 % of at least 5-10 TWh available but unused surplus heat, correspond- ing to annual electricity consumption of at least 25,000-50,000 small homes heated by electricity
➤ A multi-billion market globally
Advantages of Opcon’s OrC system
➤ Electricity from surplus energy (waste heat)
➤ No emissions, no environmental downside
➤ Production costs for electricity are competitive, estimated at around SEK 0.15 per kWh, making the technology profitable at even lower electric- ity prices than those now valid
➤ Electricity produced from surplus heat from biofuel yields electricity certificates
➤ Proven technology
Opcon PowerBox
➤ An Opcon PowerBox is an ORC installation posi- tioned in a flow of surplus energy
➤ ORC stands for Organic Rankine Cycle. Rankine is a temperature scale invented by William John Macquorn Rankine in 1859
➤ An ORC installation is based on the basic princi- ple of the Rankine cycle. The theoretical level of efficiency is controlled by the temperature differ- ence between hot and cold media
➤ The decisive factor for Opcon PowerBox is an extremely reliable SRM turbine, developed by Opcon’s Svenska Rotor Maskiner, SRM; a world leader in compressor technology
➤ Opcon PowerBox produces electricity from waste water at a temperature range of 50-95°
➤ An average Opcon PowerBox generates 3 400 MWh of electricity per year
➤ 3 4000 MWh = 340 cubic metres of oil = 2,100 barrels of oil
➤ A coal-fired condensing power plant emits around 3,000 tonnes of carbon dioxide when generating the same amount of electricity as an average Opcon PowerBox, which causes zero emissions
➤ Electricity from an average Opcon PowerBox is sufficient to heat around 300 normal homes
➤ An average Opcon PowerBox produces the same amount of electricity as the largest wind turbine
Opcon Energy Systems, OES, develops technology for recycling energy from surplus heat,
such as hot waste water used in industrial proces ses. This heat has previously been wasted.
OES technology makes industrial processes more efficient and improves the environment.
Liquid
How Opcon’s ORC system works
Hot waste water from industrial process or power plant Cold waste water
leaves the process
Heated cooling water Cold cooling water
Expander and generator The gas expands over the expander – an SRM turbine – that drives a generator that supplies electricity to the electricity network.
Gas
Gas Liquid
Heat exchanger A pre-heater raises the temperature of the liquid to pre-steam level. The liquid turns into gas.
Heat exchanger A heat exchanger with cooling water reduces the temperature and pressure to build maximum pressure difference over the expander.
The gas turns back into liquid.
PumpA pump raises the tempera- ture of the liquid and moves it round the system.
opcon powerBox
Electricity into the supply network
BuSIneSS ACtIvItIeS 2006
During the start of 2007 Opcon re-organised the Group’s busi- ness into three new business areas. The former Mechanics busi- ness area comprised the following companies: Svenska Rotor Maskiner (SRM), Opcon Energy Systems (OES), Lysholm Technologies, Opcon Autorotor, Laminova Production and Opcon Inc.
In Opcon’s new organisation, Svenska Rotor Maskiner (SRM), Opcon Energy Systems (OES) and Opcon Autorotor are part of the Renewable Energy business area; Lysholm Tech- nologies, Laminova Production and Opcon Inc. are part of the Engine Efficiency business area.
Opcon has announced its intention to sell activities within Lysholm Technologies during the first half of 2007.
SuMMArY Of 2006
Sales turnover for the Mechanics business area reached SEK 108.4 million (120.3 m) and the loss after financial items was SEK 4.4 million (–16.7 m).
Sales turnover was down 9.9% compared with 2005.
Investments were up from SEK 7.3 million in 2005 to SEK 8.5 million in 2006.
The main reasons for the loss were the delays in SRM’s project-related business and reduced delivery volumes for Lysholm Technologies.
The most important events during the year for the business area were:
• The commercialisation of Opcon’s and SRM’s technol- ogy for generating electricity from surplus heat within Opcon Energy Systems (OES)
• Growing interest in Opcon Autorotor’s air supply systems for fuel cells
• Increased competition and a worsened distribution situa- tion for Lysholm Technologies
Svenska Rotor Maskiner (SRM) has continued to transform its business with an increased focus on internally managed product-related projects. Project-based business is difficult to forecast as the timing of customers’ ordering is not transpar-
ent. During 2006 SRM experienced delays in its project-related business, but these were partly cleared up in the final quarter.
Quoted customer projects for 2007 suggest that the profitability potential is strong.
Activities within Opcon Energy Systems are based on SRM’s unique expander technology, and commercialisation of the technology intensified during the year.
Opcon Energy Systems started operations in the third quar- ter. The company’s technical solutions for generating electricity from surplus heat have been presented to the power, marine and process industry and met with great interest. During the final quarter the focus was on building an organisation and on mar- keting activities. Quotations have been submitted for a number of customer applications.
For a large part of the year Lysholm Technologies experienced difficulties with its distribution structure on the US market due to the legal dispute with Whipple Industries, as previously reported. Meanwhile, competition on the market has intensified and resulted in falling volumes. Cost adjustments and improved orders in the latter part of the year led to improved profitability, although the level is still not satisfactory. A strategic analysis of Lysholm Technologies resulted in a decision to sell activities within the company during the first half of 2007.
Opcon Autorotor increased volumes during the year due to new customer orders, and the company is largely progressing according to plan. Delivery problems at key suppliers however caused delays to deliveries of complete air supply systems.
Rising fuel prices and growing environmental awareness are continually increasing interest in fuel cell technology. Opcon Autorotor is receiving an increasing number of inquiries con- cerning development projects from organisations in China, the world’s fastest-growing car industry market.
Laminova experienced a strong pace of deliveries during the year. Previously implemented cost adjustments have now had full effect and the company is reporting strong earnings. Deliv- eries to car maker Proton will raise volumes from 2007 and onward. n
Mechanics Business Area
Results (SEK million) 2006 2005 2004 2003 2002
Sales turnover 108,4 120,3 117,5 50,5 66,3
Operating profit/loss –4,4 –16,7 –20,6 –9,5 –8,0
Investments 8,5 7,3 14,3 5,7 3,9
No. of employees (average) 81 88 84 36 40
production base and a significant boost to profitability. These extra volumes will fall gradually according to plan during the first half of 2007 and adjustments were made during the final quarter. To meet the fall in demand and transfer of production to China, 55 employees were given dismissal notices at SEM’s site in Åmål at the end of the year.
Saab’s increasing success with ethanol cars that include SEM’s ignition cassette has increased volumes and may open up oppor- tunities for SEM with other car makers.
REAC’s production of actuators is proceeding according to plan. Volumes increased during the year on the key market areas of electrical wheelchairs and “shift-by-wire” applications. Inter- est in small electrical vehicles is growing as fuel prices rise. Elec- trical vehicle platforms often contain a number of actuators.
The world’s first electrically powered sports car, the American Tesla Roadster, was launched in July 2006 and contains actua- tors made by REAC.
The truck sector performed strongly in 2006 which contrib- uted to increased deliveries of position sensors. n
During the start of 2007 Opcon re-organised the Group’s busi- ness into three new business areas. The former Electromecha- nics business area comprised the following companies: SEM AB, REAC AB and Opcon Technology Suzhou Co., Ltd.
In Opcon’s new organisation, SEM AB and Opcon Technol- ogy Suzhou Co., Ltd are part of the Engine Efficiency business area and REAC AB is part of the Mobility Products business area.
SuMMArY Of 2006
Sales turnover for the Electromechanics business area climbed 38.3 % to SEK 308.1 million (222.7 m) and the profit after financial items was SEK 64.3 million (18.5 m).
Investments were up from SEK 7.0 million in 2005 to SEK 12.4 million in 2006.
The most important events during the year for the business area were:
• All production of small ignition systems was transferred to the factory in China
• Ignition systems for biogas engines made their break- through
• The market for natural gas engines continued to grow During the year Opcon’s production site in China took over all production of small ignition systems from SEM in Åmål and the business is now operating at full scale. The focus on SEM’s family of digital ignition systems has continued, with commercialisation starting at the end of the year, as it did for ignition systems for gas engines, for which volumes are increas- ing strongly.
Ignition systems for biogas engines for generation of electric- ity are a new market for SEM and deliveries commenced during the year.
Extra orders from Saab due to the recall of cars for replace- ment of ignition cassettes have continued to provide a larger
electromechanics Business Area
Results (SEK million) 2006 2005 2004 2003 2002
Sales turnover 308,1 222,7 192,6 194,0 228,9
Operating profit/loss 64,3 18,5 –10,1 –5,1 0,1
Investments 12,4 7,0 9,9 12,5 16,5
No. of employees (average) 337 279 177 188 229
opCon 2007 AnD onWARD
2007 will be a year when Opcon transforms itself and establishes strategies and an organisation that constitute a platform for future growth. Several of the Group’s companies will be building up their organisations and developing products and systems. The results of these efforts will be noted in the second half of 2007 and come into full effect during 2008.
The changes in the product and organisation structure now taking place are comprehensive for Opcon, and a major focus is now being placed on creating new customer relations and on building market and project management competence while also planning for increased volumes of more complex products and systems.
The growth strategy the Group is now following entails con- tinued focus on organic growth and complementary acquisi- tions, which will result in higher growth during the second half of 2007 and onward.
Most of the Group’s business comprises develop- ment and production of products and systems that contribute to more efficient use of energy and a reduced environmental burden. Within these areas development is mostly driven by prices for oil and electricity.
STrATEGiC MArKETS
The Opcon Group has been working resolutely over several years to reduce costs at all its subsidiaries. In parallel with this a tighter control has been exerted on the businesses and they have been focused on a number of high priority, strategic market areas. This has also meant that markets, products and projects
not considered profitable or to have development potential have been terminated. Orders have improved for most of the Group’s companies and market conditions have gradually sta- bilised since 2005. The results of internal work
and the improved market situation have led to considerable improvements in profitabil- ity in 2006.
During the final quarter of 2006 the transfer of production of small ignition sys- tems from Åmål to Opcon’s factory in China was concluded and the profitability benefits of the move will be fully felt from 2007 onward.
fOCuS ON ENvirONMENTAl TEChNOlOGY
In 2006 the Group took the strategic decision to concentrate business on energy and environmental technology. This entails focusing on products and systems for efficient use of energy and eco-friendly, resource-light solutions in a number of markets in which Opcon’s subsidiaries have considerable competence with technology that is world-leading in several areas. The activities of the subsidiaries will be assessed based on the new focus of the Group and will then be concentrated on the products and systems that in different ways contribute to envi-
ronmental improvements.
Core activities of the Opcon Group have always had an environmental profile. At the same time there have been and still are activities that cannot be a part of the energy and environmental technology Group that Opcon is now creating. Lysholm Technologies is just such an operation, with its superchargers for combus- tion engines developed primarily for US markets. Compressors for supercharging engines often mean increased power without increased petrol consumption, and are in essence eco-friendly.
However, the car industry has used this technology primarily to further increase the performance of engines that are already very large and powerful.
2006 2005
➤ Cost adjustments
➤ production in China
➤ Intensified R&D
2007 – a year of transformation
➤ Reinforced product portfolio
➤ Major improvement in profitability
➤ Quarterly forecasts
➤ new strategy
As part of the transformation of Opcon, the Group has initiated the proc- ess of selling activities within Lysholm Technologies. A declaration of intent has been signed with an American company with the aim of concluding a sale during the first half of 2007.
Lysholm Technologies has suffered problems with profitabil- ity over several years and this has negatively affected the Group’s results by several tens of millions of kronor over the past three years.
The previous Group structure comprising two business areas, Mechanics and Electromechanics, was shown to be insufficient in 2006 for the current development of the Group. The Group was therefore reorganised at the start of 2007. The new business areas more clearly reflect the strategic focus on energy and envi- ronmental technology, and will provide better opportunities for the continued and expanded development of new products and systems among the subsidiaries. The new business areas will be independent units with full responsibility for profits.
rEfiNiNG ThE OrGANiSATiON
During 2007 the organisation will be further refined and the Group’s new role within the field of energy and envi- ronmental technology will require reinforcement of compe- tence, not least at management level.
2007 will be a year of transformation from the old to the new Opcon. The new strategic focus will have full effect throughout the organisation and the subsidiaries and will also be marketed more forcefully externally.
2007 will also be a year when a large reduction in personnel, as previously announced, will be performed at SEM AB as a result of the termination of orders from Saab for replacement ignition cassettes. This activity, which started in 2005, has given Opcon a financial boost that helped with the continued devel- opment of ignition cassette technology, as well as resources that
reinforced the development of ignition systems and products for other markets.
From the second half of 2007 the Group’s organisation and structure will be adjusted so that the business has the right con- ditions for continued expansion.
In addition to expected organic growth in several markets the Group is also studying the possibility of several additional com- pany acquisitions that can support the development of Opcon as an energy and environmental technology Group. Acquisi- tions are possible in all three business areas.
rENEWABlE ENErGY BuSiNESS ArEAS
Opcon Energy Systems, OES, represents the largest individual growth potential within the Group.
Opcon Energy Systems, which started operating in the third quarter of 2006, works with the com- mercialisation of Opcon’s proprietary and unique expander technology, developed by its sister company,
Svenska Rotor Maskiner, SRM. Opcon’s efforts in this area are the largest the Group has ever
made in terms of organic growth based on technology developed in-house.
The market is for the generation of electric- ity from surplus heat in the power, process and shipping industries and the technology used by Opcon Energy Systems is called ORC technology.
This solution is adapted for applications in the heating and process industries, but it can also be used in large stationary diesel and biogas engines as well as marine diesel engines.
The solution has been presented to a number of companies and aroused major interest. Quotations have been made for a number of customer applications. In March 2007 the technol- ogy made its commercial breakthrough when Opcon Energy Systems signed an agreement with a major Swedish industrial group. This agreement includes the installation of two pilot plants for the production of electricity from surplus heat, as well
2007 2008
➤ new focus on energy and environmental technology
➤ new business areas
➤ Breakthrough for oeS
➤ Company acquisitions
➤ Continued focus on
energy and environmental technology
➤ Continued growth
➤ profitability: eBIt > 10%
over time
as a survey of possibilities for additional plants with the same customer. A number of other quotations, customer contacts and discussions with potential partners appear to be close to conclu- sion in the first half of 2007.
The market for Opcon Energy Systems is global and the theo- retical potential for the Swedish market alone is several bil-
lion kronor.
For activities that create large amounts of waste water, which have not previously been utilised, major energy savings can be achieved and large commercial value can be created in the form of electricity produc- tion based on hot waste water. There are no hazardous emissions associated with this generation of electricity.
If the energy source for the process that produces waste water is bio-material then electricity certificates may be earned, which further reduces production costs.
Svenska Rotor Maskiner, SRM, is continuing its investment in product-related customer projects within a number of markets. SRM’s development of systems for generating electricity from surplus heat is being commercialised by Opcon Energy Sys- tems, OES.
In recent years SRM has been hit by delays in customer projects, which may also affect performance in 2007. However, the order book so far in 2007 is strong and the profitability of quoted projects is good.
Opcon Autorotor continues to develop complete air supply systems for fuel cells, in co-operation with Svenska Rotor Mask- iner. This is a strategically important area for Opcon.
Opcon Autorotor has a very strong brand and a market-lead- ing position. Today the company’s air supply systems are found in around half of the fuel cell cars currently operating around the world.
Inquiries about development projects are increasing, especially from China, which is the world’s fastest growing car market.
The fuel cell market is project-based and so demands and
orders vary significantly from year to year. Rising fuel prices and increased environmental awareness are boosting interest in fuel cell vehicles.
It is difficult to assess the future development pace of the fuel cell sector. A number of important factors are driving develop- ment of alternatives to fossil fuels and traditional combustion engines at an increasing pace. Development up to now, as well as the car industry’s own calculations, suggests that within ten to fifteen years fuel cells will be one of several commercial solu- tions for powering vehicles. This will mean a gradually grow- ing market for Opcon Autorotor even before a broader break- through for this technology.
The biggest challenge in general for fuel cell technology on the path to commercialisation will be keeping production costs down and industrialising the technology on a large scale, something that Opcon Autorotor is working determinedly
towards within its product area.
The dramatic focus on environmental and climate issues in industrialised countries in 2006 is likely to speed up the development of alternative fuels and technology for powering vehicles, as well as necessary changes in infrastructure and statutes.
Overall the prospects of improved profitability look good for Opcon Autorotor in 2007.
ENGiNE EffiCiENCY BuSiNESS ArEA
All production of SEM’s small ignition systems is now taking place at Opcon’s factory in China, Opcon Technology Suzhou.
Over time, more products developed within the Opcon Group will be produced at this factory.
The development of a range of digital ignition systems for small engines is continuing at full pace at SEM. The first digital ignition systems were commercialised from the end of 2006.
The digitalisation of ignition systems, which was commercial- ised at the end of 2006, means more efficient combustion and saves both fuel and the environment.
opCon 2007 AnD onWARD
SEM’s deliveries of ignition systems for diesel engines converted to run on natural gas are proceeding according to plan. lar i samarbete med SEM en familj av digitala positions- sensorer, där marknadspotentialen bedöms som mycket stor.
Delivery volumes are increasing strongly and the growth potential is considerable.
Natural gas engines are used both as stationary units within industry and for vehicles, especially buses in India and China where the environmental problems are large. SEM is working hard to develop new ignition systems for these markets.
Diesel engines converted to run on biogas to pro- duce electricity are a very fast-growing market
in Europe. SEM has developed ignition sys- tems for this application and commerciali- sation began in the autumn of 2006. The market potential and growth opportunities for SEM’s ignition systems for biogas engines are both considerable for a number of years in the future.
The EU has announced that 20% of electricity generation by 2020 will come from renewable sources. Already in Germany – the world leader in biogas technology – over 5 billion kWh of electricity is produced at several thousand biogas plants. The German branch organisation for biogas producers, Fachver- band Biogas e.V., forecasts that electricity production based on biogas will reach 76 billion kWh by 2020, equivalent to 17% of German electricity production.
In France prices for electricity produced by biogas plants were raised in 2006 to the same level as in Germany, which means a large subsidy for electricity produced in this way.
Volumes of ignition cassettes delivered to Saab in connec- tion with the recall of cars will gradually
decrease during the first half of 2007 and adjustments for lower produc- tion volumes were started in the final quarter of 2006.
2011
➤ At least SeK 1 billion in sales turnover
➤ established brands within energy and environmental technology
➤ Intensified technical development and marketing
Saab’s 9-5 ethanol model is equipped with SEM’s ignition cas- sette. The Swedish eco-car market expanded by 150% in 2006 and SEM has a market share of around 30% for its ignition systems. A consumer discount of SEK 10,000 was introduced in Sweden on 1 April 2007 for purchases of new eco-cars.
The effects of cost reductions at Laminova and the American sales company Opcon Inc will lead to improvements in profit- ability in 2007.
Deliveries to carmaker Proton in Malaysia will boost volumes for Laminova from 2007 onward.
Opcon intends to sell activities within Lysholm Technologies in 2007.
MOBiliTY PrODuCTS BuSiNESS ArEA REAC’s production of electrical devices is pro- ceeding according to plan, with increased volumes in the prioritised markets of electrical wheelchairs, shift-by-wire applications and position sensors.
The global market for advanced electri- cal wheelchairs is growing strongly and the outlook for REAC’s actuators is very positive.
Interest in small electrical vehicles is increasing as fuel prices continue to rise and a number of actuators are often included in a single electrical vehicle platform. The world’s first electrically powered sports car, the American Tesla Roadster, was launched in 2006 and contains a number of actuators from REAC. Elec- trical vehicle platforms constitute a segment with considerable potential for REAC.
The truck industry remains in a strong phase in all the mar- kets where REAC is active, which has meant increased deliveries of position sensors.
REAC is continually broadening its product range and in partnership with SEM the company is developing a range of digital position sensors, for which the market potential is con- sidered to be very large. n
FIve-yeAR SuMMARy oF tHe GRoup
PROFIT AND LOSS STATEMENT (SEK 000) 2006 2005 2004 2003* 2002*
Net sales 416,865 343,843 312,168 246,979 282,936
Other operating income 0 3,700 0 0 0
Operating profit before depreciation 68,584 17,695 –12,167 –1,301 7,036
Depreciation of tangible fixed assets –12,578 –16,598 –18,152 –16,155 –17,357
Depreciation of intangible fixed assets –6,994 –7,977 –9,705 –6,038 –5,448
Operating profit/loss 49,012 –6,880 –40,024 –23,494 –15,769
Financial items –5,089 –5,650 –4,468 –2,758 –2,620
Profit/loss after financial items 43,923 –12,530 –44,492 –26,252 –18,389
Tax 3,069 –154 674 7,310 5,683
Minority shares 0 0 0 0 0
Profit/loss for the year 46,992 –12,684 –43,818 –18,942 –12,706
BALANCE SHEET (SEK 000) 2006 2005 2004 2003 2002
Intangible assets 47,149 44,899 46,286 41,863 21,507
Tangible assets 42,815 44,262 60,987 72,893 66,257
Financial assets 24,126 21,107 21,782 22,162 14,095
Total fixed assets 114,090 110,268 129,055 136,918 101,859
Inventories 71,562 66,432 55,632 58,357 41,426
Accounts receivable – trade 76,330 75,063 49,793 51,036 42,306
Other current assets 15,853 16,360 18,518 14,176 10,378
Liquid funds/short-term investments 4,158 1,886 3,756 19,666 30,484
Total current assets 167,903 159,741 127,699 143,235 124,594
Total assets 281,993 270,009 256,754 280,153 226,453
Shareholders’ equity 143,790 92,422 74,991 119,535 113,843
Minority shares 0 0 0 0 0
Interest-bearing provisions/liabilities 75,681 94,337 87,382 78,981 63,215
Deferred tax 278 746 1,244 2,100 1,677
Current non-interest-bearing liabilities 62,244 82,504 93,137 79,537 47,718
Total liabilities and equity 281,993 270,009 256,754 280,153 226,453
KEY INDICATORS 2006 2005 2004 2003 2002
Date per share
Profit/loss per share, SEK 3.29 –1.11 –5.11 –2.66 –1.90
Equity per share, SEK 9.65 6.46 8.74 13.93 15.97
Dividend per share, SEK 0 0 0 0 0
Average no. of shares (000) 14,298 11,439 8,579 7,129 6,699
Total no. of shares at year end 14,898 14,298 8,579 8,579 7,129
*Figures for 2002 and 2003 are stated using different accounting principles.
SHAREHOLDERS’ EQUITY AND RATIOS (SEK 000) 2006 2005 2004 2003* 2002*
Shareholders’ equity 143,790 92,422 74,991 119,535 113,843
Net financial debt 71,523 92,451 83,626 59,315 32,731
Operating capital 215,313 184,873 158,617 178,850 146,574
Return on equity, % 39.8 –15.2 –45.1 –16.2 –11.5
Return on operating capital, % 24.5 –4.0 –23.0 –14.4 –10.3
Return on total capital, % 17.8 –2.6 –15.3 –9.1 –6.5
Gross margin, % 16.5 5.1 –3.9 –0.5 2.5
Operating margin, % 11.8 –2.0 –12.8 –9.5 –5.6
Profit margin, % 10.5 –3.6 –14.3 –10.6 –6.5
Equity/assets ratio, % 51.0 34.2 29.2 42.7 50.3
Proportion of risk-bearing capital, % 51.1 34.5 29.7 43.4 51.0
Interest cover, x 9.36 –1.19 –8.27 –6.91 –3.98
Debt gearing, % 52.6 102.1 116.5 66.1 55.5
R&D costs 19,946 30,281 35,968 24,575 22,888
of which capitalised 6,312 6,235 11,687 4,746 7,156
CASH FLOW (SEK 000) 2006 2005 2004 2003 2002
Cash flow from current activities 62,060 9,070 –20,459 –3,283 3,335
Change in working capital –26,342 –45,155 5,763 12,003 15,099
Cash flow from investment activities –20,985 –4,073 –17,613 –50,429 –19,494
Cash flow from financing activities –12,461 38,288 23,399 30,891 20,080
Cash flow, net 2,272 –1,870 –8,910 –10,818 19,020
DATA PER EMPLOYEE (SEK 000) 2006 2005 2004 2003 2002
Average number of employees 432 378 276 239 284
Sales per employee 965 910 1,131 1,033 996
Operating profit per employee 113 –18 –145 –98 –56
*Figures for 2002 and 2003 are stated using different accounting principles.
CONTENTS
Directors’ report 25
Consolidated balance sheets 28
Consolidated profit/loss statements 30 Changes in consolidated shareholders’ equity 31 Consolidated cash flow statements 32
Notes, Group 33
The Opcon share 46
Parent company’s profit/loss statements 47 Parent company’s balance sheets 48 Changes in parent company’s shareholders’ equity 50 Parent company’s cash flow statements 51
Notes, Parent company 52
Signatures of Board and CEO 58
Auditors’ report 59
FInAnCIAl RepoRtInG
RepoRt oF tHe BoARD oF DIReCtoRS
GrOuP OvErviEW Opcon’s business concept
Opcon is an energy and environmental technology Group that develops, produces and markets products and systems for effi- cient and environment-friendly energy consumption for cus- tomers in the auto, process and engineering industries.
Opcon’s objectives
The Group will generate good and sustainable profitability and aim for growth in order to create long-term growth in value for shareholders, create value for customers and offer a stimulating workplace for staff.
Opcon’s vision
Opcon will be actively involved in building a society no longer dependent on oil.
With high tech products and services Opcon will contribute to global development towards a more energy-efficient and eco- friendly society.
Products, organisation and policies
Opcon has activities in Sweden, the US and China. There are around 400 employees.
The Group’s products are ignition and engine management systems, electro-mechanical devices, screw compressors and heat exchangers. Customers are mainly in the auto, small-engine and engineering industries.
The division of the Group into the Mechanics business area (Svenska Rotor Maskiner AB, Opcon Energy Systems AB, Opcon Autorotor AB, Lysholm Technologies AB and Laminova Production AB) and Electromechanics business area (SEM AB, REAC AB and Opcon Technology Suzhou Co., Ltd, China) was changed in early 2007. However, the report on activities in 2006 follows the previous division.
The operations of the parent company, Opcon AB, comprise management and corporate services.
The company is located in Åmål, Sweden. Opcon was first listed on the O-list of the Stockholm Stock Exchange on 31 December 1998, and is now listed on the Small Cap list of OMX Stockholm exchange.
Opcon has established a policy for Group companies that includes a corporate ethics code and a code of behaviour for the workplace.
iNvOiCiNG AND rESulTS The Group
Sales turnover climbed 21 % to reach SEK 416.9 million (343.8 m).
Operating profit was SEK 49.0 million (–6.9 m). Profit after
Profit after tax was SEK 47.0 million (–12.7 m), which cor- responds to earnings per share after tax of SEK 3.29 (–1.11).
Sales turnover for the Mechanics business area reached SEK 108.4 million (120.3 m) and the loss after financial items was SEK 4.4 million (–16.7 m).
Sales turnover for the Electromechanics business area amounted to SEK 308.1 million (222.7 m) and the profit after financial items was SEK 64.3 million (18.5 m).
iNvESTMENTS The Group
Investment in machinery and tools for Group companies during the year totalled SEK 14.9 million (4.8 m). The Group invests large resources in developing new technology. Development costs during the year amounted to SEK 13.6 million (24.0 m).
In addition, costs for research and development amounting to SEK 6.3 million (6.2 m) have been carried forward.
Parent company
The parent company’s investments in fixed assets amounted to SEK 0.3 million (0 m).
rESEArCh AND DEvElOPMENT
The company’s research and development is focused on the development, engineering design and testing of new products, or the improvement of existing ones, within the areas of igni- tion and control systems for combustion and gas engines, elec- tromechanic devices, industrial screw compressor applications for the power and engineering sectors, compressors for super- charging of combustion engines and air supply systems for fuel cells.
Costs for research and development during the year amounted to SEK 13.6 million (24.0 m). In addition, costs for research and development amounting to SEK 6.3 million (6.2 m) have been carried forward.
fiNANCiAl POSiTiON
The Group’s liquid funds at the end of the year amounted to SEK 4.2 million (1.9 m) and interest-bearing liabilities and allo- cations amounted to SEK 75.6 million (94.3 m). The Group’s equity/assets ratio was 51.0 % (34.2 %).
EMPlOYEES
At the end of 2006 the Group had 396 employees (440), of whom 207 (230) were women. The average number of annual employees was 432 (378).
Further information about employees, salaries, social costs and sick leave is included in note 5.
