Annual Report 2006

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Annual Report 2006

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Shareholders wishing to attend the Annual General Meeting must:

• be entered in the share register held by the Swedish Securities Register Centre (VPC AB) by Wednesday 18 April 2007.

• notify the company no later than Friday 20 April 07 before 1 p.m.: OEM Interna- tional AB Box 1011, 573 28 TRANÅS, Tel. +46 (0)75 24 24 000 or info@int.oem.se Shareholders who have registered their shares in the name of an authorised agent must temporarily register the shares in their own name with VPC by no later than Friday 18 April 2007, in order to participate at the Annual General Meeting.

DIVIDEND

The Board of Directors propose that the Annual General Meeting issue a dividend of SEK 8.50 per share for 2006 and stipulate Friday 27 April 2007 as record date. If the Annual General Meeting adopts the proposal, it is expected that dividends will be distributed on Thursday 3 May 2007 to those entered in the share register on the date of issue.

4:1 SHARE SPLIT COMBINED WITH AN AUTOMATIC REDEMPTION PROCEDURE

To facilitate trading of the company shares and alter the company’s capital structure, OEM’s Board of Directors proposes a 4:1

share split combined with an automatic redemption procedure. Through this proce- dure, shareholders will receive three new shares and a redemption share which will be redeemed for SEK 20. The proposal means that about SEK 154 million will be paid to the shareholders in addition to the proposed cash dividend.

In brief, the proposal means that

• The company carries out a 4:1 share split.

• Every fourth share, the redemption share, will be automatically redeemed for SEK 20.

• The proposed record day for the share split is 18 May 2007.

• Shareholders interested in selling their redemption shares before the redemption takes place will be able to do so during the period 21 May-7 June 2007 when trading in the redemption shares is scheduled to take place on the Stockholm Stock Exchange.

• Payment of the redemption amount is expected to be carried out on 15 June 2007.

The redemption procedure is pursuant to resolutions by the Annual General Meeting in April 2007 on, in principle, the following items.

• Amendment of the Articles of Association so that limitations on the number of shares is increased from 5,000,000-20,000,000 to 10,000,000-40,000,000.

• Share split, through which each existing share, of Class A and Class B shares, is divided into four shares, one of which will be designated redemption share.

• Reduction of the share capital for repayment to the shareholders through reduction of 7,723,103 redemption shares, entailing 1,589,032 Class A shares and 6,134,071 Class B shares.

• Increase of the share capital by SEK 9,653,878 and 75 öre through a bonus issue, whereby the company’s non- restricted equity is to be used.

BUSINESS

The agenda and business of the Annual General Meeting will be notified through advertisements in the daily press and will also be available on OEM’s website (www.oem.se). The agenda can also be obtained from the company when registering to attend the meeting.

FUTURE REPORTS

Interim report, Jan-March 24 April 2007 Half-yearly report, Jan-June 26 July 2007 Interim report, Jan-Sept 26 October 2007 Financial statement, 2007 Feb 2008 Annual report 2007 March/April 2008

The latest information about the company is available on our website (www.oem.se).

Annual General Meeting

The Annual General Meeting will be held on Tuesday 24 April 2007 at 4 p.m. at Sommen Forum, Hamnparken 2, Tranås, Sweden.

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OEM International is a leading player in industrial trading in northern Europe. The Group is comprised of 23 operating units in ten countries.

In brief, the business concept is to sell components and systems from leading manufacturers to industrial companies in northern Europe. Customers are offered extensive product and application knowledge and a broad spectrum of components and systems.

In simple terms, OEM operates as an alternative to the manufacturers’

own subsidiaries and thereby assumes responsibility for marketing and sales activities for traded products.

CUSTOMERS SUPPLIERS

This is OEM International

OEM Automatic

Components for industrial automation.

Read more on pages 22-23

History

OEM Electronics

Appliance and circuit board components and EMC/microwave components.

Development

Bearings and bearing solutions, motors and transmissions, seals and pumps

Cyncrona

Production systems and components for electronics production

FOUR COMPANY GROUPS. The Group is organised into four company groups. Three groups are organised according to their distinct brand concepts and one company group, Development, is a collection of other business activities.

1974

The agency company OEM Automatic AB is founded by the Franzén and Svenberg families.

1981

The first overseas subsidiary is established in Finland.

1983

The company is introduced on the Stock Exchange’s OTC list.

Sales amount to about SEK 30 million.

1986

Industri AB Reflex is acquired.

1988

Sales exceed SEK 100 million for the first time.

1989

The first subsidiary outside Scandinavia is set up in the UK.

1993

The A. Karlson Group is acquired.

1996

New Group structure.

The companies are divided into two subgroups:

OEM Industrial Components AB and OEM System- teknik AB.

1997

OEM Interna- tional AB and Cyncrona AB, also listed on the OTC list, merge.

Cyncrona becomes a third subgroup.

1998

Three corporate acquisitions are completed.

1999

Four corporate acquisitions are completed.

2000

Jörgen Zahlin is appointed new MD.

Acquisition of the group JMS Systemhydraulik.

2002

OEM suffers significant decline in sales due to downturn in telecommunications.

2003

The Group stabilises at sales 30%

lower than 2001.

Industri AB Reflex is sold.

2004

OEM celebrates 30th anniversary.

Continued restructuring and streamlining increase profit by 55%.

2005

Acquisition of Telfa AB.

1991

OEM International AB is formed and becomes the Group’s parent company.

The electronics product area breaks away from OEM Automatic to form a separate company, OEM Component.

Contents

Annual General Meeting — Future reports 2 This is OEM International 3-4

History 3-4

2006 in brief 5

Comments from the CEO 6-7

Vision 8

Business concept 9

Financial objectives 10

Growth strategy 11

Employees 12-13

Quality, the environment and ethics 14-15

Board of Directors 16-17

Senior Management 18-19

Group structure 20-21

■ OEM Automatic 22-23

■ OEM Electronics 24-25

■ Cyncrona 26-27

■ Development 28-29

Acquisitions and expansion 30-31 Central warehouse in Tranås 32-33 Close partnerships key to 34-35 successful launches

Financial reporting 37

Five-year Group summary 38

Key indicators for the last five years 39

Directors’ report 40-41

Financial reports — the Group

Income statement 42

Balance sheets 43-44

Changes in shareholders’ equity 45

Cash flow statement 46

Financial reports — Parent company

Income statement 47

Balance sheets 48-49

Changes in shareholders’ equity 50

Cash flow statement 51

Notes with accounting principles and financial statements 52-73

Proposed allocation of profits 74

Auditors’ report 75

OEM shares 76-77

Shareholder structure 77

Key indicators for OEM’s shares 78

Ownership data 79

Share capital trend 79

Addresses 80-81

Definitions 82

Share trends

OEM has been listed on the Stockholm Stock Exchange since 1983.

More information about OEM is available on our website:

www.oem.se

Read more about OEM shares on pages 76-79

2006

The Group establishes itself in the Czech Republic through the acquisition of EIG.

Divestment of company group JMS System- hydraulik.

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2006 IN BRIEF ❚ OEM ANNUAL REPORT 2006 5

2006 2005

Net sales SEK m 1448 1366

Profit after net financial items* SEK m 127.5 112.6

Profit divested business unit SEK m 90.8 81.6

Profit for the year SEK m 181.6 88.8

Earnings per share: SEK 23.52 11.49

Cash flow per share: SEK 14.68 9.79

Shareholders’ equity per share: SEK 82.96 61.88

Proposed dividend per share SEK 8.50 7.00

Earning capacity of shareholders’ equity: % 32.5 19.7

Equity/assets ratio: % 67.2 62.5

Quoted price at year-end SEK 189.00 163.50

Market capitalisation at year-end SEK m 1460 1238

Average no. of employees* No. 531 494

*) Remaining business units

The Group in figures

2006 in brief

• Net profit escalated 105% to SEK 182 million (89).

• Sales for the remaining business units amounted to SEK 1.448 million (1.366).

• The acquisition of EIF spol.s.r.o. in the Czech Republic, a company active in the automation component section with reported sales of about SEK 29 million.

• Divestment of JMS Systemhydraulik. at a purchase price of SEK 120 million.

• OEM Automatic’s sales climbed 15% to SEK 698 million (605) and profit 22% to SEK 91.0 million (74.7).

• OEM Electronics’ sales rose 1% to SEK 307 million (305) with a profit of SEK 18.8 million (24.7).

• Cyncrona’s sales totalled SEK 245 million (284) and profit SEK 14.2 million (18.5).

• Development’s sales climbed 31% to SEK 213 million (162) and profit 55% to SEK 13.0 million (8.4).

• JMS Systemhydraulik’s sales reached SEK 139 million (157)* and profit SEK 15 million (11.1)*. The business unit was divested as per 30 November 2006.

*) The figures for 2006 are for 11 months.

OEM’s continued streamlining and restructuring measures have resulted in:

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6 OEM ANNUAL REPORT 2006 ❚ COMMENTS FROM THE CEO HIGHER PROFITS FOR OEM AUTO- MATIC, JMS SYSTEMHYDRAULIK AND DEVELOPMENT

OEM Automatic reports yet another record- breaking year. Reported sales rose by 15%

and profit by 22%. Our coordinated logistics means that we now deliver to customers in Norway and Denmark from the Swedish warehouse, resulting in greater efficiency and better customer service. Demand in general is high, which means that we have sound growth and profitability on all markets.

JMS Systemhydraulik continued to develop well during the year. Implemented streamlining measures improved profits by 35% despite no change in sales compared with last year.

Development also made positive progress.

A sound demand, implemented streamlining measures and acquisitions resulted in a 31%

increase in sales and a 55% increase in profit for the group.

OEM Electronic’s profit dropped 24%. The decline is attributed to the conclusion of a major deal and that we phased-out a supplier after they altered their market strategy. Implemented market investments have generated good growth in certain areas, putting total sales on par with last year.

Cyncrona’s sales dropped 14% causing profits to drop 24%. Parts of sales have been transferred to commission transactions.

ACQUISITION IN THE CZECH REPUBLIC

EIG Spol. s.r.o., a company based in the Czech Republic, was acquired in April. The company trades in automation components and has reported sales of SEK 29 million. EIG represents several of the most important suppliers that OEM represents, facilitating considerable synergy effects on new markets. The acquisition lays the foundation for expansion in both the Czech Republic and Slovakia.

DIVESTMENT OF JMS SYSTEMHYDRAULIK

All shares in the company group JMS System- hydraulik were sold to Specma Hydraulic AB, part of Investment AB Latour in the autumn 2006.

JMS Systemhydraulik was divested because it is a relatively small player on a large market. The group was acquired in 2000 at a purchase price of SEK 30 million and sold for SEK 120 million.

EXPANDING OUR CONCEPT

Our brand concept/company groups are more competitive and stable. Interaction between the companies means greater employee mobility between different countries. Collaboration and transcending cultural differences are essential to future growth. The circumstances for continued geographic expansion increase as our concept grows stronger.

CONTINUED FOCUS ON ACQUISITIONS Only one company was acquired in 2006, which was below our target. The reason is that we

Comments from the CEO

2006 was a record-breaking year for OEM. Profit reached an all-time Group high of SEK 182 million. The company’s sales have risen over the past two years and profit has improved for the fifth consecutive year. Profit from divested business units amounted to SEK 90.8 million.

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allocated a larger than planned portion of our management resources to developing our existing business units and many of the evaluated acquisitions were found to have insufficient potential or were incompatible with our business

activities. Acquisitions remain a prominent aspect of our expansion strategy and acquisition activities will increase this year.

BETTER EQUIPPED FOR THE FUTURE A strong balance sheet, a strong leadership culture and a well established reporting structure means that we are fully prepared for continued expansion. Broader customer and supplier bases compared with the start of 2000 will cut our risks in the face of future downturns.

The introduction of several industrial trading companies on the Stockholm Stock Exchange makes us part of a new segment on the stock market, giving us exciting opportunities to compare ourselves with our competitors in the future.

THANK YOU FOR A SUCCESSFUL YEAR I want to take the opportunity to extend a profound thank-you to all employees for their excellent efforts throughout the year. OEM’s achievements are backed by employees who

have created competitive business units through their dedication and conscientiousness.

Our constant efforts to strive for efficiency and create value for our customers are why we never stop developing. I therefore have every confidence in the future.

“A profound thank-you to all employees for their excellent efforts throughout the year. OEM’s achievements are backed by employees who have created competitive business units through their dedication and conscientiousness.”

Jörgen Zahlin

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8 OEM ANNUAL REPORT 2006 ❚ VISION OUR VISION

OEM International is to be a leading player in industrial trading in northern Europe.

To achieve this vision means:

• constantly improving our knowledge and service

• products that at least equal customer expectations

• making our suppliers market leaders

• efficiency makes us more profitable than our competitors

• our employees can realise their ambitions.

INDUSTRIAL TRADING

Our product range spans from basic mechani- cal components such as seals and couplings to complete production systems for circuit

boards. OEM chooses to trade in products to which the company adds value and that allows the company to gain a substantial market share.

We constantly expand our range by adding new products and discontinuing unprofitable products.

Each company markets a clearly defined product range which, coupled with the added value of the organisation, forms a brand concept.

NORTHERN EUROPE

Most of OEM’s business activities are in Sweden but it considers northern Europe its market. The brand concepts are launched

on new geographic markets as they grow in strength.

The company is active in Sweden, Finland, Norway, Denmark, Poland, the Czech Republic, Slovakia, the Baltic countries, the UK and Holland.

In addition, the company has a logistics and quality company in China. While there is great potential for growth on these markets, new geographic markets will be constantly evaluated.

Vision

“OEM International is to be a leading player in industrial trading in northern Europe.”

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BUSINESS CONCEPT ❚ OEM ANNUAL REPORT 2006 9 OUR BUSINESS CONCEPT

OEM is a leading industrial trading Group operating in northern Europe. Our product range consists of industrial components and systems from suppliers that are each specialists in their fields.

The operating units are to adapt to the conditions that apply in each respective business area and effectively satisfy the interests of customers, suppliers, employees and shareholders.

BUSINESS LOGIC

In simple terms, the OEM Group’s operating units serve as an alternative to the suppliers’

own local sales companies.

The Group collaborates with around 300 different suppliers and has some 20.000 buying customers. OEM is responsible for the marketing and sales of the products concerned.

To our suppliers, OEM is a partner that has:

• the competence and financial strength to make market investments

• knowledge of the market in question

• national organisations that transcend cultural differences

To our customers, collaboration with OEM means:

• access to a broad, extensive range from specialised manufacturers

• quick and high delivery capacity via effective warehouses

• the option to reduce the number of suppliers.

• in-depth product and application knowledge

An efficient logistics apparatus enables us to adapt purchasing volumes, stock levels and transport methods for maximum competitiveness.

OEM’s broad, extensive product range allows the company to customise its offers to best suit the needs of our customers. At the same time, suppliers gain access to customer groups that they themselves have difficulty contacting.

GROUP AFFILIATION STRENGTHENS COMPETITIVENESS

Belonging to a group with a clear focus enhances the conditions for the company to grow.

Among other things, Group affiliation means:

Economies of scale

A centralised infrastructure and administration makes it more possible for operating units to focus on business and eases geographic expansion in areas where another part of the Group is established.

Coordination

Logistics, range development and market communication is coordinated at concept level which intensifies our competitiveness and makes us more cost effective.

Stimulated by each other’s success The business units are regularly compared and internal ranking lists stimulate both cross- company learning and better performance.

Opportunities for employees to grow within the Group.

Developing a company means developing people. As the company develops, career opportunities are created for employees both within the respective company and within the rest of the Group.

Business concept

CUSTOMERS SUPPLIERS

An alternative to suppliers’ own sales organisations

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10 OEM ANNUAL REPORT 2006 ❚ FINANCIAL TARGETS The targets for one business cycle are:

• 15% annual growth in profit

• 20% return on equity

• Equity/assets ratio not lower than 35%

All financial targets were realised in 2006.

While reported sales growth was only 6%, streamlining measures implemented in

the business units generated a 15%

increase in profit, excluding the sale of JMS Systemhydraulik.

The Group has a strong financial position which gives us excellent opportunities to make acquisitions.

Over the last three years, OEM has realised the following targets:

Financial targets

OEM’s objective is to achieve a good return on shareholders’ equity with limited financial risks during a period of stable growth.

“All financial targets were realised in 2006.”

0 20 40 60

0 10 20 30

0 25 50 75

Growth of profit

Return on shareholders’

equity

Equity/assets ratio

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GROWTH STRATEGY ❚ OEM ANNUAL REPORT 2006 11 ORGANIC GROWTH

OEM’s target is a 10% organic growth.

This will be achieved by:

• Developing our product range

• Expanding our market shares

Developing customer/supplier relationships, product offers and service will improve compe-

titiveness and boost market shares. Organic growth is evidence of satisfied customers and that what we offer is attractive to new customers.

The launch of new suppliers is also an essential aspect of organic growth.

Organic growth over time is necessary to create long-term, stable business units.

GEOGRAPHIC EXPANSION

New opportunities for expansion are created by launching a well-functioning brand concept

on new markets. Over the past years, OEM has set up operations in the Baltic countries and the Czech Republic.

Geographic expansion is also achieved when a business unit within OEM sets up operations on markets where OEM already has other business activities. OEM Electronics is presently establishing itself in Poland and Internordic in Denmark.

Our efforts to reinforce and broaden customer offers on OEM’s new markets and evaluate new markets in Central and Eastern Europe will continue in 2007.

ACQUISITIONS

The Group has a history in which acquisitions have played an important role in our growth strategy. The downturn in the telecommunications industry forced OEM into an intense restructuring phase at the start of 2000.

Telfa AB was acquired in 2005 and EIG in the Czech Republic in 2006, the first acquisitions since the crash of the telecommunications industry.

Together with a growth target of 15%, our financially strong position means that acquisitions will play an increasingly prominent role in OEM’s future expansion strategy. More details about acquisitions are provided on page 30.

Growth strategy

Growth is central for the OEM Group. Our growth strategy is based on three parts: Organic growth, Geographic expansion and Acquisitions.

“Together with a growth target of 15%, our financially strong position means that acquisitions will play an increasingly prominent role in OEM’s future expansion strategy.”

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12 OEM ANNUAL REPORT 2006 ❚ EMPLOYEES It takes competent, dedicated employees to become a leading player in the industrial trading sector. Our employees are OEM’s single greatest asset.

We are convinced that when our employees grow, so does the company. Consequently, we feel it is important to create opportunities for our employees to develop and realise their ambitions. By so doing, we reinforce our competitiveness with cutting-edge competence.

It is our employees that produce results and build long-term value for our customers, suppliers and shareholders. To attract and retain qualified employees, OEM must offer attractive

employment conditions and good opportunities for personal growth.

COMPETENCE DEVELOPMENT Investing in competence development for our employees is a natural aspect of our ongoing quality efforts. Competence development efforts are primarily conducted at company level where various types of in-house training programmes are arranged.

Needs and preferences are mapped out in the personal performance dialogues held annually between employees and immediate supervisors.

An individual competence development plan for each employee is prepared in conjunction with this discussion.

RECRUITS AND CAREERS

A propensity to change, curiosity and a goal- oriented approach are characteristics that ensure our employees an interesting future and careers.

Our ambition is to internally recruit 75% of our new managers and specialists. We consider it a major achievement when we can wish an employee luck in a new position within the

company. It is evidence that we have managed to motivate our employees to advance in the organisation and take on greater responsibilities.

TRAINEE PROGRAMMES

OEM International started a trainee programme in 2006. The purpose is to safeguard the long- term supply of employees in key positions and increase the presence of Swedish employees in our foreign companies. OEM International will recruit several individuals each year who will receive a solid foundation for a successful career within the OEM Group through the two-year trainee programme.

CORPORATE CULTURE

OEM currently has 23 operating units comprised of cultures that are influenced by their employees.

All units do however conform to the Group bywords, namely dedications, openness, goal orientation, positive attitudes and modesty.

It is natural for us to share our experiences and knowledge in order to create a learning and positive climate.

We want our employees to feel a sense of job satisfaction, community and security. They are

Employees

To be able to live up to its vision of becoming a leading player in the industrial trading sector OEM needs skilled, competent employees.

It takes a business concept to achieve our vision

— it takes people to realise it.

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to be very involved in the company and proud to work at OEM.

We believe in openness between employees and managers. This allows candour and improves the quality of personal performance dialogues. It also lays the foundation for mutual trust so that constructive criticism and praise become a part of the day-to-day communication.

LEADERSHIP

For OEM, leadership is about being a role model and sharing knowledge

and insight. Defining distinct goals and sub- goals and drawing up individual goals and plans together with the employees in order to achieve these goals. The ability to coach and cultivate the unique

needs of our employees at an individual level.

The will to learn and the ability to serve as a lodestar and encourage all employees. Managers and employees are mutually responsible for contributing to a successful corporate climate.

Reciprocal demands are to lead to constructive activities that make us even better partners for our customers.

WORK ENVIRONMENT AND HEALTH A good, suitable working environment is a

prerequisite for employee satisfaction and good performance.

OEM encourages its employees to participate

in various fitness activities and work with the contracted preventive healthcare service.

OEM is to advocate a healthy lifestyle for its employees and compel managers and employees to work toward the same objectives.

EQUAL OPPORTUNITIES

OEM currently has an unequal distribution of men and women. This is a traditionally male dominated industry.

Most of the women in the Group work in finance, administration and marketing.

We are working to recruit more women to technical positions and hope to attract more female applicants in the future.

EMPLOYEES ❚ OEM ANNUAL REPORT 2006 13

Average no. of employees 531

Share of women 105

Share of men 426

Sick leave personnel/yr (days) 8

Training costs per employee (SEK) 4 719 Fitness costs per employee (SEK) 1 004

0 50 100 150 200

Age distribution (no. of employees)

0 50 100 150

Period of employment (no. of employees)

Key indicators employees

“OEM is developed by people who want to develop.”

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14 OEM ANNUAL REPORT 2006 ❚ QUALITY, THE ENVIRONMENT AND ETHICS Our objective is that customers will associate

OEM with good products, high delivery assurance, good technical support and a business- like, positive reception. Supplier improvement efforts aimed at, among other things, boosting delivery accuracy from suppliers is a constantly ongoing process. It requires constant dialogue on subjects ranging from product quality and product development to delivery time and environmental issues. This work is vital to ensure we maintain our own quality targets and live up to our quality policy.

Customer attitude surveys are performed annually to monitor quality from a customer perspective. Subsidiaries that are not third- party certified work with environmental and quality issues based on customer and market requirements.

THE ENVIRONMENT

The OEM Group’s environmental policy dictates continuous efforts to minimise our external environmental impact. Environmental efforts will be governed by legal requirements as well as what is financially feasible, technically possible and ecologically justified. The aim is to reduce the impact of our business on the environment in both the short and long term.

All companies sell components and systems from worldwide manufacturers.

This means that the greatest impact on the environment stems from

• goods and personnel transports

• the presence of environmentally- damaging substances in products

• printing and distribution of product catalogues

• packaging materials

• office heating, lighting and cooling.

TRANSPORTS AND COMPANY CARS OEM pressures forwarding agents to aim for alternative fuel and environmentally-classified cars. As per our own company car policy, the OEM Group will only supply cars classified in line with Environmental Class 2005 (MK2005) (cf. formerly Environmental Class 1).

OUR SUPPLIER REQUIREMENTS Our customers often raise issues about products containing substances that have an impact on the environment. We review the environmental efforts of our suppliers when we visit. Our certified companies have a special supplier review form devised by our product managers.

PRINTING AND DISTRIBUTION OF PRODUCT CATALOGUES

The Group prints and distributes about 50.000 product catalogues and brochures each year.

When purchasing printing services, we only consider environmentally-certified printers.

To the greatest possible extent, OEM strives to print on environmentally-friendly paper.

Work is underway to publish product information on the internet, which will reduce the number of printed catalogues.

Quality, the environment & ethics

OEM’s all-embracing quality policy means that products and services must meet or exceed customer expectations.

OEM pressures forwarding agents to aim for alternative fuel and environmentally-classified cars.

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QUALITY, THE ENVIRONMENT AND ETHICS ❚ OEM ANNUAL REPORT 2006 15 NEW ENVIRONMENTAL REQUIREMENTS

GENERATE BUSINESS OPPORTUNTIES On 1 July 2006, the RoHS Directive was introduced that bans the use of lead, mercury, cadmium and other hazardous substances in electrical and electronic equipment.

The directive has primarily affected customers in the electronics industry. An overwhelming

majority of the electronics manufacturers adapted their production in 2006 in compliance with the new directives. This resulted in temporarily higher sales of primarily wave soldering systems and reflow ovens.

ETHICS

OEM’s business activities are based on long- term personnel, supplier and customer relationships. The values of the management and our employees contribute to cultivating these relationships. Consequently, it is vital that ethical issues are regularly discussed.

One such example of ethical issues relates to the certification of factories that OEM collaborates with in China. Among other things, this entails investigating the occurrence of child labour.

Our day-to-day business is characterised by respect for employees and business partners.

ISO14001 CERTIFIED COMPANIES The following companies have ISO 14001 environmental certification:

• OEM Automatic AB

• OEM Electronics AB

• Internordic Bearings AB

Additional companies plan to apply for certification.

ISO9001 CERTIFIED COMPANIES The following companies have ISO 9001 quality certification:

• OEM Automatic AB

• OEM Electronics AB

• Internordic Bearings AB

• AB Indoma

“Our objective is that customers will associate OEM with good products, high delivery assurance, good technical support and a business-like, positive reception.”

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16 OEM ANNUAL REPORT 2006 ❚ BOARD OF DIRECTORS

AUDITOR: KPMG Bohlins AB Principal auditor: Niklas Bengtsson Authorised Public Accountant Five Board meetings were held in 2006, all of

which were recorded in the minutes. The work of the Board complies with the rules of procedure adopted by the Board. Once a year, the principal auditor attends and reports on the auditing process.

Decisions and the division of responsibility between the Board and the Managing Director are regulated in the written instructions for the Managing Director. Proposals regarding remuneration to the Board are presented to the Annual General Meeting for decision.

The Board receives no bonuses. The amounts and other benefits are reported in the Income Statement, Note 6, on page 61.

Auditors are nominated and elected by the Annual General Meeting for a four-year tenure.

The auditors’ work is invoiced within negotiated price frames.

NOMINATION AND REMUNERATION COMMITTEE

The Nomination and Remuneration Committee is comprised of Chairman of the Board

Hans Franzén as well as Board members Orvar Pantzar and Agne Svenberg. The Committee nominates members to the Board and issues guidelines for remuneration to the Managing Director. The Board approves remuneration negotiated by the Chairman of the Board and the Managing Director. The Committee convened once in 2006.

Remuneration to other members of Senior Management is determined by the Managing Director in consultation with the Chairman of the Board.

Born 1940. Chairman of the Board since 1992.

Board member since 1974.

CEO until 31 Dec. 2001. Engineer

Other appointments: Chairman of the Board, Tranås Resebyrå AB, Cendio AB, Ibizkit AB, Handelsbanken’s local board in Tranås, Montico AB and IB Medical AB.

Board member, Crouzet AB,

Bomarknadsbolaget AB and Linktech AB.

Number of shares: 235.792 OEM Class A and 215.430 OEM Class B

Born 1941. Board member since 1974.

Managing Director up until 29 February 2000.

Engineer

Other appointments: Chairman of the Board, EG:s El o Automation AB, Personality Gym AB and ISP AB. Board member, Elektro-Mekan i Årjäng AB.

Founder of Cyncrona AB. Engineer.

Not employed by OEM.

Other appointments: Board member, Next Generation System AB

Business Administrator. Not employed by OEM.

Number of shares: 14.000 OEM Class B

Business Administrator. Not employed by OEM.

M.Sc. Engineering. Not employed by OEM.

President and CEO of Nefab AB

Other appointments: Board member, Nefab AB, Handelsbanken Region Eastern Sweden and Nolato AB.

DEPUTY MEMBERS

Tomas Franzén

Born 1962. Deputy member since 1997.

President and CEO of Eniro AB.

M.Sc. Engineering. Not employed by OEM Other appointments: Board member, Eniro AB, BTS AB and Securitas Systems AB.

Inger Svenberg

Born 1937 Board member 1974-1997.

Deputy member since 1997.

Not employed by OEM.

Jerker Löfgren

Born 1950. Deputy member since 2003.

Head Counsel Carnegie Private Banking.

Not employed by OEM. No OEM shares.

Board of Directors

The Board of Directors of OEM International (publ) is comprised of six regular members and three deputy members elected by the Annual General Meeting.

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BOARD OF DIRECTORS ❚ OEM ANNUAL REPORT 2006 17

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18 OEM ANNUAL REPORT 2006 ❚ SENIOR MANAGEMENT Jörgen Zahlin has been the Managing Director of OEM International since 2000 and is responsible for the company’s day-to-day management, which includes all issues not reserved for the Board. The Managing Director’s decision-making rights in terms of investments, corporate acquisitions/ divestments and financing issues are regulated by the regulations defined by the Board.

The Group’s senior management consists of the Managing Director, Finance Director and four Directors in charge of the Group’s largest

business units. Senior Management works to develop the Group in line with the vision, business concept and strategy defined by the Board.

MANAGEMENT OF OPERATING UNITS The company groups OEM Automatic, OEM Electronic and Cyncrona have separate boards over which the Group’s Managing Director presides as chairman.

The election of other board members, both internal and external, is governed by

the needs of the business units. The board of an operating unit consists normally of the business director, controller and the Managing Director.

GROUP-WIDE RESOURCES There are resources within the Group that work with specific Group-wide functions.

The resources cover financial control, business systems, tele/data communication, market communication, quality & environment and warehouse management.

Jörgen Zahlin

Born 1964. Managing Director of OEM International AB as of 1 March 2000. CEO since 1 Jan 2002.

Group employee since 1985. Engineer Number of shares: 62.500 OEM Class B

Jan Cnattingius Born 1955. Finance Director

Group employee since 1985. Economist Number of shares: 3.000 OEM Class B

Mikael Thörnkvist

Born 1968. Business Director OEM Automatic AB Group employee since 1990. Engineer

Stefan Wik

Born 1959. Managing Director of OEM Automatic AB Group employee since 1998. M.Sc. Engineering.

Other appointments: Board member, Landy Vent International AB and JS Computers AB.

Number of shares: 2.900 OEM Class B (partially via company)

Urban Malm

Born 1962. Business Director OEM Electronics.

Group employee since 1983. Engineer Number of shares: 300 OEM Class B

Fredrik Tengstrand

Born 1966. Business Director Development.

Group employee since 1991. Engineer Number of shares: 400 OEM Class B

Senior Management

OEM International’s ambition is to develop the operating units through growth and profitability that surpasses our competitors. In addition to succinct management-by-objectives, this means also imple- menting a culture and strategy that produces long-term, stable business units.

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SENIOR MANAGEMENT ❚ OEM ANNUAL REPORT 2006 19

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20 OEM ANNUAL REPORT 2006 ❚ GROUP STRUCTURE

Group structure

The Group is organised into four company groups. Three groups are organised according to their distinct brand concepts and one company group, Development, is a collection of other business units.

Company groups/concept Products No. of countries

OEM Automatic Automation components 9

OEM Electronics Electronic components 3

Cyncrona Equipment & material for the electronics industry 7

Development Other business activities 4

Company groups

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GROUP STRUCTURE ❚ OEM ANNUAL REPORT 2006 21

Cyncrona

Production systems and components for electronics production

Development

Bearings and bearing solutions, motors and transmissions, seals and pumps

OEM Automatic

Components for industrial automation.

OEM Electronics

Appliance and circuit board components and EMC/microwave components.

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2006 was another record-breaking year. Both sales and profit rose considerably due to a sound demand and climbing market shares. The OEM Automatic concept has grown stronger and coordination in the Group enables us to expand on all markets.

OEM Automatic

❚ Sales climbed 15% from SEK 605 million to SEK 698 million.

❚ Profits escalated 22% from SEK 74.7 million to SEK 91.0 million.

22 OEM ANNUAL REPORT 2006 ❚ OEM AUTOMATIC

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0 400 800

Sales (SEK m)

0 25 50 75 100

Profit (SEK m)

0 100 200 300

No. of employees Share of Group sales

Business activities

OEM Automatic is comprised of eight companies with sales on nine markets within industrial automation components.

Customers include machine and appliance manufacturing industries, wholesalers and strategic end users.

OEM Automatic represents some 70 suppliers that are specialists and leaders within their respective fields.

Marketing is primarily conducted through face-to-face sales where OEM Automatic supplies the customer with product and application knowledge.

Products

Components for industrial automation within the business areas of Electrical Machinery, Electrical Cabinets, Safety, Cables, Motors, Pressure & Flow and Pneumatics.

In April, OEM Automatic set up operations in the Czech Republic and Slovakia through the acquisition of EIG spol. s.r.o. The company’s sales in 2005 amounted to about SEK 25 million.

EIG’s product range is comprised mainly of components from OEM Automatic’s current suppliers. The range was expanded with products from three suppliers during the autumn and the company will continue to expand its customer offers throughout 2007.

Substantial investments will simultaneously be made in marketing and sales.

Effective April 2007, deliveries to Norwegian and Danish customers will be effected from the Swedish warehouse, which has broadened its customer offers and boosted delivery capacity to the Norwegian and Danish markets. Coordination in terms of expanding the product range, market communication and logistics will continue to be crucial success factors for OEM Automatic.

Throughout the year, OEM has continued to expand its geographic partnerships with

several current suppliers while simultaneously increasing product offers through new supplier partnerships. Coordinated market initiatives generate effective, quick launches of new products on all markets.

GOALS AND STRATEGIES

A growth rate that exceeds 10% per year is the company’s goal. The growth strategy is built around organic growth comprised of greater market shares and broader supplier partnerships while concurrently evaluating new markets.

The strategy is:

• Strong local market presence with face-to-face sales

• Streamlining through coordination

• Enhance our customer offer by expanding our product range

• Represent key suppliers on all markets

• Geographic expansion in northern Europe

MARKETS AND CUSTOMERS

Demand has escalated on all markets. On the whole, the market for automation components in Europe is relatively stable and expected to grow about 2-3% per year over a business cycle.

Markets such as Poland, the Czech Republic and Slovakia have a growth rate over 5%. As most of our customers have small to medium-sized volume production, there is no drastic transfer of production to low-cost countries. We expect that demand will remain strong throughout 2007.

COMPETITORS

Competitors include manufacturers such as Schneider Electric, ABB and Omron, as well as trading companies such

as Indutrade and Addtech.

Geographic markets OEM Automatic has operations in Sweden, Norway, Denmark, Finland, Estonia, Poland, the Czech Republic, Slovakia and the UK.

Stefan Wik Managing Director OEM Automatic AB

Mikael Thörnkvist Business Director OEM Automatic

▲

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Sales for 2006 were on par with last year’s sales figures. The decline in certain product groups was set off by an increase in business dealings with EMS customers*. Implemented market investments did not reach full effect, resulting in lower profit.

OEM Electronics

❚ Sales rose 1% from SEK 305 million to SEK 307 million.

❚ Profit fell from SEK 24.7 million to SEK 18.8 million.

* EMS customers = Electronic Manufacturing Services

24 OEM ANNUAL REPORT 2006 ❚ OEM ELECTRONICS

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0 200 400

Sales (SEK m)

0 15 30

Profit (SEK m)

0 50 100

No. of employees Share of Group sales

Business activities

OEM Electronics is comprised of three companies active in the sale of electronic and electromechanical components.

Our customers include appliance and electronics manufacturers as well as strategic electronic manufacturing services (EMS customers) in northern Europe.

OEM Electronics represents some 60 suppliers that are each specialists in their respective fields.

Marketing is primarily conducted through face-to- face sales where OEM Electronics provides the customer with product and application knowledge alongside logistics solutions.

Products

Appliance components, circuit board components and EMC/microwave components.

Urban Malm Business Director OEM Electronics▲ The company

continued to substantially increase resources, particularly in its Swedish market organisation, while simultaneously working with streamlining and coordination initiatives throughout 2006.

Sales were negatively affected by, in part, a major deal that reached the end of its product lifecycle, and in part our decision to amend our product range after a supplier altered its market strategy. New customers and more sales to our present customers led to sales on par with last year.

OEM Electronics opened an office in China during the year, which means better service and quicker responses from the suppliers.

New suppliers were launched in Poland and we have added resources, thereby reinforcing our customer offer.

GOALS AND STRATEGIES

Our goals include a growth rate over 10% per year and to become the strongest player on the electronic components market in northern Europe.

The strategy is:

• Strong local market presence with face-to-face sales

• Streamlining through coordination

• An organisation distinguished by service-mindedness, excellent applications knowledge and various types of logistics solutions.

• Enhance our customer offer by expanding our product range

MARKETS AND CUSTOMERS Demand from the electronics industry in the Nordic countries is stable and indicates

a slight growth. We believe that Poland will achieve for a greater upturn in the future.

COMPETITORS

Competitors include both the major, global component distributors Arrow and Avnet, as well as industrial trading companies such as Addtech, Lagerkrantz Group and Elektronik- gruppen. Moreover, manufacturers’ own sales companies rank among our competitors.

Geographic markets OEM Electronics has operations in Sweden, Finland and Poland.

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26 OEM ANNUAL REPORT 2006 ❚ CYNCRONA

The Cyncrona companies reported both lower sales and profit but positive growth in Norway and the Baltic countries.

Cyncrona

❚ Sales dropped 14% from SEK 284 million to SEK 244 million.

❚ Profit fell from SEK 18.5 million to SEK 14.2 million.