2008 2 Market Penetration Core Market Global Presence New in 2008 Table of Contents

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2008

Annual Report

2 2 SinterCast in Brief 3 The Five Waves 3 The Business Model 4 CEO Message 5 Market Development

6 SinterCast and the Environment 7 Product Offering

8 SinterCast – The Management 9 SinterCast – The Board 10 Directors’ Report 13 Income Statement 13 Cashflow Statement 14 Balance Sheet – Group

15 Statement of Changes in Equity – Group 16 Balance Sheet – Parent Company

17 Statement of Changes in Equity – Parent Company 18 Accounting Policies

21 Accounting Notes to the Financial Statements 30 Signatures

31 Audit Report

32 Corporate Governance Report

34 The Board of Directors’ Report on Internal Control of Financial Reporting for the Financial Year 2008 35 Historical Summary – SinterCast Group 36 Share Data

38 Important Dates

New in 2008

• Series production increases by 40% to full-year production of 630,000 Engine Equivalents (31,500 tonnes)

• SinterCast-CGI cylinder blocks available in 22 passenger vehicles and 10 car brands

• SinterCast-CGI cylinder blocks and heads available in 10 commercial vehicle engines

• High volume series production of turbocharger housings and exhaust manifolds begins in China

• First-ever CGI engine delivered in North America

• New representation established in China and India

Global Presence

• Headquarters with sales activity, customer support and Group management in London, United Kingdom

• Technical development, production, customer support and finance and administration in Katrineholm, Sweden

• Local customer support for North and South America in Chicago

• Local customer support for China in Shanghai

• Local representation in Australia, India, Japan and Korea

• Global technical and marketing alliance with Ashland Casting Solutions

• Technical partnerships with ABP Process Industries (foundry automation), MAG Industrial Automation Systems (high volume machining) and Grainger & Worrall (rapid prototyping)

Core Market

SinterCast provides process control technology and know-how for the reliable high volume production of Compacted Graphite Iron (CGI). The primary application of CGI is for diesel engine cylinder blocks and heads used in passenger vehicles, commercial vehicles and industrial power applications. However, the SinterCast process is used for the production of a variety of CGI components , with current production ranging from 2 kg to 17 tonnes. With at least 75% higher tensile strength, 45% higher stiffness and approximately double the fatigue strength of conventional grey cast iron and aluminium, CGI allows engine designers to improve performance, fuel economy and durability while reducing weight, noise and emissions.

Market Penetration

SinterCast’s process control systems are installed at 22 foundries on four continents. These foundry customers have the combined capacity to produce approximately 15 million cylinder blocks per year. The end-users of SinterCast-CGI components include Aston Martin, Audi, Caterpillar, Chrysler, DAF Trucks, Ford, Ford-Otosan, General Electric Transportation Systems, General Motors, Hyundai, International-Navistar, Jaguar, Kia, Land Rover, MAN, Porsche, PSA Peugeot-Citroën, Renault, Rolls-Royce Power Engineering, Toyota, Volkswagen, Volvo and Waukesha Engine.

Notes: This document is an unofficial translation of the official Swedish Annual Report Pages 13–38 conform to IFRS (International Financial Reporting Standards)

SinterCast in Brief

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2008

Annual Report

3 The Five Waves

First introduced in 2002, the Five Wave scenario continues to provide the basis for how SinterCast views the CGI market development.

The status of the Five Waves as of end-2008 is summarised as follows:

Wave 1

V-diesels in Europe

Actual full-year production: 260,000 Engine Equivalents (13,000 tonnes)

Series production for: Audi, Jaguar Land Rover, PSA Peugeot-Citroën, Porsche and Volkswagen SinterCast-CGI Components: 5 cylinder blocks available in 22 vehicles and 10 brands (2.7~4.2 Litres) Outlook: Reduced near-term volumes due to economy, but long-term growth opportunity

Wave 2

Commercial Vehicles

Series production for: DAF, Ford-Otosan, Hyundai, International-Navistar, MAN and Volvo SinterCast-CGI Components: 10 cylinder blocks and 3 cylinder heads (3.9~12.9 Litres) Outlook: Reduced near-term volumes due to economy, but long-term growth opportunity

Wave 3

In-line Diesels in Europe

Current status: Development delayed by intense cost pressure in small vehicle sector Outlook: Long-term potential dependent on performance and emissions requirements

No significant production opportunity in near-term (<5 year) period

Wave 4

Diesels Beyond Europe

Actual full-year production: 40,000 Engine Equivalents (2,000 tonnes) Series production for: Hyundai, Kia

SinterCast-CGI Components: 1 cylinder block available in 3 vehicles and 2 brands (3.0 Litres) Outlook: European sales of Hyundai ix55 can increase near term volumes

Start of production for US V-diesel sector during 2009

Wave 5

Petrol Engines

Current status: Motorsport production for rally cars, touring/stock cars, dragsters and open-wheel Formula cars.

Approximately 80% of the current NASCAR grid relies on SinterCast-CGI cylinder blocks Outlook: Potential application for highly charged and/or direct injection petrol or ethanol engines

No significant production opportunity in the near-term (<5 year) period

Potential Steps

Cylinder Heads – Diesel

Passenger Vehicles Current status: Initial product development

Outlook: Long-term potential for mid-range (4~7 litre) diesels.

No significant production opportunity in the near-term (<5 year) period Automotive – Non Block

& Head

Actual full-year production: 40,000 Engine Equivalents (2,000 tonnes) Series production for: Aston Martin, Audi, Ford, Renault and Volkswagen

SinterCast-CGI Components: Exhaust manifolds, turbocharger housings, clutchplates and torsion dampers Outlook: Growth opportunity, including new installations, particularly in Eastern Europe and Asia

Non-Automotive (Industrial Power)

Series Production for: Daros, General Electric, Rolls-Royce and Waukesha Engine

SinterCast-CGI components: Available in marine, locomotive and stationary power generating applications Outlook: Long-term growth opportunity

Five W aves

The Business Model

SinterCast provides on-line process control technology to the cast iron foundry industry to enable the reliable high volume production of Compacted Graphite Iron. CGI is primarily used in diesel engine cylinder blocks and heads, for passenger vehicle, commercial vehicle and industrial power applications. SinterCast:

• Sells or leases the System 2000 hardware platform. The System 2000 can be configured to suit the layout and process flow of any foundry. Typical sales prices are €300~450,000, depending on the configuration and installation requirements. For leased systems, the typical lease period is seven years.

• Leases the System 2000 software. The software applies the metallurgical know-how and provides the operating logic for the System 2000 hardware. SinterCast charges an Annual Software Licence Fee and retains ownership of the software.

• Sells the sampling consumables: the Sampling Cup and the Thermocouple Pair. One Sampling Cup is consumed with each measurement. The Thermocouple Pair is re-used for approximately 150 measurements. One SinterCast measurement (one Sampling Cup plus 1/150 of a Thermocouple Pair) is required for each production ladle.

• Charges a Production Fee for each tonne of shipped castings, based on the as-cast (not machined) weight. There are 20 Engine Equivalents (50 kg each) per tonne.

• Provides technical support for product development, new installations and calibrations, and ongoing customer service.

The ultimate running fees (sampling consumables plus Production Fee) depend on the ladle size and the casting yield. Typical series production conditions for a V6 passenger vehicle diesel engine are:

As-cast cylinder block: 60~70 kg Ladle weight: 1,000~2,000 kg Casting yield: 60~70%

Under these conditions, and depending on currency exchange rates, the current typical running fees are approximately €40~50 per tonne of castings, equivalently, €2~2.50 for each Engine Equivalent.

The System 2000

The Sampling Cup

Business Model

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2008

Annual Report

4 CEO Message

CEO Message

If ever a year could be defined by a single event, then 2008 could be defined by the onset of the global economic crisis. In early 2008, most OEMs, particularly in the commercial vehicle sector, enjoyed full order books and the primary focus of the industry was on reducing delivery leadtimes. By autumn, orders had been cancelled and cost reduction measures were being implemented. Things that seemed unimaginable at the beginning of the year were happening routinely by the end of the year.

For SinterCast, 2008 started with a clear upswing in activities.

Several installation discussions were underway and our confidence in the ramp-up of the existing and pending series production programmes provided the driving force for the opening of a new representation office in China during March, and later, in July, the establishment of a new representation agreement in India. The overall market confidence also led to the first step in the utilisation of our carried forward tax losses in March, with SEK 75 million being utilised to provide a deferred tax asset of SEK 21 million.

The positive development continued with new series production programmes being launched in both the passenger vehicle and commercial vehicle sectors, culminating in record annualised production of 750,000 Engine Equivalents (37,500 tonnes/year) during September.

With the deepening of the economic crisis, automotive sales declined and foundry production volumes decreased. However, in parallel with the decline, the start of series production of the DAF 12.9 litre cylinder block and head at the Tupy foundry in Brazil and of the Volkswagen exhaust components at the Dashiang Precision foundry in China helped to offset the market decline.

Production volumes decreased from the September peak, but every single month in 2008 provided higher volume than the corresponding month in 2007. Ultimately, the full-year production finished at approximately 630,000 Engine Equivalents (31,500 tonnes), representing a growth of 40% compared to 2007.

The spread of SinterCast’s production over a variety of applications and geographical regions provides a solid foundation for the future, and allows us to benefit from potentially earlier economic recoveries in some countries. However, while we plan for the future, we must first navigate the current downturn. We are confident that we are in

control of our ship and that we have plotted the correct path but, like the rest of the supply industry, we are frustrated by the absence of an accurate weather forecast. Until the market shows signs to the contrary, we must plan for no economic recovery in our current markets during 2009. While we have implemented a pro-active liquidity protection plan, we know that cost savings alone are not the answer, and many of our customers share this realisation. Even if the media is dominated by announcements of cutbacks, our foundry and OEM partners continue to develop new products that will enable them to satisfy emissions legislation and gain market share.

Our message to our customers – current and potential – is that we should together take advantage of the current reduction in demand and utilise the free capacity to improve processes and develop new products. Many of our foundry partners have embraced this strategy and, during the first quarter of 2009, our engineers have been busier than ever before, supporting trials in Asia, Europe and the Americas.

These activities reinforce the development pipeline and provide opportunities for new installation revenues.

Internally, our focus during the downturn is on the continuous improvement of our own technology, to broaden our leadership position for CGI process control. As the CGI market continues to evolve, competitive technologies will continue to be presented and we must continually ensure that our technology and service provide the best process efficiency and overall value. We are currently working on every aspect of our technology, from the sampling consumables, to the software and the System 2000 hardware. We value the feedback from our customers and we are pleased to have been rewarded with an overall score of 96.3% in our Customer Quality Feedback rating for 2008.

Our development activities from earlier years will again bear fruit in 2009, with the start of new series production programmes, including the start of SinterCast-CGI series production for the US passenger vehicle sector. Although the start of V-diesel production for the US pick-up and SUV sector will not be as extensive as we had previously forecast, the new US programmes will provide incremental volumes and establish new competitive benchmarks. There has been considerable media attention regarding vehicle downsizing in the North American market, and indeed, the overall trend will be toward smaller vehicles. However, in quantitative terms, the US manufacturing facilities are being retrofitted to transition from a 60/40 (large/small) vehicle mix to a 40/60 mix – not at all a wholesale change. In parallel, the price penalty for diesel fuel over petrol in the US has decreased from 40% to approximately 10% over the past year. Together, these factors indicate that there will be a significant market for diesel engines in North America, and this continues to provide an important growth opportunity for SinterCast.

Over the years, we have succeeded to establish CGI as a viable material for high volume series production, and to establish SinterCast as the preferred technology partner of the foundry and automotive industries. The onset of the economic crisis has indeed been frustrating, arriving just as we expected new installations and increased production. However, the entire SinterCast team remains motivated and determined to realise our legacy of millions of SinterCast-CGI vehicles on the roads. We have invested so much effort and have been swimming for so long, we are determined to prosper now that we have reached the shore.

Dr Steve Dawson

President & CEO

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2008

Annual Report

5 Market Development

Market Development

SinterCast maintains a five year forecast of the expected end-user demand for each product. The forecast is revised on a quarterly basis and can be broadly broken down into programmes that are already in series production (current volume and potential mature volume), products that have been approved but have not yet started series production, and products that are under development. In general, the individual programmes gradually progress from the development phase to the approved category, and are thereafter launched into series production. The time required to progress through the entire development cycle is different for each product. A complex component such as a cylinder block may require approximately five years to enter into production and, by the very nature of development, some programmes may ultimately not be approved for production. Once in production, the ramp-up can be immediate for components that are substituting an existing product, while new products used in new vehicles may require approximately two years to reach the targeted mature volume.

In consideration of the current market conditions, many automotive OEMs have declined to issue public forecasts and have acknowledged that their supplier forecasts may not be accurate. This makes the forecasting for SinterCast, as a Tier II supplier, particularly difficult. SinterCast has primarily accounted for the current economic downturn by reducing probability factors on automotive programmes for 2009 and 2010, and by delaying the start dates for some approved programmes. These changes have a carry-on effect on 2011–13 volumes. According to the forecast compiled during December 2008, the current market outlook can be summarised as follows:

Approximate Annual Production and Revenue Potential

31 December 2008

Activity KEQVS* Tonnes/yr MSEK/yr**

Current Series Production ¹ 625 31,250 17

Potential Mature Volume ² 1,100 55,000 25

Production Orders Secured ³ 1,000 50,000 23

Development Pipeline ⁴ 2,800 140,000 64

Near-term Market Opportunity ⁵ 4,900 245,000 112

1 Annualised production rate based on December 2008

2 Annualised potential mature volume of Current Series Production when fully ramped-up

3 Annualised mature volume of programmes for which SinterCast’s foundry customers have secured production orders, but have not yet started series production

4 Annualised mature volume of development programmes that SinterCast is currently supporting, but have not yet been awarded as series production orders

5 Total Near-term Market Opportunity (sum of items 2, 3 and 4)

* KEQVS: Thousands of Engine Equivalents

** Assumes 23 SEK/Engine Equivalent on 31 Dec 2008

The changes made to the SinterCast forecast over the second- half of 2008 have resulted in a reduction of the near-term market opportunity from 5.5 million Engine Equivalents on 31 December 2007 to 4.9 million Engine Equivalents on 31 December 2008 (-11%). Most of this reduction has occurred in the development pipeline and therefore does not affect the near-term market development. Indeed, from December 2007 to December 2008, the annualised monthly production increased by 19%, from 525,000 Engine Equivalents to 625,000 Engine Equivalents and the actual full-year production increased by 40%, from 451,000 Engine Equivalents in 2007 to 630,000 Engine Equivalents in 2008. The development of the individual Five Waves for 2008 compared to 2007 is summarised as follows:

Thousands of

Engine Equivalents Percent

SinterCast Wave 2008 2007 Growth

1. V-diesels in Europe 260 315 -18

2. Commercial Vehicles 235 48 390

3. In-line diesels in Europe 0 0 0

4. Diesels beyond Europe 40 34 18

5. Petrol Engines 0 0 0

Automotive Non Block & Head 40 6 567

Industrial Power 60 48 25

Total: 630 451 40

The overall growth from 2007 to 2008 shows that SinterCast’s production volume is not directly linked to the overall market decline. This is primarily because the start of new programmes coming on-stream provides incremental volumes that offset the decline in the current programmes, and because many of the current production programmes are still in the ramp-up phase.

The performance of the individual waves also reveals the strong growth of the commercial vehicle sector and the automotive non block and head sector, primarily aided by the increased volume of exhaust component production in China and clutch component production in Turkey. This sector provides opportunity for further growth and also for new foundry installations.

The global economic crisis has had an obvious effect on automotive markets around the world. Independent forecasters such as CSM Worldwide and JD Power generally predict that the European market will decline from the 2007 level of approximately 16 million passenger vehicles per year to approximately 11 million units in 2009. Likewise, the US market is expected to decline from 17 million units in 2007 to approximately 10.5 million units in 2009. For SinterCast, with an extremely small percentage of the global passenger vehicle market, it is more relevant to focus on the specific programmes in which SinterCast-CGI components are used. In this regard, we remain confident in the long-term V-diesel sector in Europe and in diesel development in the US. Most independent forecasts predict a growth from the current US diesel penetration of approximately 3% to approximately 20% within the next decade. However, based on current market conditions, it is prudent to expect a flat year during 2009, with a particularly low first quarter caused by extended year-end shutdowns.

Beyond Europe and North America, where sales of large vehicles and V-engines are limited, SinterCast’s market opportunity is primarily related to commercial vehicle cylinder blocks and heads, and to the export of components such as clutchplates, exhaust manifolds and turbocharger housings. Following the opening of a new representation office in China and the establishment of a new representation agreement in India during 2008, SinterCast has established active contacts with the commercial vehicle manufacturers and many of the exporting foundries in these markets. The potential for earlier economic recoveries in the developing economies provides an opportunity for new installations and revenue growth during 2009 and 2010.

SinterCast’s market strategy focuses entirely on Compacted

Graphite Iron, to ensure a concentration of resources and to be

the clear market leader. Although the focus is limited to CGI, there

are a variety of product applications (currently ranging from 2 kg

to 17 tonnes), industry sectors and geographical regions in which

SinterCast is active. This distribution spreads the business risk and

provides growth opportunities for the SinterCast technology.

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2008

Annual Report

6 Envir onment

SinterCast and the Environment

SinterCast contributes to the environment both directly and indirectly. Directly in the foundry industry, the improved efficiency of the SinterCast process provides energy savings and reduced emissions. Indirectly in the automotive sector, CGI enables the production of smaller and more efficient diesel engines, thus improving fuel economy and reducing CO2 emissions.

When castings solidify, there is a volume contraction as the metal changes from liquid to solid. In some areas of the casting, particularly where thin and thick sections are in direct contact, this contraction can result in internal shrinkage porosity. In order to combat the shrinkage, foundry engineers place ‘feeders’

in the mould. These feed reservoirs provide additional liquid metal as the casting solidifies and contracts. For a typical 50 kg cast iron cylinder block (one Engine Equivalent), the total mould weight will normally be about 75 kg (67% mould yield).

The additional 25 kg is required to fill the pouring channels and the feeders. SinterCast’s ability to accurately control the CGI composition with low magnesium levels, low nodularity and optimal castability enables SinterCast’s foundry licensees to use less feeding.

Assuming that a foundry can improve the mould yield by 3%

when using the SinterCast technology, this corresponds to 3.2 kg of iron ‘saved’ for each Engine Equivalent. The energy required to melt cast iron is approximately 10,000 MJ/tonne, or equivalently 500 MJ for each Engine Equivalent. Accordingly, the 3.2 kg improvement in mould yield provides an energy saving of 32 MJ for each Engine Equivalent. Put into context, each litre of petrol provides an energy content of 34 MJ/litre. Thus, if SinterCast’s process control provides a yield improvement of just 3%, the production of every one million SinterCast- CGI Engine Equivalents can provide an energy saving equal to approximately 95,000 litres of petrol. Likewise, the improved process control reduces foundry scrap rates, providing similar energy savings. SinterCast’s primary contribution to the environment is process optimisation, process efficiency and right-first-time.

It is well known that weight reduction has a direct effect on fuel consumption in automobiles. This is particularly true in commercial vehicles, where it is normally accepted that every

500 kg of weight saving improves fuel economy by 0.5%. These statistics can be applied to the example of the International- Navistar 13 litre MaxxForce™ engine that was launched in the North American market during 2008 with a SinterCast-CGI engine, providing a 100 kg weight saving compared to similarly powered engines available in the market. For a fleet of 100 trucks, each hauling 200,000 km/year, the 100 kg weight saving corresponds to a fuel saving of approximately 8,100 litres of diesel fuel per year: a saving of EUR 8,000 for the fleet owner and 200 MJ of energy for society.

In the passenger vehicle sector, the use of CGI enables diesel engines to operate at higher temperatures and pressures, ultimately resulting in smaller and more efficient engines that emit less CO2. The most recent example of this is the Jaguar 3.0 litre V6 diesel engine that was launched in December 2008.

Despite the increased displacement and power relative to the 2.7 litre predecessor, the new engine provides a 12% improvement in fuel economy and a 10% reduction in CO2 emissions which, at only 179 g/km, are 28% lower than the CO2 emissions of the nearest available petrol engine option. SinterCast regards the reduced CO2 emissions of its CGI diesel engines as an important element of its environmental contribution. We believe that increased use of CGI diesel engines, particularly in large vehicles, is an important part of the solution for European OEMs to reduce the current fleet CO2 average of 158 g/km to the legislated target of 130 g/km (to be phased in between 2012 and 2015), and further to 95 g/km as proposed for 2020. We also believe that CGI diesel engines, again in large vehicles, will be an important part of the solution for the US passenger vehicle fleet to achieve the legislated increases in average fuel economy, including 28.6 miles per gallon (8.3 litres per 100 km) for pick- ups and SUVs by 2015, and 35 miles per gallon (6.8 litres per 100 km) for all vehicles by 2020.

Although many of the newer technologies, such as hybrids and biofuels, capture much of the media attention, the diesel engine has far greater penetration in the passenger vehicle and commercial vehicle sectors and, for most vehicles and driving modes, a better environmental profile. SinterCast will continue to support the foundry and automotive industries to promote the development and production of high efficiency, SinterCast-CGI diesel engines.

The SinterCast Process begins with an accurate analysis of the liquid iron. Based on the result of this analysis, additional amounts of magnesium

and/or inoculant are added to adjust the iron to the optimal CGI casting conditions, before casting. During series production, the average amount of

magnesium added in the final correction is approximately 20 g/tonne. The two-step measure-and-correct process eliminates process variation and

ensures cost-effective CGI production.

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2008

Annual Report

7 Pr oduct Of fering

Compacted Graphite Iron

Compared to conventional grey cast iron: higher strength and stiffness enable improved performance and fuel economy while reducing engine weight and emissions

Compared to aluminium: higher strength and stiffness provide improved performance and durability with smaller, more cost-effective and more recyclable engine packages Compared to ductile iron: Better castability and machinability provide opportunities for cost reduction in exhaust, clutch and structural components

Globally recognised by ISO 16112 and SAE J1887 standards, plus several national standards

System 2000

Fully automated process control system for high volume series production

Configurable hardware and software to suit any foundry layout, process flow and production volume

Flexibility to add new hardware modules to accommodate increases in production volume

Software access to allow independent customisation of parameter settings User-friendly interaction points with display screens in local language

Ladle-by-ladle results automatically downloaded to the foundry quality system ISO 9001 certified with proven track record for up-time reliability and robustness

Measurement & Control

Immersion sampling ensures constant volume and consistent thermal conditions Six separate hardware and software checks ensure that each sample is obtained under constant conditions

Unique, patented simulation of magnesium fading allows high volume CGI production with consistently low nodularity and minimal shrinkage

Reusable thermocouples ensure measurement accuracy and provide QS9000 traceability for each casting

Accurate thermal analysis results in consistent products with optimal castability, machinability and thermal conductivity

ISO 9001 certified and protected by six international patents

Customer Service

One week training course related to CGI metallurgy and System 2000 operation at SinterCast’s Technical Centre before each new installation

Customer sign-off on all hardware and software features before shipment SinterCast engineers provide on-site installation, commissioning and training

All Systems include modem access for SinterCast log-in, remote technical support and diagnostic testing

Annual Service Visits provide maintenance, upgrades and re-certification of the measurement electronics

Annual Customer Quality–Feedback surveys. 2008 Result: 96.3%

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2008

Annual Report

8 Management

The SinterCast Management

Daphner Uhmeier

Finance Director

Rönninge, Sweden Born 1962, BSc Nationality: Swedish Employed since 2004 No. of shares*: 500 No. of warrants

⁺

: 12,000

Steve Dawson

President & CEO

London, United Kingdom Born 1962, B.Eng, M.A.Sc., PhD, P.Eng

Nationality: Canadian Employed since 1991 No. of shares*: 27,000 No. of warrants

⁺

: 150,000

Steve Wallace

Operations Director

Rejmyre, Sweden Born 1967 Nationality: British Employed since 2003 No. of shares*: 1,500 No. of warrants

⁺

: 12,000

The Hyundai 3.9 Litre F-engine (courtesy Hyundai) The Hyundai 5.9 Litre G-engine (courtesy Hyundai)

With start of series production at the Hyundai Jeonju foundry in Korea during 2007, and market launch during 2008, the Hyundai F and G commercial vehicle engines contributed to SinterCast’s 390% growth in the commercial vehicle sector during 2008.

* As of 1 April 2009.

⁺

Warrant exercise date: 1 November 2009 – 31 January 2010.

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2008

Annual Report

9 Boar d

The SinterCast Board

Ulla-Britt Fräjdin-Hellqvist

MSc Eng, Ph, Chairman

Stockholm, Sweden

Born 1954, Nationality: Swedish Main duties: Fräjdin & Hellqvist AB

Other Board duties: Castellum AB, Friskvårdschecken, Kongsberg Automotive ASA, Ruter Dam (Chairman), Rymdbolaget AB, Stiftelsen för Strategisk Forskning (Chairman), Svedbergs, Tällberg Advisors and 4Cycle

Member of the Board since 2002 No. of shares*: 4,000

Aage Figenschou

LLM, Vice Chairman

Oslo, Norway

Born 1948, Nationality: Norwegian Main duties: Lawyer, Aage Figenschou AS

Other Board duties: B Skaugen AS, Blue Water Insurance Co ASA (Board member), Pareto Worldwide Shipping ASA, Simmons & Co International Inc and Sagex Oil ASA (Chairman)

Member of the Board since 1998 No. of shares*: 10,200

Andrea Fessler

BA, JD

Hong Kong, China

Born 1968, Nationality: Canadian

Main duties: Consultant, Legal & Business Affairs, Star TV Member of the Board since 2003

No. of shares*: 5,000

Robert Dover

FR Eng, FIED, FRSA

London, United Kingdom Born 1945, Nationality: British

Professor of Industrial Manufacturing, Warwick University

Former Chairman and CEO of Jaguar and Land Rover. Former Chairman and CEO Aston Martin Other Board duties: British Motor Industry Heritage Trust (Chairman), Jaguar Daimler Heritage Trust, Cambridge University IMRC Advisory Board (Chairman)

Member of the Board since 2004 No. of shares*: 1,000

Steve Dawson

B.Eng, M.A.Sc., PhD, P.Eng

London, United Kingdom Born 1962, Nationality: Canadian Member of the Board since 2007 No. of shares*: 27,000

No. of warrants+: 150,000

* As of 1 April 2009

+ Warrant exercise date: 1 November 2009 – 31 January 2010

Auditor

PricewaterhouseCoopers AB

Liselott Stenudd, Authorised Public Accountant

Company auditor since 2006.

Assignments: Haldex AB, the Swedish Cargotec companies, Diamyd Medical AB and Eltel Group.

Auditor

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2008

Annual Report

10 Dir ectors’ Report

Directors’ Report

The Board of Directors and the Managing Director of SinterCast AB (publ), corporate identity number 556233-6494, hereby submit the Annual Report and consolidated financial statements for 2008. SinterCast AB, the parent company of the SinterCast Group, is a publicly traded limited liability company with its registered office located in Stockholm, Sweden. Throughout this report, the use of the term SinterCast shall be regarded as referring the SinterCast Group.

SinterCast AB had 3,686 (3,806) shareholders on 30 December 2008. The largest shareholder, Gandhara Capital, Hong Kong, controlled 11.86% (12.14%) of the capital. The ten largest shareholders, of which six were nominee shareholders, controlled 47.29% (44.2%) of the capital and votes. Additional information about the SinterCast share and shareholders can be found in the Shareholder section of the Annual Report, page 36.

SinterCast provides on-line process control technology to the cast iron foundry industry to enable the reliable high volume production of Compacted Graphite Iron. CGI is primarily used in diesel engine cylinder blocks and heads, for passenger vehicle, commercial vehicle and industrial power applications.

Financial Statements

The following parts of the Annual Report are financial statements and have been audited: Directors’ Report; Income Statement;

Cashflow Statement; Balance Sheet and Changes in Equity Capital for both the consolidated Group and the parent company;

and, the Notes. The remainder of this Annual Report has been reviewed by the auditors.

Financial Summary Revenue

The revenue for the SinterCast Group relates primarily to income from equipment (sales and leases), series production, and engineering service. Series production revenue for the full year increased by approximately 23% compared to 2007, to SEK 17.2 million. This increase in the series production revenue enabled SinterCast to achieve increased total revenue during 2008, despite a SEK 1.2 million reduction in equipment revenue compared to 2007. The equipment revenue during the year mainly relates to the complete set of System 2000 back-up modules delivered to the Dashiang Precision foundry in China and to the delivery of

equipment to conduct an extended production trial at a major international foundry. The reduction in equipment revenue during 2008 is primarily due to the global economic uncertainty, which affected foundry investment decisions during the second half of the year. Despite the investment delays, many installation discussions remain active and provide opportunities for new installation revenues during 2009.

Revenue Breakdown January – December

(Amounts in SEK million if not otherwise stated) 2008 2007

Number of Sampling Cups shipped 57,600 50,170

Equipment ¹ 5.7 6.9

Series Production ² 17.2 13.9

Engineering Service ³ 1.8 1.9

Other 0.1 0.1

Total 24.8 22.8

1 Includes revenue from System 2000 sales and leases, and sales of the Mini-System 2000 and spare parts

2 Includes revenue from production fees, consumables and software licence fees

3 Includes revenue from technical support, on-site trials and sales of test pieces

Result

The full year operating result of SEK -5.7 million is SEK 0.6 million lower than the 2007 result. This result is primarily affected by increased investment in personnel, increased sales activities and associated travel expenses, and new market development, primarily in India and China. Following the capitalisation of the deferred taxes, the result after financial net and taxes was SEK 13.1 million, which is SEK 17.6 million higher than the same period 2007.

January – December (Amounts in SEK million if not otherwise stated) 2008 2007

Operating Result -5.7 -5.1

Result after calculated tax 13.1 -4.5

Result after tax per share (SEK) 2.4 -0.8

Cashflow, Liquidity and Investments

The full year cashflow result of SEK -7.3 million was primarily affected by the lower than expected equipment revenue, increased personnel and recruitment costs (on average, 16 employees during 2008 compared to 14 employees during 2007), and the establishment of the new representation activities in China and India. The cashflow result of SEK -7.3 million results from the combined effect of cashflow from operations of SEK -3.3 million, increase in working capital of SEK -3.7 million and investments of SEK -0.3 million. The increase in working capital affects SinterCast during the current transition period toward higher production activities, as stock levels and accounts receivables are increased in combination with decreased liabilities. Investments by the Group during the period amounted to SEK 0.3 million (SEK 0.4 million).

January – December (Amounts in SEK million if not otherwise stated) 2008 2007

Cashflow from operating activities -3.3 -2.2

Cashflow from working capital -3.7 4.4

Cashflow from Investment activities -0.3 -1.4

Cashflow total -7.3 0.8

Liquidity 9.0 16.3

Investments 0.3 0.4

The new Jaguar 3.0 litre V6 diesel, based on a SinterCast-CGI cylinder block, provides a 12% improvement in fuel efficiency and a 10%

reduction in CO2 emissions compared to its 2.7 litre V6 predecessor.

(courtesy Jaguar)

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2008

Annual Report

11 Organisation and Human Resources

The Group management and sales activities are based at the headquarter office in London, UK. The Technical Centre in Katrineholm, Sweden is responsible for technical and commercial support of ongoing foundry production activities, product development, production of the control systems and sampling consumables, ISO 9001:2000 quality certification, and finance and administration. Local support of customer activities in North and South America is provided by SinterCast Inc., based in Chicago, USA, while local support for the Chinese market is provided by the SinterCast AB Shanghai Representative Office, which began operation on 13 March 2008. Technical back-up is provided by the Technical Centre in Katrineholm.

In order to expand SinterCast’s market reach, representation agreements have been established with Ashland Casting Solutions on a global basis, ASD International in Japan, Pantech Engineering in Australia and with the STPC (Swedish Trade Promotion Center) in Korea. Consultancy agreements have also been established to support SinterCast’s local sales activities in France and India. Together with the global presence of technology partners such as ABP for foundry automation, Grainger & Worrall for rapid prototyping and MAG Industrial Automation Systems for manufacturing, the representation and consultancy agreements provide a familiar and respected local presence for the SinterCast technology.

Two new employees joined the Company on 1 January 2008, both of whom are university graduates with PhD degrees. As of 31 December 2008, the Group had 15 (14) employees whereof three were female. Further recruitment will be phased with the development of field activities, particularly the need to support new installations.

The Annual General Meeting 2008 decided upon a remuneration policy in respect of senior management such that the total remuneration shall be competitive and in line with market conditions, and provide room for reflection of outstanding achievements. The benefits shall consist of fixed salary, possible variable remuneration, other customary benefits and pension.

These principles have been followed during the year and the Board will propose to the Annual General Meeting 2009 that the principles for compensation and other terms of employment for senior management remain unchanged for the coming year. However, the Board will also propose to the Annual

General Meeting 2009 that the current employee stock option programme be revised, to incorporate a reduced strike price.

R&D and Patents

SinterCast’s Research and Development (R&D) activities are based at the Technical Centre in Katrineholm, Sweden. While the technical focus has evolved from R&D toward series production and customer support, research activities continue for the continuous improvement of the accuracy and reliability of the sampling consumables and the expansion of the System 2000 user-friendliness and functionality in order to maintain and extend SinterCast’s market leadership position. During 2008, SinterCast embarked on an extended production trial which has further developed the control technology for the continuous production of CGI from pressurised pouring furnaces.

SinterCast currently holds 16 (18) patents. The core technology is primarily protected by ten of the most recent patents that will remain valid until at least 2015. During the early-1990s, SinterCast’s strategy was to aggressively file new patents, in order to establish and protect the value of the technology. As the market development has evolved, and the valuation of the company has become more directly linked to the market activities, SinterCast has gradually transitioned from a strategy of publishing patents to retaining internal know-how. It is judged that this provides better protection of the application technology.

During 2008, several patents were intentionally allowed to lapse.

It was judged that these older patents no longer reflected SinterCast’s current technology and that the protection offered did not warrant continued payment of the annual fees. SinterCast currently maintains 79 (91) individual national phase patents granted or pending worldwide. The 16 base patents address SinterCast’s metallurgical technology, the Sampling Cup, product applications and machining.

Environment

SinterCast operates within the environmental limits established by local and national legislation and does not have any operations that require any specific environmental permission or concessions from the authorities.

Dir ectors’ Report

The cylinder head of the DAF 12.9 litre ‘MX’ commercial vehicle engine, which began series production at the Tupy Mauá foundry during 2008 (courtesy DAF and Tupy)

The DAF 12.9 litre ‘MX’ cylinder block. Each cylinder block and head

‘set’ weighs 575 kg and provides 11.5 Engine Equivalents (courtesy DAF

and Tupy)

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2008

Annual Report

12 Dir ectors’ Report

Risks and Uncertainty Factors;

Global Economic Crisis

The main uncertainty factor for SinterCast is the timing of the CGI market ramp-up, which primarily depends on the global economy for new vehicle sales and on the individual sales success of the vehicles equipped with SinterCast-CGI components. The economic conditions facing the global foundry and automotive industries have resulted in significant reductions in demand in both the passenger vehicle and commercial vehicle sectors. Despite the start of new SinterCast-CGI production programmes during 2008, the overall market decline resulted in a reduction of the near-term market opportunity from 5.5 million Engine Equivalents (31 December 2007) to the 31 December 2008 value of 4.9 million Engine Equivalents.

Liquidity

SinterCast has historically been financed by risk capital provided by its shareholders. SinterCast regularly monitors its cash position with reference to market forecasts and expense budgets. During recent years, the revenue has increased, thus significantly reducing the financing risk. While the Company believes that the start of production of new SinterCast-CGI programmes will help to offset the global decline in automotive volumes, and that new installations during 2009 will provide cash injections to reinforce the liquidity, a pro-active liquidity protection plan has already been implemented. The objective of this plan is to reduce expenses, including personnel costs. The Board and Management continuously monitor the status of the current and future SinterCast-CGI programmes, as well as the overall market development, to navigate the Company through the economic crisis.

For further information on risks and uncertainty factors please see Note 28.

Events after the balance sheet date

A conditioned bank loan amounting to SEK 3 million has been given to the Company as per 27 March 2009. There have been no other significant events since the balance sheet date of 31

December 2008 that could materially change these financial statements.

The balance sheets and the income statements will be adopted at the Annual General Meeting of shareholders on 7 May 2009.

Annual General Meeting

The Annual General Meeting 2009 will be held at 15:00 on 7 May 2009 at The Royal Swedish Academy of Engineering Sciences (IVA), Grev Turegatan 16, Stockholm.

Proposals to the Annual General Meeting 2009 The Board of Directors propose no dividend and that the Company shall retain the total amount of non-restricted equity, SEK 11,276,847.

The Board of Directors propose to authorise, on an annual basis, a share buy-back programme.

The Board of Directors propose to revise the strike price of the employee stock option programme that was established at the Annual General Meeting 2006.

The Board of Directors propose to receive a mandate for an increase in share capital through one or more issues.

The Tupy foundry in Brazil, a SinterCast licensee since the year 2000, with two SinterCast installations, produces a larger variety of CGI components than any other foundry in the world (courtesy Tupy)

The General Motors V8 was the first CGI engine to be used in NASCAR.

Today, more than 80% of the NASCAR grid relies on SinterCast (courtesy

GM)

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2008

Annual Report

13 Income Statement

Income Statement

GROUP PARENT COMPANY

AMOUNTS IN SEK MILLION Note 2008 2007 2008 2007

Revenue 1, 2, 11 24.8 22.8 22.3 20.7

Cost of goods sold 4, 19 -9.4 -8.7 -9.3 -8.3

Gross result 15.4 14.1 13.0 12.4

Cost of sales and marketing 4, 6, 11 -11.0 -9.8 -11.1 -8.8

Cost of administration 4, 5, 6, 11 -6.5 -6.3 -6.6 -6.2

Cost of research & development 3, 4, 6, 7, 11 -3.9 -4.1 -3.9 -4.1

Other operating income 12 0.0 1.0 0.2 1.0

Other operating costs 12 0.3 0.0 0.0 0.0

Operating result 1 -5.7 -5.1 -8.4 -5.7

Financial Income 13 0.7 0.9 0.6 1.0

Financial Costs 13 -0.4 -0.3 -0.4 -0.3

Financial net 0.3 0.6 0.2 0.7

Result after financial income and expenses -5.4 -4.5 -8.2 -5.0

Income tax 14 18.5 0.0 18.5 0.0

Result for the year for the parent company shareholders 13.1 -4.5 10.3 -5.0

Average number of shares, thousands 27 5,552.9 5,552.9 5,552.9 5,552.9

Earnings per share, SEK 2.4 -0.81 1.9 -0.9

Earnings per share diluted, SEK 2.4 -0.81 1.9 -0.9

Dividend – – – –

Cashflow Statement

GROUP PARENT COMPANY

AMOUNTS IN SEK MILLION Note 2008 2007 2008 2007

Operating activities

Operating result -5.7 -5.1 -8.4 -5.7

Adjustments for items not included in the cashflow

Depreciation 15, 16 1.2 1.3 1.2 1.1

Other 0.6 0.9 0.3 0.7

Exchange rate differences 0.3 0.1 0.2 0.0

Received interest 13 0.7 0.9 0.6 0.8

Paid interest 13 -0.4 -0.3 -0.4 -0.3

Income tax 0.0 0.0 0.0 0.0

Total cashflow from operating activities before change in working

capital

-3.3 -2.2 -6.5 -3.4

Change in working capital

Stock 19 -1.8 0.3 -1.8 0.3

Operating receivables 17 -0.5 1.9 -0.3 0.5

Operating liabilities 20, 21, 22, 23, 24 -1.4 2.2 1.7 4.4

Total change in working capital -3.7 4.4 -0.4 5.2

Cashflow from operating activities -7.0 2.2 -6.9 1.8

Investing activities

Acquisition of intangible assets 15 -0.2 -0.3 -0.2 -0.3

Acquisition of tangible assets 16 -0.1 -0.1 -0.1 -0.1

Decrease in long-term receivables 22 0.0 -1.0 0.0 -1.0

Cashflow from investing activities -0.3 -1.4 -0.3 -1.4

Change in cash and cash equivalents -7.3 0.8 -7.2 0.4

Cash – opening balance 16.3 15.5 15.4 15.0

Cash – closing balance 28 9.0 16.3 8.2 15.4

Cashflow

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2008

Annual Report

14 Balance Sheet – Gr oup

Balance Sheet – Group

AMOUNTS IN SEK MILLION Note 31 Dec 2008 31 Dec 2007

ASSETS Fixed assets

Intangible assets 15

Patents 3.5 4.4

Total intangible assets 3.5 4.4

Tangible assets 16

Computers, fixtures and fittings 0.1 0.1

Plant and machinery 0.0 0.0

Total tangible assets 0.1 0.1

Financial assets

Other long-term receivables 18 18.7 0.2

Total financial assets 18.7 0.2

Total fixed assets 22.3 4.7

Current assets

Stock 19

Finished products 5.0 3.2

Total stock 5.0 3.2

Short-term receivables

Trade debtors 17, 28 2.5 2.5

Other debtors 20, 28 0.5 0.4

Prepaid expenses and accrued income 21, 28 1.4 1.0

Total short-term receivables 4.4 3.9

Cash and cash equivalents 28 9.0 16.3

Total cash and cash equivalents 9.0 16.3

Total current assets 18.4 23.4

TOTAL ASSETS 1 40.7 28.1

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2008

Annual Report

15 Balance Sheet – Gr oup Statement of Changes in Equity – Gr oup

Balance Sheet – Group (Continued)

SHAREHOLDERS’ EQUITY AND LIABILITIES

Share capital 26, 27 5.6 5.6

Additional paid in capital 9.5 81.2

Exchange differences 28 6.3 6.3

Accumulated result 12.7 -73.1

Total shareholders’ equity 34.1 20.0

Long-term liabilities

Other long-term liabilities 22 0.0 0.0

Total long-term liabilities 0.0 0.0

Current liabilities

Accounts payable 28 2.0 2.7

Other current liabilities 23, 28 1.0 1.0

Accrued expenses and prepaid income 24, 28 3.3 4.4

Provisions 24 0.3 –

Total current liabilities 6.6 8.1

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 40.7 28.1

Statement of Changes in Equity – Group

AMOUNTS IN SEK MILLION Note Share

Capital Additional Paid

In Capital Exchange

differences Accumulated

Results Total

Equity

Opening Balance 1 January 2007 5.55 81.27 6.05 -69.44 23.43

Exchange rate differences foreign subsidiaries – – 0.24 – 0.24

Total transaction recognised in equity – – 0.24 – 0.24

Result for the period – – – -4.55 -4.55

Total recognised income and expense for 2007 – – 0.24 -4.55 -4.31

Employee stock option programme – – – 0.93 0.93

Closing Balance 31 December 2007 27 5.55 81.27 6.29 -73.06 20.05

Exchange rate differences foreign subsidiaries 28 – – 0.06 – 0.06

Total transaction recognised in equity – – 0.06 – 0.06

Result for the period 14 – – – 13.10 13.10

Total recognised income and expense for 2007 – – 0.06 13.10 13.16

Transfer of tied up capital to Accumulated deficit – -71.74 – 71.74 –

Employee stock option programme 6 – – – 0.94 0.94

Closing Balance 31 December 2008 27, 28 5.55 9.53 6.35 12.72 34.15

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2008

Annual Report

16 Balance Sheet – Par ent Company

Balance Sheet – Parent Company

ASSETS Fixed assets

Intangible assets 15

Patents 3.5 4.4

Total intangible assets 3.5 4.4

Tangible assets 16

Computers, fixtures and fittings 0.1 0.1

Plant and machinery 0.0 0.0

Total tangible assets 0.1 0.1

Financial assets

Shares in subsidiaries 26 1.6 1.0

Deferred tax assets 14 18.5 –

Total financial assets 20.1 1.0

Total fixed assets 23.7 5.5

Current assets

Stock 19

Finished products 5.0 3.2

Total stock 5.0 3.2

Short-term receivables

Trade debtors 28 1.8 1.7

Inter company receivables 0.8 0.4

Other debtors 20, 28 0.5 0.4

Prepaid expenses and accrued income 21 0.7 0.6

Total short-term receivables 3.8 3.1

Liquidity 28 8.2 15.4

Total liquidity 8.2 15.4

Total current assets 17.0 21.7

TOTAL ASSETS 40.7 27.2

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2008

Annual Report

17 Balance Sheet – Par ent Company Statement of Changes in Equity – Par ent Company

Balance Sheet – Parent Company (Continued)

SHAREHOLDERS’ EQUITY AND LIABILITIES Restricted capital

Share capital 26, 27 5.6 5.6

Statutory reserve 9.5 81.3

Accumulated result

Result brought forward 1.0 -66.8

Result for the year 14 10.3 -5.0

Total shareholders’ equity 26.4 15.1

Long-term liabilities

Other long-term liabilities 0.1 0.1

Total long-term liabilities 0.1 0.1

Current liabilities

Accounts payable 28 1.5 2.2

Inter company payable 9.5 5.2

Other current liabilities 23, 28 0.7 0.9

Accrued expenses and prepaid income 24 2.5 3.7

Total current liabilities 14.2 12.0

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 40.7 27.2

Contingent liability

Buy-back option for equipment 25 1.0 0.5

Statement of Changes in Equity – Parent Company

AMOUNTS IN SEK MILLION Note Share

Capital Statutory

Reserve Share Premium

Reserve Results Brought

Forward Results For

the Year Total

Equity

Opening balance 1 January 2007 5.55 81.27 – -58.02 -9.70 19.10

Appropriation of last year’s loss – – – -9.70 9.70 –

Result for the year – – – – -4.95 -4.95

Total recognised income and expense for 2007 – – – -9.70 4.75 -4.95

Employee stock option programme – – – 0.93 – 0.93

Closing balance 31 December 2007 27 5.55 81.27 – -66.79 -4.95 15.08

Appropriation of last year’s loss – – – -4.95 4.95 –

Result for the year 14 – – – – 10.34 10.34

Total recognised income and expense for 2008 – – – -4.95 15.29 10.34

Transfer of tied up capital to Accumulated results -71.74 71.74 –

Employee stock option programme 28 – – – 0.94 – 0.94

Closing balance 31 December 2008 27, 28 5.55 9.53 – 0.94 10.34 26.36

(17)

2008

Annual Report

18 Accounting Policies

Accounting Policies

General Information

The consolidated financial accounts for SinterCast AB (Parent Company) for the financial year ending 31 December 2008 were approved on 9 April 2009 by the Board of Directors and the Managing Director, for publication on 17 April 2009 and will be presented at the Annual General Meeting on 7 May 2009 for approval. SinterCast AB (publ) is the parent company of the SinterCast Group with its registered office located in Stockholm, Sweden.

SinterCast is the world leading supplier of process control technology for the reliable high volume production of Compacted Graphite Iron (CGI).

Basis of Preparation

The consolidated financial statements for 2008 have been prepared in accordance with International Financial Reporting Standards (IFRS), as endorsed by the European Union. The consolidated accounts of the Group also comply with the Swedish Annual Accounts Act and the Swedish Financial Accounting Standards Council’s recommendation RFR 2.2 – Supplemental Accounting Rules for Groups. The accounts of the parent company comply with the Swedish Annual Accounts Act and the Swedish Financial Accounting Standards Council’s recommendation RFR 2.1 – Accounting for Legal Entities. The accounting policies used by the parent company comply with the policies used by the Group unless otherwise stated. The consolidated financial statements have been prepared under the historical cost convention, unless otherwise stated.

As of 1 January 2009 the Group will apply the following new and revised standards and interpretations. Other new standards and interpretations are not judged to be relevant to SinterCast’s financial statements. Applying the new standards and interpretations is not expected to have any significant impact on the result or shareholders’ equity. The primary effect of the new standards will be on the layout of the financial statement.

Amendment to IAS 1 presentation of financial statements – information on equity to be presented in financial statements. The amended IAS requires information to be presented on the level of the entity’s equity and its administration during the fiscal period and has been effective from 1 January 2009.

The standard IFRS 8, Operating Segments, has been in effect from 1 January 2009. The standard deals with the financial presentation of the entity’s activities into different segments. According to the standard, SinterCast should present its operations in accordance with the internal reporting structure used by management. However, SinterCast’s financial statements already conform with the internal reporting structure and therefore, the new standard will not change the presentation format.

More information is available in the section entitled Cost by Functions and Segment Reporting.

Critical Accounting Judgements and Estimates

To establish financial statements according to IFRS, judgement of how to use accounting policies is needed. Further, the management must estimate how to apply chosen accounting principles. The principle of capitalisation of patent costs and the valuation of deferred taxes on tax losses carried forward are important for SinterCast.

Costs that are directly associated with filing a patent controlled by the Group in a new market, and where the patent will probably generate economic benefits exceeding costs beyond one year, are recognised in the balance sheet. In applying this principle, management considers the probability of future benefits in the specific local market, for each patent.

During 2008, several national phase patents were intentionally allowed to lapse. It was judged that these older patents no longer reflected SinterCast’s current technology and that the protection offered did not warrant continued payment of the annual fees. More information in Note 15.

The standard for accounting for deferred tax is IAS 12 “Income Taxes”.

SinterCast’s interpretation of IAS 12 is that recognition of deferred tax assets for the carry forward of unused tax losses, when no taxable profit has yet been reported, is subject to meeting two criteria. The first criterion is that deferred tax assets may be recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised. The second criterion is that, for a business that has yet not reported taxable profits, convincing evidence must be presented to demonstrate that sufficient taxable profit will be available. None of SinterCast’s carry forward tax losses had been capitalised prior to 2008. More information in Note 14.

SinterCast uses a model to determine when the recognition criterion of convincing evidence can be met. Convincing evidence, that can be objectively established, is obtained from the SinterCast business model in the form of its contracts with foundries for the engine programmes that are in current series production, or where SinterCast’s foundry customers have received definitive orders for future series production, also referred to as secured production. The input for the model includes forecasted tonnes, communicated by the foundry and/or OEM, adjusted with probability factors for each engine programme. The probability factors are reviewed regularly and include safety margins to mitigate possible overestimates.

The above model is only used to decide when the convincing evidence criteria required by IAS 12 are met, and does not constitute a profit forecast. As of the 31 March 2008 balance sheet date, the model described above did provide sufficient evidence that the carried forward tax losses could be recognised. Therefore, deferred tax assets have been recognised in the Annual Report 2008.

Share Based Compensation Plan

The Group has an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. At each balance sheet date, the Company revises its estimates of the number of options that are expected to vest.

It recognises the impact of the revision of original estimates, if any, in the income statement, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

Provisions for social security costs are calculated pursuant to RR Emerging issues taskforce statement UFR 7 by applying the same valuation model used when the options were issued. The provision is re-valued at the end of each accounting period on the basis of the calculation of the expenditure that may arise when the instruments are exercised. The calculated amount is accrued in relation to the vesting period.

SinterCast conducts valuation pursuant to the Black & Scholes model, which considers factors such as share price, remaining time to exercise, volatility and risk-free interest rates. The payment of social security costs coincident with the employees’ exercise of options is offset against the provisioning pursuant to the above.