ANNUAL REPORT 2006

(1)

BILIA

ANNUAL REPORT 2006

DIRECTORS´ REPORT

Group and Parent Company

Operations – general

Bilia is Scandinavia’s largest car chain, with a leading position in servicing and sales of cars and transport vehicles plus supplementary services. The Group has 96 facilities in Sweden, Norway and Denmark plus an online auction site, Netbil.

Bilia’s vision is to be the best service company in the business with the goal of having the most satisfi ed customers in our showrooms, our stores and our workshops. The customer should fi nd dealing with Bilia a pleasant experience. Bilia has a well-developed range of services and products in the Service Business, which includes workshop services, spare parts, store sales and fuel sales. Bilia is constantly developing new services and service concepts to simplify car ownership for our customers.

The Car Business includes sales of new and used cars, light transport vehicles, customer fi nancing and supplementary services. Bilia sells cars from Volvo, Renault, Ford, Land Rover, Hyundai, BMW, Honda, Nissan and Mini as well as light transport vehicles from Renault, Ford, Hyundai and Nissan.

Ownership

Bilia had 26,497 shareholders at the end of 2006, compared with 28,911 a year earlier. The proportion of institutional ownership amounted to 18.3 per cent (15.3), while the proportion of foreign ownership amounted to 12.5 per cent (16.0).

In 2006 Bilia bought back a total of 1,669,900 shares, equivalent to 7.2 per cent of the share capital, for a total of SEK 164 M. On 31 December 2006, the company’s holding of own shares amounted to 1,669,900 shares.

Market trend

Overall demand for new cars and service in Bilia’s market areas was at a good level. Demand for used cars in Bilia’s markets and service in Sweden was weak at the beginning of the year

but grew stronger during the second half of the year. The market for new cars increased in Sweden and Denmark by 3 and 5 per cent, respectively, while it decreased by 1 per cent in Norway.

Notable events during the year

·

In February, Bilia acquired Tronrud Bil Holding AS, Norway’s largest BMW dealer. Tronrud Bil Holding AS is a member of the Bilia Group as of the acquisition date.

·

The Annual General Meeting on 19 April resolved to spin off Bilia’s property portfolio, Catena AB, and distribute the shares to Bilia’s shareholders. Catena’s net profi t for the fi rst quarter of 2006 and the full year 2005 is reported under the heading “Profi t from discontinued operation”.

·

Financial goals – As a consequence of the spin-off of Catena, the operating margin target has been reduced from 3.0 per cent to 2.2 per cent. Other fi nancial goals are unchanged.

·

Acting on the authorisation of the AGM, the Board of Direct- ors resolved to buy back the company’s own shares. As of 5 February 2007, Bilia’s holding of its own shares amounted to 1,669,900 shares, with an average price of SEK 98 per share.

The Annual General Meeting has authorised the Board to acquire a total of 2,312,915 Bilia shares.

·

On 7 June, the Stockholm City Court acquitted Bilia and seven other Volvo dealers of charges of illegal price collusion during the period 1998–2002. The Swedish Competition Authority’s demand for a restraint-of-trade fi ne of SEK 55.3 M was dismissed and Bilia was awarded compensation for litiga- tion costs. On 28 June, the Swedish Competition Authority appealed the judgement to the Market Court, which is the fi nal instance. The case is expected to come up for review in the end of 2007.

The Board of Directors and Managing Director of Bilia AB (publ), Corp. ID no. 556112-5690, hereby submit their annual report and consolidated fi nancial statements for fi nancial year 2006.

Key figures

Group 2006 2005 2004

Net turnover, SEK M 14,056 12,074 11,592

Operating profit, excluding items affecting comparability, SEK M 130 202 320

Operating margin, excluding items affecting comparability, % 0.9 1.7 2.8

Operating profit, SEK M 109 194 329

Profit before tax, SEK M 118 190 307

Net profit for the year, SEK M 93 190 202

Return on capital employed, % 6.2 10.0 18.3

Return on equity, % 6.3 15.8 16.6 ¹⁾

Net debt/equity, times –0.02 0.69 0.28 ¹⁾

Cash flow from operating activities, SEK M 446 185 243

Equity/assets ratio, % 28 22 22 ¹⁾

Earnings per share, SEK 4.15 8.20 8.35

Equity per share, SEK 78 56 48 ¹⁾

Number of employees, 31 December 3,458 3,219 2,979

1) Calculated excluding new issue of 37.7 million subordinated shares of Series C.

(3)

·

Bilia started sales and servicing of Hyundai’s cars and light trucks in the Oslo area, beginning from Bilia’s facility in Jessheim.

·

Bilia signed a letter of intent to acquire the business in a Ford and Mazda dealer in Sweden: Bilgruppen i Enköping Sala AB and Bilgruppen i Kungsängen AB. The business is expected to report a turnover of about SEK 200 M in 2007. The purchase price, equivalent to acquired assets, is estimated at just under SEK 50 M. The number of employees is 42.

·

Bilia reached a settlement with the tax authority in Hamburg entailing a total cost for Bilia of SEK 0.9 M. The tax author ity’s original claim was about SEK 19 M.

·

Bilia in Norway sold its shareholding in Viking Rednings- tjeneste with a capital gain of SEK 6.8 M.

Sales and earnings

Net turnover amounted to SEK 14,056 M (12,074). Adjusted for exchange rate changes and comparable operations, net turnover increased by about SEK 455 M or 4 per cent. The increase is mainly attributable to increased turnover from sales of new cars.

Operating profi t amounted to SEK 109 M (194). Items af fecting comparability reduced the profi t by SEK 21 M (–8).

The difference compared with last year, excluding items affecting comparability, was SEK –72 M. The decrease in profi t is attributable to the fi rst six months and can be explained by lower demand for service in Sweden, non-recurring costs in connection with the expansion of workshop capacity, and a lower margin in used car sales in Norway. In addition, the new oper ations, Netbil and Tronrud Bil, had a negative effect on operating profi t of SEK 47 M, of which SEK 23 M pertains to the fi rst six months.

The result from customer fi nancing amounted to SEK 114 M (115). Items affecting comparability (see table) amounted to a net of SEK –21 M (–8) and consist of SEK –11 M (–) in closure cost for an operation in Göteborg, SEK –9 M (–2) in costs for

disputes, SEK 0 M (–3) in costs for the spin-off of Catena and SEK –1 M (–3) in costs for disposals.

Net fi nancial items amounted to SEK 9 M (–4). The fi gure includes the profi t share from the indirect shareholding in AB Volvofi nans in the amount of SEK 17 M (15) and the gain from the sale of the shares in Viking Redningstjeneste in the amount of SEK 7 M (–).

Net profi t for the year amounted to SEK 93 M (190) and earnings per share to SEK 4.15 (8.20). Exchange rate changes only affected the profi t marginally. Profi t from discontinued operation is included in the profi t for the year in the amount of SEK 5 M (57) and SEK 0.25 per share (2.50).

Investments and disposals

Investments and disposals amounted to SEK 275 M (266).

Replacement investments represented SEK 22 M (42), expansion investments SEK 45 M (34), environmental investments SEK 4 M (4) and investments in new construction and additions to properties SEK 3 M (57). Net investments in leased vehicles and fi nance leases amounted to SEK 201 M (129).

Financial position

The balance sheet total amounted to SEK 6,064 M (5,962).

The acquisitions of Tronrud and the operation in Michaelsson

& Nelin AB increased the balance sheet total by about SEK 500 M, while the spin-off of Catena reduced the balance sheet total by about SEK 750 M. Current interest-bearing assets increased by about SEK 170 M.

Cash fl ow from operating activities amounted to SEK 446 M (185). Cash fl ow after investments amounted to SEK 48 M (–33). Net debt decreased by SEK 915 M during the year, and a net claim of SEK 31 M was reported at year-end.

Equity amounted to SEK 1,684 M (1,286). Equity was affected during the quarter by a cash dividend to the shareholders of SEK 185 M, a buy-back of own shares amounting to SEK 164 M, and the spin-off of Catena which resulted in an equity contribution of SEK 665 M. The proposed dividend of SEK 8.00 per share utilises SEK 172 M of Bilia’s equity.

The equity/assets ratio amounted to 28 per cent (22) at the end of the year.

Personnel

Skilled and motivated employees who are prepared to develop and step in when needed are a prerequisite for keeping Bilia’s customer satisfi ed and loyal, which is crucial for Bilia’s continued success.

The basis for the professional development of the employees is the performance appraisal interview they have at least once a year with their immediate superior. The point of departure for the employee interview is the individual’s existing knowledge, skills and needs. Together, the employee and his superior arrive at a plan that will promote personal development, job satisfaction and effi ciency.

Bilia Academy is the name of the Group’s internal training unit, which started in 2001. Bilia Academy conducts regular surveys of the training need. Tailored trainings are then put

Group, SEK M 2006 2005

Operating profit excluding

items affecting comparability 130 202 Items affecting comparability

Gain/loss from property sales –1 2

Structural costs etc. –11 –5

Catena 0 –3

Disputes –9 –2

Operating profit 109 194 Profit before tax excluding

items affecting comparability 132 198 Items affecting comparability

Gain from property sales/shares 6 2

Structural costs etc. –11 –5

Catena 0 –3

Disputes –9 –2

Profit before tax 118 190 Items affecting comparability

(4)

together aimed at target groups with different duties in Bilia.

The training is aimed at enhancing competencies within spe- cifi c areas, strengthening the corporate culture with Bilia’s vision and core values, and at the same time contributing to an experience exchange and a broadened contact network for Bilia’s employees.

Bilia works continuously to improve the working environment at the Group’s facilities. A good working environment is a prerequisite for healthy, happy and motivated employees. The ambition in the workshops is to create environments that are light, airy, clean and quiet.

The average number of employees in the Group during the year amounted to 3,063 (2,888), of whom 1,852 (1,882) work in Sweden. The number of employees at 31 December 2006 was 3,458.

Risks

Bilia’s business operations are associated with risks. Bilia can infl uence certain factors, while others are beyond the Group’s control. But the ambition is to identify threats and possibilities at an early stage so that steps can be taken quickly to avoid problems.

Market trend

Demand for Bilia’s products and services is infl uenced by fl uctuations in the business cycle. In recessionary periods, some customers choose to put off their car purchases. Factors that infl uence the market trend include the labour market situation, stock market performance, interest rates and fuel prices. The positioning of Bilia as a Service Company stabilises earnings, since the Service Business is less cyclical than the Car Business.

Cars require service and repairs regardless of the state of the economy.

Increased competition

The EU’s former Block Exemption for the motor vehicle industry was abolished as of 30 September 2003, after a transition period of one year. On 1 October 2005, the so-called location clause that had enabled the manufacturers to decide where the distributors could be established was also abolished. The new rules infl uence competition conditions in the industry and enable the manufacturers to approve additional distributors in the locations where Bilia is established. Given its size and strong

position on the market, Bilia is confi dent that the new rules will give the Group new opportunities to develop its operations.

Bilia’s size will take on added importance, for example in connection with purchasing. Multi-brand capacity and having an own strong brand will also increase in importance.

Competitiveness of the products

Bilia is dependent on the ability of the Group’s business partners to develop competitive products. Bilia’s business partners have launched a number of new products in recent years.

Volvo, the single most important business partner, will launch new V70 and XC70 models during 2007, among other things.

All of this together means that Bilia has access to attractive product ranges.

Development of own services

To maintain and strengthen its competitiveness, Bilia must develop services that appeal to the customers. Bilia’s ability to develop new services also helps strengthen the suppliers’

brands. This development work requires resources. Bilia is confi dent that the Group has the size, structure and fi nancial strength that are required to remain in the forefront of service development.

Key persons

In order to continue developing as a service company and thereby achieve growth and profi tability, Bilia must be able to attract and develop skilled employees, both management and other staff. Bilia is an employer that encourages personal advancement by offering employees interesting work duties, individualised training programmes, bonus programmes and personal involvement in the development of the Group.

For fi nancial risks see Note 30, “Financial risks and fi nance policy”.

Environment

Bilia’s environmental policy states that the Group’s services and products should have as little impact on nature and the environment as possible and thereby contribute to sustainable development. The environmental work should be pursued within the framework of the business concept and be gov- erned by a holistic approach in which technology, economics and ecology are weighed together.

Financial goals

Bilia’s overall fi nancial goals are to achieve:

• an operating margin of at least 2.2 per cent

• a return on capital employed of at least 14 per cent

• a return on equity of at least 15 per cent.

Goals and goal fulfi lment

10 15 20

5

0 04 05 06

Return on capital employed, %

–

Goal: at least 14 per cent 10 15 20

5

0 04 05 06

Return on equity, %

–

Goal: at least 15 per cent

06 04 05 4 3 2 1 0

Operating margin, %

–

Goal: at least 2.2 per cent

Directors’ Report cont’d.

(5)

Waste separation is a priority. Environmentally hazardous waste is managed in accordance with carefully designed rou- tines. Bilia also has systems, both proprietary and developed together with its partners, for managing and recycling waste from service and residual products from repairs. Bilia’s employees are given training on environmental issues and receive environment information regularly. All of Bilia’s Swedish and Norwe- gian companies are environmentally certifi ed to ISO 14001.

The company conducts activities that are subject to notifi cation in accordance with the Environmental Code. In Sweden, 39 facilities are obligated to submit notifi cation to the author- ities: due to petrol sales where no emissions may occur, 11 due to hazardous effl uents (car washes), and 9 due to solvent emissions. Activities requiring notifi cation represent a small portion of Bilia’s total operations.

The work of the Board

One post-election meeting and fi ve ordinary board meetings were held during 2006. In addition to the above meetings, the Board also met by correspondence fi ve times. An agenda, along with in-depth information on important matters, is sent to each Board member in good time before each Board meeting. The Board dealt with such items of business as strategy, fi nancial goals, follow-up of results, investments, properties, acquisitions and follow-up of the dispute with the Swedish Competition Authority. During the year the Board decided to acquire the Norwegian Tronrud Group, which has added the makes BMW, Honda, Nissan and Mini to the Bilia Group’s product range. Bilia’s property company Catena AB was spun off and distributed to Bilia’s shareholders and listed on the stock exchange. A restructuring took place in Göteborg, resulting in closure of a facility on Hisingen. In Stockholm, Bilia will start sales of Ford, and negotiations have been undertaken regarding acquisition of the business in Bilgruppen, which sells Ford and Mazda in the Stockholm region.

Parent Company

Bilia AB is responsible for the Group’s management, strategic planning, fi nancing, accounting, public relations and business development. Furthermore, Bilia AB conducts training and IT activities, mainly for companies in the Group. The Parent Com- pany’s operating loss amounted to SEK 60 M (loss: 64). This includes costs of SEK 2 M (14) for disputes.

Future outlook

Bilia predicts that the total market in Sweden, Norway and Denmark during 2007 will be marginally lower than the rela- tively high level from 2006.

Owing to the fact that Bilia’s earnings are affected by various factors beyond the company’s control, no earnings forecast is made. A review of the most important earnings-impacting factors is provided in the sensitivity analysis in Note 30, “Financial risks and fi nance policy”.

Events after the balance sheet date

On 15 January 2007, Bilia signed a letter of intent to acquire all trading subsidiaries of Hans Persson Bil AB. Hans Persson is one of Sweden’s largest distributors of Volvo, Ford and Renault. The company has business operations in Västerås, Köping, Sala, Hallstahammar, Arboga, Fagersta, Avesta and Hedemora. Average annual turnover for 2004 and 2005 amounted to about SEK 1.3 billion, with an operating margin of about 2.4 per cent. The number of employees is 320.

On 9 February the Board of Directors decided to propose to the AGM that the share capital should be reduced by with- drawal of repurchased shares. The company’s holding amounts to 1,669,900 shares.

The Board of Directors proposes that the AGM authorise the Board to resolve to buy back up to 10 per cent of the number of outstanding shares at the time of the AGM on 18 April 2007 over Stockholmsbörsen (the Stockholm Stock Exchange).

Distribution of employ- ees by function, %

Distribution of employ- ees by country, %

Age structure, number of employees, %

Length of employment, % Distribution of employ-

ees by education, %

Sweden, 64 Norway, 21 Denmark, 15

0–9 years, 51 10–19 years, 20 20–29 years, 12 30–39 years, 13

>40 years, 4

<29 years, 25 30–49 years, 49 50–60 years, 20

>61 years, 6 Sales, 17

Workshop, 56 Spare parts, 16 Administration, 11

Comprehensive school/

upper secondary school, 85 University education, 4 Post-secondary educ. 11

Key figures 2006 2005 2004

Average number of employees 3,063 2,888 2,974

Turnover per average number of employees, SEK ’000 4,589 4,181 3,961 Value added per average number of employees, SEK ’000 594 583 588 Profit before tax per average number of employees, SEK ’000 38 66 105 Personnel

(6)

Proposed treatment of unappropriated earnings The Board of Directors proposes that the earnings available for distribution, SEK 1,094 M, be disposed of as follows:

SEK M

Cash dividend, SEK 8.00 per share 172

To be carried forward 922

Total 1,094

Statement of Board of Directors regarding proposed distribution of profi ts

It is the judgment of the Board of Directors that the company’s and the Group’s equity after the proposed distribution of profi ts and shares will be suffi ciently large in relation to the nature, scope and risks of the business. The Board has also taken into account the Group’s history and investment plan and the general economic situation.

The fi nancial statements were approved for publication by the Parent Company’s Board of Directors on 9 February 2007.

For further details concerning the company’s results and fi nancial position, please refer to the following fi nancial statements with accompanying notes.

History, car sales in Sweden, Norway and Denmark

05 03

95 96 97 98 99 00 01 02 04 06

400,000 300,000 200,000 100,000 0

Sweden Norway Denmark

New cars

Key figures Return on operational

Net turnover, SEK M Operating profit, SEK M Operating margin, % capital employed, % 2006 2005 2004 2006 2005 2004 2006 2005 2004 2006 2005 2004

Sweden 8,717 8,346 8,790 206 234 228 2.4 2.8 2.6 28.6 34.4 37.3

Norway 3,331 2,293 2,054 –5 14 46 –0.2 0.6 2.2 –0.9 4.8 18.2

Denmark 1,997 1,433 720 –10 8 2 –0.5 0.6 0.3 –2.5 3.3 1.7

Total Cars 14,045 12,072 11,564 191 256 276 1.4 2.1 2.4 11.4 19.4 27.9 Number of new cars

Deliveries Order backlog 2006 2005 2004 2006 2005 2004 Sweden 20,036 17,793 19,977 2,278 2,830 2,480

Norway 5,171 3,622 4,023 576 331 573

Denmark 5,091 3,477 1,634 204 179 119 Total Cars 30,298 24,892 25,634 3,058 3,340 3,172 Cars

Cars divided into Service and Car Businesses

Share of Cars’ net turnover, %

Share of Cars’

contribution, % Share of Cars’

employees, %

06 04 05 25 20 15 10 5 0

Growth, Service, %

06 04 05 25 20 15 10 5 0

Growth, Cars, %

Service, 98 Car, 2 Service, 81

Car, 19 Service, 30

Car, 70

Directors’ Report cont’d.

(7)

SEK M Note 2006 2005 Continuing operations

Net turnover 2, 3, 6 14,056 12,074 Cost of goods sold 6 –11,869 –10,094 Gross profit 2,187 1,980

Other operating revenues 7 11 2

Selling expenses –1,629 –1,387

Administrative expenses 10 –446 –395 Other operating expenses 8 –14 –6 Operating profit 3, 9, 11 109 194

Financial income 16 25

Financial expenses –24 –29

Shares in profits of

associated companies 16 17 — Net financial items 12 9 –4 Profit/loss before tax 118 190

Tax 13 –30 –57

Profit for the year from

continuing operations 88 133 Profit from discontinued

operation, net after tax 4 5 57

Net profit for the year 93 190

Attributable to:

Parent Company’s shareholders 93 190

Earnings per share, SEK 24

Group

Basic earnings per share 4.15 8.20 Diluted earnings per share 4.15 8.20 Proposed dividend per share 8.00

Continuing operations

Basic earnings per share 3.90 5.70 Diluted earnings per share 3.90 5.70 Proposed dividend per share 8.00

Performance analysis, Group

Operating profit Profit before tax

SEK M 2006 2005 2006 2005

Profit excluding items affecting comparability 130 202 132 198

Items affecting comparability

Gain from sale of property/shares –1 2 6 2

Structural costs etc. –11 –5 –11 –5

Catena 0 –3 0 –3

Disputes –9 –2 –9 –2

Accounting profit 109 194 118 190

CONSOLIDATED INCOME STATEMENT

06 04 05 20,000 15,000 10,000 5,000 0

Net turnover, SEK M

Net turnover increased by 16 per cent due to the acquisitions made in 2006. If acquisitions and exchange effects are excluded, net turnover increased by 4 per cent.

Increased sales of new cars is the primary cause of the increase.

06 04 05

0 –10 –20 10

–30

Net fi nancial items, SEK M

Net fi nancial items improved to SEK 9 M (–4). The improvement is mainly attributable to SEK 7 M from the sale of shares in Viking Redningstjeneste. The share in profi ts from the indirect holding in AB Volvofi nans amounted to SEK 17 M (15).

Operating profi t, excluding items affecting comparability, SEK M

SEK M

06 04 05 400 300 200 100 0

% 4 3 2 1 0

Operating profi t excluding items affecting profi tability decreased from SEK 202 M to SEK 130 M. Sweden decreased by SEK 28 M, Norway by SEK 19 M and Denmark by SEK 18 M. The operating margin declined from 1.7 per cent to 0.9 per cent.

Operating profi t, excluding items affecting comparability, SEK M

Operating margin, %

Operating profi t, excluding items affecting comparability per quarter, SEK M

The Group’s operating profi t developed poorly at the start of 2006. How- ever, the fourth quarter of 2006 showed a recovery due to strong new car sales, above all in Norway. The second and fourth quarters are normally the strongest. The operating margin was unchanged during the fourth quarter at 1.6 per cent compared to last year. The goal is 2.2 per cent.

Q1 Q2 Q3 Q4

SEK M

60 90 120

1 2 3 4

%

05 05 05 05

04 06 04 06 04 06 04 06

30

0 0

Operating profi t, excluding items affecting comparability, SEK M Operating margin, %

(8)

Net turnover

Net turnover amounted to SEK 14,056 M (12,074), an increase of 16 per cent or SEK 1,982 M. A factor contributing to the increase was the acquisitions that were made during the year.

If net turnover is adjusted for acquisitions and exchange rate changes, the increase was about SEK 455 M or 4 per cent.

The primary cause of the increase is increased deliveries of new cars, particularly in Norway.

The Service Business increased net turnover by 8 per cent (8), which is equivalent to SEK 343 M (305). If net turnover is adjusted for acquisitions and exchange rate effects, it was unchanged. The Swedish and the Danish Service Businesses decreased by 2 and 1 per cent, respectively, while the Norwegian Service Business increased by 11 per cent.

Net turnover in the Car Business increased by SEK 1,859 M (258), which is equivalent to 22 per cent. If the Car Business is adjusted for comparable units and exchange rate effects, net turnover increased by 7 per cent. All markets increased.

Customer fi nancing generated revenues of SEK 243 M (230).

The increase is explained by increased sales of cars with repurchase agreements.

Operating profi t

The Group’s operating profi t amounted to SEK 109 M, compared with SEK 194 M for 2005. The operating margin decreased from 1.6 per cent to 0.8 per cent.

All of Bilia’s markets reported poorer operating profi t. How- ever, the fourth quarter showed an increase in Sweden and Nor- way by SEK 18 M, while Denmark decreased by SEK 9 M.

In Denmark, operating profi t declined from SEK 8 M to a loss of SEK 10 M in 2006, mainly due to a weaker Service Busi- ness. In Norway, operating profi t declined from SEK 14 M to a loss of SEK 5 M, due above all to problems with the integration of Tronrud, which was acquired at the beginning of the year.

The Service Business declined above all due to lower margins in the Danish operation. Despite increased deliveries in the Car Business, the profi t declined as a result of slightly lower margins on new cars in Sweden and Denmark.

Profi t shares to employees in the Nordic companies were charged to the operating profi t in the amount of SEK 14 M (12).

Items affecting comparability

Operating profi t excluding items affecting comparability amounted to SEK 130 M (202), a decline of 35 per cent. The operating margin decreased from 1.7 to 0.9 per cent.

Items affecting comparability reduced operating profi t by SEK 21 M (reduction: 8). Operating profi t was charged with costs of SEK 11 M (–) for closure of a facility in Göteborg, costs of SEK 0 M (3) in connection with the spin-off of Catena AB, costs of SEK 1 M (3) for disposals and costs of SEK 9 M (2) for disputes.

Net fi nancial items

Net fi nancial items amounted to an expense of SEK 9 M (–4).

This fi gure includes the profi t share from the indirect shareholding in AB Volvofi nans in the amount of SEK 17 M (15) and the sale of shares in Viking Redningstjeneste in the amount of SEK 7 M (–).

Profi t before tax

Profi t before tax declined to SEK 118 M (190).

Items affecting comparability had a negative net effect on profi t before tax of SEK –14 M (–8).

Profi t before tax excluding items affecting comparability increased by SEK 132 M (198), which is equivalent to a decrease of 33 per cent.

Net profi t for the year

Net profi t for the year amounted to SEK 93 M (190), which is equivalent to earnings per share of SEK 4.35 (8.20), based on the number of shares outstanding. Net profi t for the year included a profi t of SEK 5 M (108) from Catena AB and a loss of SEK 51 M from the Micro operation.

The tax expense was SEK 30 M (57), which is equivalent to an effective tax of 25 per cent. Corporate tax is based on the tax expense in the relevant country.

Key ratios

Return on capital employed amounted to 6.2 per cent, compared with 10.0 per cent for 2005. Return on equity declined to 6.3 per cent (15.8).

Return on capital employed, excluding items affecting comparability, amounted to 6.9 per cent, compared with 10.4 per cent for 2005.

COMMENTS ON THE CONSOLIDATED INCOME STATEMENT

(9)

CONSOLIDATED BALANCE SHEET

SEK M Note 2006 2005

Assets 5, 32

Non-current assets

Intangible assets 14

Intellectual property 86 48

Goodwill 91 62

177 110

Plant, property and equipment 15

Land and buildings 47 736

Construction in progress 0 30

Equipment, tools, fixtures and fittings 299 273

Leased vehicles 1,922 1,751

2,268 2,790 Long-term investments

Interests in associated companies 16 186 —

Financial investments 17, 30 10 176

Long-term receivables 18 27 20

Deferred tax assets 13 79 58

302 254

Total non-current assets 2,747 3,154

Current assets

Inventories

Merchandise 19 1,995 1,850

Current receivables

Current tax assets 13 16 16

Trade receivables 20 789 675

Deferred expenses and accrued income 21 152 75

Other receivables 18 101 91

Short-term investments 17, 30 143 22

Cash and cash equivalents 22 121 63

Assets held for sale 4 — 16

1,322 958

Total current assets 3,317 2,808

Total assets 3 6,064 5,962

(10)

CONSOLIDATED BALANCE SHEET

SEK M Note 2006 2005

Equity and liabilities 5, 32

Equity 23

Share capital 231 231

Reserves –6 5

Retained earnings including net profit for the year 1,459 1,050

Total equity 1,684 1,286

Non-current liabilities

Non-current interest-bearing liabilities 25, 30 142 241

Other non-current liabilities 28 1,028 1,118

Provisions for pensions 26 245 238

Other provisions 27 2 1

Deferred tax liabilities 13 115 177

Total non-current liabilities 1,532 1,775

Current liabilities

Current interest-bearing liabilities 25, 30 104 748

Trade payables 1,239 966

Current tax liabilities 2 19

Other liabilities 28 981 679

Accrued expenses and deferred income 29 488 463

Other provisions 27 34 23

Liabilities attributable to assets held for sale 4 — 3

Total current liabilities 2,848 2,901

Total liabilities 4,380 4,676

Total equity and liabilities 3 6,064 5,962

Pledged assets and contingent liabilities for the Group

Pledged assets 33 368 253

Contingent liabilities 33 3,628 3,464

The Group’s balance sheet total increased by SEK 102 M during the year to SEK 6,064 M. Acquisitions made during the year increased the balance sheet total by about SEK 500 M, while the spin-off of Catena AB reduced it by SEK 750 M.

An increase in interest-bearing assets by about SEK 170 M and an increase in inventories, mainly new cars in Norway, are the main reasons for the increase.

Financing

Net claim amounted to SEK 31 M, compared with a net debt of SEK 884 M last year. The change is mainly attributable to the spin-off of Catena AB. Interest-bearing liabilities declined by about SEK 740 M, while interest-bearing assets increased by about SEK 170 M.

The ratio of net claim to equity was –0.02 times, compared with last year’s ratio of 0.69 times when the Group had a net debt.

Equity

Equity increased by SEK 398 M to SEK 1,684 M. Equity was affected by a cash dividend to the shareholders of SEK 185 M, a share buy-back amounting to SEK 164 M and the spin-off of Catena AB, which increased equity by a net of SEK 665 M. See

"Summary of changes in consolidated equity" for details on the change in equity.

Key ratios

The rate of turnover of capital employed amounted to a multiple of 6.0, compared with 5.3 last year, while the rate of turnover of total capital amounted to a multiple of 2.43, compared with 2.28 in 2005.

The equity/assets ratio amounted to 28 per cent (22).

Equity per share amounted to SEK 78.45 (55.60), based on 21,459,255 shares (23,129,155).

COMMENTS ON THE CONSOLIDATED BALANCE SHEET

(11)

Shares Share Translation Retained earnings incl. Total

SEK M outstanding capital reserve net profit for the year equity

Opening equity 1 Jan. 2005 23,129,155 608 –11 893 1,490

Change in accounting principles, IAS 39 140 140

Adjusted equity 1 Jan. 2005 23,129,155 608 –11 1,033 1,630

Redemption, Series C shares (37,716,448 shares) — –377 — — –377

Dividend (SEK 7.50 per share) — — — –173 –173

Exchange rate difference — — 16 — 16

Net profit for the year — — — 190 190

Closing equity 31 Dec. 2005 23,129,155 231 5 1,050 1,286

Opening equity 1 Jan. 2006 23,129,155 231 5 1,050 1,286

Buy-back of own shares (1,669,900 shares) — — — –164 –164

Dividend (SEK 8.00 per share) — — — –185 –185

Spin-off, Catena¹⁾ — — — 665 665

Exchange rate difference — — –11 — –11

Net profit for the year — — — 93 93

Closing equity 31 Dec. 2006 23,129,155 231 –6 1,459 1,684

1) The spin-off utilised SEK 600 M of the Group’s equity.

Furthermore, an internal profi t of SEK 1,265 M was realised at the time of the spin-off.

SUMMARY OF CHANGES

IN CONSOLIDATED EQUITY

(12)

CONSOLIDATED CASH FLOW STATEMENT

SEK M Note 2006 2005

Operating activities 35

Operating profit 109 194

Interest received 9 4

Interest paid –23 –29

Dividends received 0 2

Other financial items 23 19

Depreciation/amortisation and impairment losses 246 220

Other items not affecting cash 44 43

Tax paid –40 –152

Cash flow from operating activities

before change in working capital 368 301

Change in inventories –54 –235

Change in operating receivables –136 –87

Change in operating liabilities 268 206

Cash flow from operating activities 446 185

Investing activities

Investments and disposals in non-current assets –275 –266

Interest-bearing receivables –16 30

Business combinations –107 –74

Disposals — 92

Cash flow from investing activities –398 –218

Remaining after net investments 48 –33

Financing activities

Change in bank loans and other loans 499 418

Redemption, subordinated shares — –377

Dividend to shareholders and share buy-back –349 –173

Cash and cash equivalents Catena –18 —

Cash flow from financing activities 132 –132

Change in cash and cash equivalents, excluding translation differences 180 –165

Exchange difference in cash and cash equivalents –5 2

Change in cash and cash equivalents 175 –163

Cash and cash equivalents at start of year 83 246

Cash and cash equivalents at year-end 258 83

(13)

Cash fl ow from operating activities

Cash fl ow from operating activities amounted to SEK 446 M, compared with SEK 185 M for last year. The increase is mainly attributable to lower tax paid and reduced working capital.

Investing activities

Investments and disposals in non-current assets, including leased assets, amounted to SEK 275 M (266). Replacement investments amounted to SEK 22 M (42), expansion investments to SEK 45 M (34) and environmental investments to SEK 4 M (4). Investments in new construction and additions to properties amounted to SEK 3 M (57). Net investments in leased vehicles and fi nance leases amounted to SEK 201 M (129).

Interest-bearing receivables declined by SEK 16 M, compared with an increase of SEK 30 M in 2005.

Business combinations and disposals refer to the acquisition of Tronrud Bil Holding AS and the operation in Michaelsson &

Nelin AB.

Remaining after net investments

Cash fl ow from operating activities for 2006 exceeded cash fl ow from investing activities by SEK 48 M, compared with SEK –33 M last year.

Financing activities

Catena, which was spun off to Bilia’s shareholders during the second quarter of 2006, has been dealt with as a discontinued operation. The debts in the Cash Flow Statement have there- fore been affected by Catena’s repayment of loans in the amount of SEK 1.6 billion and Bilia’s amortisation of external loans.

Furthermore, debts have been affected by dividends paid to the shareholders in the amount of SEK 185 M (173) and buy- back of own shares in the amount of SEK 164 M (–).

Net debt

The net claim amounted to SEK 31 M, compared with a net debt of SEK 884 M last year.

COMMENTS ON THE CONSOLIDATED CASH FLOW STATEMENT

(14)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Conformity with norms and legislation

The consolidated accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), as approved by the European Commission for application within the EU.

Furthermore, the Swedish Financial Accounting Standards Council’s recommendation RR 30:05 "Supplementary Rules for Consolidated Financial Statements" has been applied.

The Parent Company applies the same accounting principles as the Group, except in the cases described in the section entitled "Parent Company accounting principles". The differences between Parent Company and Group accounting principles are attributable to the limitations of applying IFRS in the Parent Company as a result of the Swedish Annual Accounts Act and the Swedish Act on Safeguarding of Pension Obliga- tions, and in some cases to tax reasons.

The annual report and the consolidated accounts were approved for publication by the Board of Directors on 9 Febru- ary 2007. The Consolidated Income Statement and Balance Sheet and the Parent Company Income Statement and Balance Sheet will be subject to adoption at the Annual General Meet- ing of Shareholders (AGM) that will be held on 18 April 2007.

Basic principles in preparation of Parent Company and consolidated fi nancial statements

Assets and liabilities are measured at historical costs, except for certain fi nancial assets and liabilities, which are measured at fair value. Financial assets and liabilities that are measured at fair value consist of derivative instruments and fi nancial assets classifi ed as fi nancial assets measured at fair value via the Income Statement or available-for-sale fi nancial assets.

Non-current assets and disposal groups held for sale are carried at the lower of the previous carrying amount and the fair value less selling expenses.

The Parent Company’s functional currency is the Swedish krona, which is also the reporting currency for the Parent Com- pany and the Group. This means that the fi nancial statements are presented in Swedish kronor.

Preparing the fi nancial statements in accordance with IFRS requires management to make accounting estimates and assumptions that infl uence the application of the accounting principles and the carrying amounts of assets, liabilities, revenue and expenses. Actual outcome may differ from these estimates and assessments.

The estimates and assumptions are regularly reviewed.

Changes in estimates are reported in the period in which the change is made if the change affects only that period, or in the period in which the change is made and future periods if the change affects both the current and future periods.

Estimates by management related to the application of IFRS that have a signifi cant impact on the fi nancial statements and estimates that may entail signifi cant adjustments in the fi nancial statements of subsequent years are described in greater detail in Note 37, "Important estimates and assessments".

Changed accounting principles and assessments The Group accounting principles presented below have been consistently applied to all periods presented in the consolidated fi nancial statements, unless otherwise stated below. The Group accounting principles have been applied consistently to the reporting and consolidation of Parent Companies, subsidiaries and the inclusion of associated companies in the consolidated accounts.

Certain comparative fi gures have been reclassifi ed to agree with the presentation in the fi nancial statements for the current year.

In the Consolidated Income Statement, the fi gures for the comparative year have been adjusted and presented as if the operation discontinued during the current year had been discontinued at the beginning of the comparative year, see also Note 4, "Non-current assets held for sale and discontinued operations".

Upon further analysis of the accounting rules in IFRS, it has been concluded that Bilia’s holding in AB Volvofi nans should be accounted for in accordance with the rules in IAS 28 Invest- ments in Associates, which means that Bilia’s share of AB Volvofi nans’ earnings is included in Bilia’s earnings. This change has no net effect on Bilia’s income statements and balance sheets.

IFRS standards and interpretations revised during 2006 The standards listed below have been applied in the consolidated accounts for 2006.

IAS 19 Employee Benefi ts

IAS 39 Financial Instruments: Recognition and Measurement Revised IFRS standards have no effect on the Bilia Group’s in come statements, balance sheets, cash fl ow statements and equity.

New IFRS standards and interpretations that have not yet begun to be applied

A number of new standards, changes in standards and interpretations enter into force as of fi nancial year 2007 and have not been applied in the preparation of these fi nancial statements.

IFRS 7 Financial instruments: Disclosures and related changes in IAS 1 Presentation of Financial Statements impose requirements on extensive disclosures concerning the importance of fi nancial instruments for the company’s fi nancial position and performance as well as qualitative and quantitative disclosures concerning the nature and scope of risks. IFRS 7

NOTE 1 • ACCOUNTING PRINCIPLES

Amounts in SEK M unless otherwise stated

(15)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

and related changes in IAS 1 will entail extensive additional disclosures in the consolidated fi nancial statements for 2007 with respect to the Group’s fi nancial instruments and capital.

IFRIC 10 Interim Financial Reporting and Impairment forbids reversal of impairment losses that have been recognised in a previous interim period in respect of goodwill or an investment in either an equity instrument or a fi nancial asset carried at cost. IFRIC 10 will be applied in the consolidated fi nancial statements for 2007. The interpretation will be applied pro- spectively from the time the Group fi rst started applying the impairment rules in IAS 36 and the measurement rules in IAS 39, i.e. in respect of goodwill 1 January 2004 and in respect of fi nancial instruments 1 January 2005. Since no such reversals have taken place, the interpretation has no effects on the consolidated fi nancial statements.

Segment reporting

A segment is a distinguishable component of the Group that either provides products or services that are different from those of other segments (business segments), or products or services within a certain economic environment (geographical segments), and that is subject to risks and returns that are different from those of other segments.

The Group’s internal reporting system is designed to keep track of the rate of return on the Group’s sales of goods and services, which is why the business segments are the primary segment reporting format.

Segment information is disclosed in accordance with IAS 14 only for the Group.

Presentation etc.

Non-current assets and non-current liabilities in the Parent Company and the Group consist for the most part solely of amounts that are expected to be recovered or paid more than twelve months after the balance sheet date. Current assets and current liabilities in the Parent Company and the Group consist for the most part solely of amounts that are expected to be recovered or paid within twelve months of the balance sheet date. Any departure from this principle is reported in a note to the relevant line item.

Consolidation principles Subsidiaries

Subsidiaries are companies that are under the control of Bilia AB. Control is the power to govern, directly or indirectly, the fi nancial and operating policies of an enterprise so as to obtain benefi ts from its activities.

Subsidiaries are accounted for by the purchase method. The consolidated historical cost is established at the acquisition date in an acquisition plan. The difference between the historical cost of the subsidiary shares and the fair value of identifi - able assets, liabilities and contingent liabilities constitutes goodwill on consolidation.

The fi nancial statements of subsidiaries are included in the consolidated accounts as from the acquisition date until the date when control no longer exists.

Associated companies

Associated companies are those companies in which the Group has a signifi cant, but not a controlling, infl uence over

mally through shareholdings giving them between 20 and 50 per cent of the votes. As from the point in time when the signifi cant infl uence is exercised, interests in associated companies are recognised in the consolidated accounts in accordance with the equity method. The equity method entails that the value of the shares in the associated companies carried in the consolidated accounts is equivalent to the Group’s share of the associated companies’ equity plus goodwill on consolidation and any other remaining amounts of consolidated positive or negative goodwill. The Group’s share of the associated companies’ net profi ts after tax and minority interest adjusted for amortisation, impairment or recognition of acquired positive or negative goodwill is recognised in the Consolidated Income Statement as "Shares in profi ts of associated companies". Dividends received from associated companies reduce the carrying amount of the investment.

Any difference on the date of acquisition between the cost of the holding and the investor’s share of the net fair value of the associated company’s identifi able assets, liabilities and contingent liabilities is recognised in accordance with IFRS 3 Business Combinations.

When the Group’s share of recognised losses in the associated company exceeds the carrying amount of the investment in the Group, the carrying amount of the investment is reduced to zero. Deduction for losses is also made against long-term fi nancial dealings without security, whose fi nancial implications constitute part of the investor’s net investment in the associated company. Continued losses are not recognised unless the Group has made guarantees to cover losses arising in the associated company. The equity method is applied until such time as the signifi cant infl uence ceases to exist.

Transactions eliminated on consolidation

Intra-Group receivables and liabilities, revenues or expenses and unrealised profi ts or losses arising from intra-Group transactions between subsidiaries are eliminated in their entirety when the consolidated accounts are prepared.

Foreign currencies

Transactions in foreign currencies

Transactions in foreign currencies are translated to the functional currency at the exchange rate prevailing on the transaction date. Monetary assets and liabilities in foreign currencies are translated to the functional currency at the rate prevailing on the balance sheet date. Exchange rate differences arising from translations are recognised in the Income Statement. Non-monetary assets and liabilities recognised at their historical costs are translated at the exchange rate prevailing at the time of the transaction. Non-monetary assets and liabilities recognised at fair value are translated to the functional currency at the rate prevailing at the time the fair value was established. Exchange rate changes are reported in the same way as other changes in value pertaining to the asset or liability.

The functional currency is the currency in the primary economic environments in which the subsidiaries in the Group operate. The companies included in the Group are the Parent Company, subsidiaries and associated companies. The Parent Company’s functional currency, as well as its reporting currency, is the Swedish krona. The Group’s reporting currency is

(16)

Financial statements of foreign entities

Assets and liabilities in foreign entities, including goodwill and other corporate fair value adjustments, are translated to Swed- ish kronor at the rate prevailing on the balance sheet date.

Revenues and expenses in foreign entities are translated to Swedish currency at an average rate which constitutes an approximation of the rates prevailing at the time of the transaction. Translation differences that arise when translating the accounts of foreign entities are recognised immediately in equity as a translation reserve.

Revenue Sale of goods

Revenue from the sale of goods is recognised in the Income Statement when the signifi cant risks and rewards of ownership have been transferred to the buyer. The revenue is recognised at the fair value of what has been received. Revenue is not recognised if it is probable that the economic benefi ts will not fl ow to the Group. If considerable uncertainty exists regarding payment, associated costs or the risk of returns, revenue is not recognised.

In cases where the sale of a product is combined with a future repurchase commitment at a guaranteed residual value, the transaction is reported as a lease, provided that the seller retains signifi cant risks. The revenue from the transaction is not recognised at the time of sale, but is allocated on a straight- line basis from the time of sale to the time of repurchase.

Performance of service work

Revenue from service work is recognised in the Income State- ment based on the stage of completion on the balance sheet date (percentage of completion method). The stage of completion is determined by an assessment of services rendered and material employed at the balance sheet date.

Leasing of cars

Revenue from leased vehicles is recognised on a straight-line basis during the lease period.

Commissions on fi nancial assets

Commissions on fi nancial assets are recognised on a straight- line basis during the lease period and are calculated on the outstanding instalment and lease portfolios for which recourse liability exists.

Operating expenses and fi nancial income and expenses Operating leases

– Lessees

Costs pertaining to operating leases are recognised in the Income Statement on a straight-line basis over the lease period. Benefi ts obtained in conjunction with the signing of a lease are recognised as a reduction in the lease payments on a straight-line basis over the term of the lease. Variable payments are recognised as expenses in the periods they are incurred.

Finance leases – Lessees

Minimum lease payments are allocated between interest expense and amortisation of the outstanding liability. The

interest expense is allocated over the lease period so that each accounting period is charged with an amount corresponding to a fi xed rate of interest for the liability recognised during that period. Variable payments are recognised as expenses in the periods they are incurred.

Financial income and expenses

Financial income and expenses consist of interest revenue on bank deposits, receivables and interest-bearing securities, interest expenses on loans, dividend income, unrealised and realised gains on fi nancial investments and derivative instruments that are used in fi nancial activities.

Interest revenue on receivables and interest expenses on liabil ities are calculated using the effective interest method.

The effective interest rate is the rate that ensures that the present value of all future receipts and payments during the expected life of a fi nancial instrument is equal to the carrying amount of the fi nancial asset or liability. Interest revenue and interest expenses include appropriately accrued amounts of transaction costs and possible discounts, premiums and other differences between the original carrying amount of the fi nancial asset or liability and the amount received on maturity.

Dividend income is recognised when the right to receive payment has been established.

Result from sale of fi nancial investments is recognised when the economic risks and rewards incidental to ownership have been transferred substantially to the purchaser and the Group no longer has control over the instruments.

Interest expenses are charged to earnings in the period to which they are attributable, regardless of how the borrowed funds have been used. The Group does not capitalise the costs of the assets.

Result from customer fi nancing

The Group’s customer fi nancing is extensive and accounts for a considerable portion of consolidated profi t. Concentration on the core operation has led to an increase in the importance of customer fi nancing in terms of being able to both analyse the Group’s performance and forecast the Group’s future earnings potential.

Long-term leases, instalment receivables, current net return on fi nancial contracts transferred to AB Volvofi nans, and other commissions associated with fi nancing that have been transferred to fi nance companies are presented in Note 6, "Result from customer fi nancing".

Taxes

Income taxes consist of current tax and deferred tax. Income taxes are recognised in the Income Statement except when the underlying transaction is posted directly to equity, whereby the associated tax effect is recognised in equity.

Current tax is tax to be paid or received with respect to the current year, with the application of tax rates that have been enacted or substantively enacted by the balance sheet date.

This item also includes adjustments of current tax attributable to earlier periods.

Deferred tax is calculated in accordance with the balance sheet method, based on temporary differences between recognised amounts and tax bases of assets and liabilities. The Note 1 cont’d.

(17)

following temporary differences are not taken into account:

temporary difference arising on initial recognition of goodwill, initial recognition of assets and liabilities that are not business combinations and at the time of the transaction do not affect either recognised or taxable profi t, and temporary differences attributable to interests in subsidiaries and associated companies that are not expected to be reversed in the foreseeable future. The valuation of deferred tax is based on how recognised values of assets or liabilities are expected to be realised or settled. Deferred tax is calculated using the tax rates and tax rules that have been enacted or substantively enacted by the balance sheet date.

Deferred tax assets pertaining to deductible temporary differences and tax-loss carryforwards are only reported to the extent that it is likely that they will be able to be used. The value of deferred tax assets is reduced when it is no longer deemed likely that they can be used.

Financial instruments

Financial instruments that are recognised in the Balance Sheet include on the asset side cash and cash equivalents, loans receivable, trade receivables, fi nancial investments and derivatives. Trade payables, loans payable and derivatives are posted on the liability side.

Recognition and derecognition in the Balance Sheet A fi nancial asset or fi nancial liability is recognised in the Bal- ance Sheet when the company becomes a party to the contractual terms of the instrument. Trade debtors are recognised in the Balance Sheet when an invoice has been sent. A liability is recognised when the counterparty has performed its contractual obligations and there is a contractual obligation to pay, even if no invoice has been received. Trade creditors are recognised when an invoice has been received.

A fi nancial asset is derecognised in the Balance Sheet when the entitlements in the contract are realised, mature, or fall outside the control of the company. The same applies to part of a fi nancial asset. A fi nancial liability is derecognised in the Balance Sheet when the obligation in the contract is dis- charged or otherwise extinguished. The same applies to part of a fi nancial liability.

A fi nancial asset and a fi nancial liability are offset and the net amount recognised in the Balance Sheet when, and only when, an entity has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

The acquisition or disposal of fi nancial assets is recognised on the trade date, which is the day when the company is com- mitted to acquire or dispose of the asset.

Cash and cash equivalents consist of cash on hand and demand deposits at banks and similar institutions, as well as short-term, highly liquid investments with a maturity of less than three months from the acquisition date that are exposed to an insignifi cant risk of value fl uctuations.

Classifi cation and measurement

Financial instruments that are not derivatives are recognised initially at historical cost, equivalent to the fair value of the instrument plus transaction costs for all fi nancial instruments,

except for those categorised as fi nancial assets, which are recognised at fair value less transaction costs in the Income State- ment. A fi nancial instrument is classifi ed when initially recognised based on the purpose for which the instrument was acquired. The classifi cation determines how the fi nancial instrument is measured after initial recognition as described below.

Derivative instruments are recognised initially at fair value, which means that transaction costs are charged to the profi t for the period. After initial recognition, derivative instruments are recognised in the manner described below. If a derivative instrument is used for hedge accounting, and in so far as it is effective, changes in the value of the derivative instrument are recognised on the same line in the Income Statement as the hedged item. Even if hedge accounting is not applied, increases in the value of the derivative are recognised as income and decreases as expenses among operating income or net fi nancial items, based on the purpose of the use of the derivative instrument and whether this use relates to an operating item or a fi nancial item. If hedge accounting is applied, the ineffective portion is recognised in the same manner as changes in value of derivatives that are not used for hedge accounting. If hedge accounting is not applied when interest rate swaps are used, the interest coupon is recognised as interest and any other change in value of the interest rate swap is recognised as "other fi nancial income" or "other fi nancial expense".

Financial assets measured at fair value via the Income Statement

This category consists of currency swaps and interest rate swaps.

All derivatives are recognised at fair value in the Balance Sheet.

Loans receivable and trade receivables

This category consists of instalment receivables and trade receivables. Assets in this category are valued at amortised cost. Amortised cost is determined on the basis of the effective interest rate calculated on the acquisition date.

Instalment receivables and trade receivables are recognised at the amount that is expected to be recovered less doubtful debts.

Investments held to maturity

Investments that are held to maturity are fi nancial assets, including interest-bearing securities, with fi xed or determin- able payments and fi xed maturity which the company has a positive intention to hold to maturity. Assets in this category are measured at amortised cost.

Available-for-sale fi nancial assets

Available-for-sale fi nancial assets include fi nancial assets that cannot be classifi ed in any other category or fi nancial assets that the company has initially chosen to classify in this category. Holdings of shares and interests that are not recognised as subsidiaries or associated companies are recognised here.

Assets in this category are measured continuously at fair value and changes in value are recognised in equity, except for changes due to recognition of impairment losses and interest

ANNUAL REPORT 2006

BILIA