profilgruppen 2006

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profilgruppen 2006

“Current operations developed well during 2006, with increased deliveries, improved sales margins and good cash flow.

Our excellent financial position means that we are able to cope with the significant write-downs we were forced

to undertake regarding the German company PWG.”

nilsarthur, presidentandceo

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ProfilGruppen markets, develops and manufactures customised aluminium extrusions and processed components for use in many industries, for example, automotive, electronics, furnishing and construction. The company has its own sales companies in several European countries and owns 18 per cent of the German company PWG, which is Europe's leading subsupplier of aluminium products for sunroofs for the automotive industry.

Offering innovative and functional solutions, ProfilGruppen has a long track record of generating profitability and success for a large number of customers in Western Europe. The Group is characterised by quality awareness, efficiency, customer focus and entrepreneurship.

The Group is quality-certified in accordance with ISO/TS 16949:2002, ISO 9001 and ISO 14001.

Advantages of aluminium

Aluminium has several advantages. As a material it is:

• Lightweight yet strong with high durability

• Corrosion resistant

• Pliable and easy to work

• Good at conducting heat

• Good at conducting electricity

• Easy to recycle

• Cost-effective.

The excellent malleability of aluminium means that numerous different functions can be built into the extrusions right from the start. This simplifies fin- ishing and installation and also increases potential areas of application. This malleability also means there are few restrictions when it comes to designing the extrusions. Tool costs are relatively low

PRELIMINARY WORK. The customer discusses with ProfilGrup- pen's sales staff and designers their ideas for creating a solution that will meet the customer's unique extrusion needs. A drawing of the extrusion is produced so that a customised tool can be ordered .

POWER-PRESS EXTRUSION. The raw material, in the form of aluminium ingots, is purchased in various different alloys. The ingots are cut into suitable lengths and heated to around 500 degrees Celsius . After this they are forced through the customer's tool at high pressure and then shaped to match the cross-sectional design in the extrusion drawing . ProfilGruppen has three presses,

which can each press up to eight extrusions simultaneously. After pressing, the extrusions are cooled using air and/or water, depending on the alloy. Then the extrusions are straightened using hydraulic stretching equipment and cut into suitable lengths.

Finally, the extrusions are hardened for five to eight hours at approximately 180 degrees Celsius in an aging furnace .

THIS IS WHERE ALUMINIUM EXTRUSIONS AND COMPONENTS ARE MANUFACTURED

Automotive

Interior design

Industry & construction

Electronics

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This is ProfilGruppen

and set-up times for production are short, enabling manufacturing of extrusions in short runs.

Focus on processing

ProfilGruppen strives to increase the degree of processing for its products. Processed products require closer cooperation with customers. They create added value for customers and help to create conditions for increased profitability for Profil- Gruppen. Processing is performed both in-house and by a network of external suppliers. Profil- Gruppen has made major investments in extrusion manufacturing and in in-house processing over the last decade. Its production facilities are modern, cost-effective and have high rates of productivity.

Stable and profit-generating business ProfilGruppen is a stable company with 25 years of

uninterrupted profitability – it has produced a profit each year since it was founded in 1981. Its sensitiv- ity to economic trends is moderated by the fact that its customers are from several different industries and operate on different markets, as well as that its product mix contains products with a varying degree of processing.

The Group's overall aim is to give shareholders a high total return, partly through share dividends and partly through increased share value. The dividend policy prescribes that 40–50 per cent of the profit after tax is to be distributed as dividends, calculated over one economic cycle. ProfilGruppen is listed on the Stockholm Stock Exchange Small Cap list.

ANODISATION. The majority of extrusions are anodised.

Anodisation is an electrochem- ical surface modification method that strengthens the surface of the extrusion up to 3000 times.

The extrusions are lowered, after careful cleaning, into a number of baths of sulphuric acid and a DC current is passed through the extrusions . During the anodisation process the metal

can also be dyed a variety of colours. The extrusions can be anodised before or after further processing.

MACHINING. Once the extrusions have been pressed, anodised, if required, and cut, they leave ProfilGruppen's main factories and are further processed at one of the wholly-owned subsidiaries or by ProfilGruppen's network of

external suppliers . This processing may consist of bending, turning, milling or painting, for example.

END USE. ProfilGruppen components are delivered to customers' production lines and may end up in a lorry, for example, or a chair, a cooling system or a window . THIS IS WHERE ALUMINIUM EXTRUSIONS AND COMPONENTS ARE MANUFACTURED

Automotive

Interior design

Industry &

construction

Electronics

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2006 highlights ¹

• The net turnover increased by 17 per cent to MSEK 1 086.9 (926.7).

• The operating profit rose by 2 per cent to MSEK 44.2 (43.2).

• Profit for the year was MSEK 8.6 (26.7), which corresponds to SEK 1.53 per share (4.48).

• The cash flow from current operations amounted to MSEK 72.5 (78.7).

• The board proposes a dividend of SEK 2.80 per share, compared with SEK 2.30 per share the previous year.

• Distribution of MSEK 84.9 to shareholders took place through a redemption scheme.

• During the year, the Group acquired 18 per cent of the shares in the German company PWG, Europe's leading subsupplier of aluminium products for sunroofs for the automotive industry.

At the end of the year, this company was hit by problems, which resulted in ProfilGruppen's result being burdened by write-downs amounting to MSEK 31.8.

2006 highlights

CELEBRATIONS. In 2006 ProfilGruppen celebrated its 25th anniversary. It has been an eventful year.

2006 2005 Change

in %

Net turnover MSEK 1 086.9 926.7 17

Operating profit/loss MSEK 44.2 43.2 2

Operating margin % 4.1 4.7

Profit before tax MSEK 19.3 38.7 -50

Return on equity % 4.4 11.6

Return on capital employed % 9.3 13.0

Cash flow from current operations MSEK 72.5 78.7 -8

Investments MSEK 38.3 36.8 4

Equity ratio % 24.5 38.5

Net debt/equity ratio times 0.74 0.23

Average number of employees 477 492 -3

Earnings per share SEK 1.53 4.48 -66

Dividend per share SEK 2.80¹⁾ 2.30 22

1) Dividend proposed by the board.

2006 IN FIGURES

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The market for aluminium extrusions in Europe was very strong in 2006. We achieved record deliveries for the third year running, and for the first time ProfilGruppen achieved a turnover in excess of SEK 1 billion. We delivered 25 400 tons of aluminium extrusions, an increase of just over 30 per cent from 2003, and volumes were distributed equally between the Swed- ish domestic market and the export markets.

The price of raw aluminium has continued to rise sharply and the average price on the London Metal Exchange was around 35 per cent higher in 2006 than the year before. We have been able to compensate for these price rises through well-planned purchases and raw materials clauses in all customer contracts.

Overall we have strengthened our sales margins during 2006.

During the year we have also further improved the precision of our deliveries to all customer segments. We have implemented a reorganisation of the head office's customer support functions and strengthened our resources for quality and project follow- up in production. This allows us to continue with our earlier focus on improving the service we offer our customers.

During the year we developed our investment in skilled processing services. We accepted several important orders within the automotive industry, where deals are more complex and where the customers' high requirements guarantee our own technical development. The Group also received certifi- cation during the year in accordance with the latest global

quality standard for the automotive industry: norm ISO/TS 16949:2002.

In order to support our own and our customers' expansion it is necessary to secure capacity and top-level competence throughout the entire value chain. This involves us further developing our network of independent suppliers within further processing. We already have an excellent basis, with partners in Sweden, but we are also creating alternatives on our large export markets and in low-cost countries such as Poland.

Concerning our own further processing, the restructuring of previous years has borne fruit in 2006. Both subsidiaries, ProfilGruppen Manufacturing AB and ProfilGruppen Components AB, have reported considerable result improvements during the year.

In the autumn we acquired 18 per cent of the German company PWG when PWG acquired the company Realpro, which was partly owned by us. Both companies work in the field of advanced further processing of aluminium extrusions for car sunroofs. The purpose of the collaboration with PWG is to provide increased future deliveries and valuable technical know-how to strengthen ProfilGruppen's core competence. However, PWG was hit by acute quality and delivery problems at its US subsidiary at the start of two large business projects. These problems are of such a magnitude that PWG, following consultation with its customers, began negotiations to sell the US operation to an

2 CEO'S ANNuAl REvIEW

A few words from the CEO

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CEO'S ANNuAl REvIEW ³ established US company in the same industry. We believe that

the financial repercussions for PWG's German parent company could be significant and have therefore written down Profil- Gruppen's exposure through the company, MSEK 31.8, in the 2006 annual accounts.

We are now evaluating our future commitment to PWG. The contracts with end customers represent significant volumes and run for a lengthy period. We believe that there ought to be some interest from PWG's customers in our continuing to supply its European operations using the current supplier structure.

The consequence of this large lump sum write-down being made in the annual accounts is that ProfilGruppen has to report a poor result for 2006. However, this does not overshadow the fact that ProfilGruppen's own core business has shown very positive development over the year. The result, excluding the lump sum write-down, increased by around 30 per cent compared with the previous year.

2006 was ProfilGruppen's 25th year in business. The company's 25th anniversary was celebrated one Saturday in November with a party for 640 people, comprising employees with invited guests and the company's four founder members. The festivities took place at our factory, which was decked out in party colours for the day. As many as 30 of our 470 or so employees have worked for the company since its start in 1981.

2006 was also ProfilGruppen's tenth year on the Stockholm Stock Exchange. During the year 97 per cent of former class A shares have been reregistered as class B shares. Through a scheme for redemption of shares, decided upon at the Annual General Meeting in April, and through ordinary dividends, approximately MSEK 100 has been distributed to shareholders over the year. During the year, the board has also set new long-term financial targets for the Group. One of these is that previous equity ratio targets have been replaced with a net debt/equity ratio target. The previous target of 8 per cent for the operating margin, set at a time when interest rate levels were different, has been adjusted to 6 per cent over one economic cycle.

Through the positive development we have had in our own core operations, we leave 2006 with a strong balance sheet and an excellent capital structure. We in the management team would like to thank everyone who has helped ensure that our core operations are in good shape. With this as a background, and an assessment for a continued strong market, things look positive for ProfilGruppen over the coming year.

Åseda, 1 March 2007

Nils Arthur President and CEO

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4 ^MARKET

ProfilGruppen and the market

The cornerstone of ProfilGruppen's operations is power pressing of aluminium extrusions, which creates added value for the Group's customers through skilled further processing.

Increasingly, customers want to work with companies that can offer competitive products throughout the entire chain, from design and product development to logistics solutions with deliveries direct into the customers' own manufacturing processes. The trend is moving towards development and delivery of complex components rather than simple extrusions.

Broad area of application

Aluminium extrusions have a broad area of application in many different industries. With their durability, malleability, corrosion resistance, recyc- lability and low weight, they are an increasingly common choice for the automotive industry. Low weight means low fuel consumption, better running economy and better environmental properties.

Extrusions are therefore used in a large number

of applications in cars, lorries, buses and other vehicles.

Aluminium is a good conductor of electricity and heat in all types of electronic and telecommunications equipment. Where there are stringent requirements on conductive and cooling abilities, low weights, minimal volumes and durability, aluminium extrusions are the right choice. Examples of areas of application within telecommunications are cooling fins for base stations and front panels.

Another important customer segment is furnish- ings. With aluminium, a furniture designer can make almost any concept a reality. The fact that aluminium is a maintenance-free, durable and beautiful material makes designing even easier.

Aluminium extrusions are used in chairs and tables, as well as in kitchen and bathroom fittings.

The construction industry benefits significantly from the fact that such extrusions are maintenance- free and malleable and weigh very little. Profil- Gruppen's customised extrusions are used in doors,

BROAD AREA OF APPLICATION. With their unique properties, aluminium extrusions can be customised for a number of areas of application in various industries.

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MARKET ⁵ windows and balconies, for example. Building with

aluminium is building for the future.

Competitors

The market for aluminium extrusions is frag- mented, with a few large manufacturers and a large number of small companies. In Western Europe there are over 140 companies that manufacture aluminium extrusions, with most found in Italy, Spain and Germany. In Central and Eastern Europe there are another twenty or so extrusion manufacturers.

In general it can be said that the large manufacturers and small companies with a clear niche strategy take market shares at the expense of smaller players with limited focus and low degrees of processing.

In Western Europe there are five global extrusion manufacturers represented. The largest is the Norwe- gian company Hydro Aluminium. This is followed by Alcoa of the US, Alcan of Canada, Sapa, now owned by a Norwegian company, and the Belgian company Corus. Towards the end of 2006 Sapa's owner Orkla and Alcoa signed a declaration of intent to merge their operations within aluminium extrusions.

On the Swedish market there are two manufac-

turers of aluminium extrusions: Sapa and Profil- Gruppen. The largest on the market is Sapa. In Scandinavia, as well as ProfilGruppen, Sapa and Hydro, there are also the Finnish companies Nordic Aluminium, Purso and Mäkelä.

Growth in demand and increased deliveries Use of aluminium generally follows industrial trends. In developed economies in Western Europe and North America, use is considerably higher than in, for example, Eastern Europe and Asia, where the market for aluminium extrusions is expected to have the fastest growth over the next few years.

During 2006 deliveries on the Western European market are reckoned to have increased by 6 per cent to around 3.0 million tons (approx. 2.8). This growth is largely driven by increased demand from the construction industry but was also limited by access to raw aluminium.

Since 2003 the Group's growth targets have been to increase annual sales over a five-year period by a few per cent more than general growth in the market.

The Swedish market is believed to have increased by 7 per cent in 2006 to around 77 000 tons.

INCREASED DEMAND. Juhani Toivonen, export sales, Rolf Axelsson and Inger Nilsson, sales Sweden, are all aware of the increasing demand on the market.

ESTIMATED EXTRuSION MARKET IN WESTERN EuROPE TTON

The extrusion market in Western Europe is estimated to have increased during the year by 6 per cent.

2002 2003 2004 2005 2006 2570 2810

2590 2800 2980

PROFIlGRuPPEN'S DElIvERIES OF EXTRuSIONS TTON

During the year a new delivery record was set. For the first time, the share of exports amounted to half of all deliveries.

2002 2003 2004 2005 2006 11.1 11.9

11.3 12.5 12.8

8.2 10.2 7.7

11.5 12.6 22.1 24.0 19.0 19.3

25.4

Sweden Export

PROFIlGRuPPEN'S DElIvERIES OF PROCESSED GOODS MSEK

Turnover related to processing is continuing to increase both in Sweden and for exports.

2002 2003 2004 2005 2006 353 337

355 377 417

218 250 181

329 390 571 587

536

706 807

Sweden Export

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6 ^MARKET

Over the last ten years the extrusion market has grown by about 40 per cent. During the same period ProfilGruppen's growth has reached 57 per cent.

For the third year running, ProfilGruppen established a new record in terms of deliveries in 2006.

During the year delivery volumes increased by 6 per cent to 25 400 tons (24 050). In Sweden deliveries rose by 2 per cent to 12 750 tons. ProfilGruppen's assessment is that the market share in Sweden is 17 per cent. The long-term target is for the market share to increase to 20 per cent.

Deliveries to the export markets rose by 9 per cent during the year. The share of exports amounted to 50 per cent (48). In recent years the Group's exports have increased considerably. In 2002 the export share was 41 per cent.

Rising prices for raw materials

The price of raw aluminium continued to rise during 2006 in line with the trend for most base metals.

The average price of aluminium on the London Metal Exchange (LME) was around 35 per cent higher in 2006 than the previous year.

ProfilGruppen applies raw material clauses in customer contracts, which means that the company can compensate for changing raw material prices.

Customer-driven development

Customers have stringent requirements concerning quality, continuous efficiency improvements and increased delivery flexibility. These are tough requirements, and one of ProfilGruppen's core competences is high technical know-how, which stretches from the design department's drawing programs and

drawing boards via the pressing plants, all the way through the further processing procedure.

Another strength is that despite its relatively small organisation the company has the ability to handle large projects. An important explanation is that for a long time the company has worked with customers within, for example, the automotive and electronics industries, which enforce extremely stringent requirements for their partners.

ProfilGruppen works closely with its customers and strives to get involved in the process as early as possible when customers develop new products. By entering the process at an early point, ProfilGruppen can contribute to developing products that create clear added value for customers.

The company has also noted increased interest in customer-unique solutions concerning packaging methods and deliveries, and there is potential for developing new logistical concepts in close cooperation with customers.

Organic and inorganic growth

Historically, ProfilGruppen has primarily grown organically, among other things by following along when priority customers have established them- selves on new markets. With a broad customer base there is huge potential for continued international growth via organic expansion. The company's growth ambitions also include foreign acquisitions.

In October 2006 ProfilGruppen acquired 18 per cent of the German company Profilrollen Werkzeugbau GmbH & Co KG (PWG), which is Europe's leading subsupplier of aluminium products for sunroofs for the automotive industry. PWG also

The distribution of turnover between different industries has not changed noticeably since the previous year. Automotive and electronics/telecommunications continue to be the priority industries where the degree of processing is normally relatively high.

Construction 26% (26) Automotive 25% (24) Electronics/telecom. 21% (23) Furnishing 11% (11) Mechanics 10% (10) Miscellaneous 7% (6) 1

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INDuSTRY SHARE OF THE GROuP'S NET TuRNOvER, 2006 (2005)

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COuNTRY SHARE OF THE GROuP'S NET TuRNOvER, 2006 (2005)

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Sweden 54% (56)

Germany 12% (10)

Norway 11% (10)

Denmark 6% (5)

The Netherlands 5% (6) united Kingdom 5% (6) Other countries 7% (7) 1

2 3 4 5 6 7

Net turnover increased during the year by 17 per cent. The share for export has increased to 46 per cent, with Germany having the largest increase.

CuSTOMISED SOLuTIONS. Customers demand the highest quality – and we think that's good! Tina Stigsohn, logistics, and Rickard Alm, production engineering, work continuously to produce customer- unique solutions.

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MARKET ⁷ purchased the Dutch processing company Realpro,

in which ProfilGruppen owned a 40 per cent share.

In connection with ProfilGruppen becoming part- owner of PWG, an agreement was signed whereby ProfilGruppen becomes PWG's main supplier in the future.

Centralised processing – global supplier base increasingly important

A central element of ProfilGruppen's strategy is to develop skilled processing services. Process- ing can, for example, consist of cutting processing, surface treatment, joining or a combination of these methods. Processing an extrusion can significantly increase the value of the product, which normally leads to increased profitability.

In recent years the share of processed extrusions in incoming orders has increased. During 2006 this was 66 per cent, compared with 61 per cent five years ago.

The processing strategy has meant that deliveries to the various market segments have changed considerably in recent years. There has been a clear shift from low-processed products to more highly- processed extrusions and components.

The processing takes place partly in-house, and partly in a well-established network of skilled partners specialising in processing. Around Åseda there are in excess of ten such companies, including two wholly-owned subsidiaries of the Group – ProfilGruppen Manufacturing (advanced machine processing) and ProfilGruppen Components (surface treatment). Just over half of the processing performed is carried out by external suppliers in this network.

Work is ongoing to further develop the supplier base.

Competing on a global market requires access to suppliers on the Group's major customer markets as well as on low-cost markets. ProfilGruppen has therefore established cooperation with processing companies in Poland and the Czech Republic. This is primarily about labour-intensive processing. The Group's representative office in China must be seen against this background, where the intention is to investigate opportunities for cooperation with local companies within extrusion and processing.

The network strategy for processing suppliers affords ProfilGruppen increased flexibility and strengthens levels of expertise and competitiveness.

Intensive marketing

The Group markets its products mainly through intensive cooperation with customers, regardless of the market. The sales companies in Norway, Denmark, Germany and the UK are responsible for maintaining existing customer relations and for identifying and canvassing new customers. These companies are staffed mainly by sales personnel. The design work and concrete proposals for value-creating product solutions precede sales work, which is supported by brand profiling, campaigns and participation at trade fairs.

In September 2006, ProfilGruppen had a stand at the aluminium fair in Essen, in Germany. At the fair, ProfilGruppen primarily targeted customers in the automotive, electronics and interior design industries. Customers in these industries are demand- ing processed extrusions to an ever greater extent.

A SMAll SElECTION OF PRODuCTS WHERE PROFIlGRuPPEN'S AluMINIuM COMPONENTS AND EXTRuSIONS ARE uSED.

Trains use extrusions that are joined together using friction stir welding.

Fireplace – in the furnishing segment.

A lot of aluminium extrusions are used in windows.

ProfilGruppen uses friction stir welding to join two extrusions for durable traffic signs.

Office chairs for which ProfilGruppen manufactures a number of extrusions with several steps in the processing chain.

In wheelchairs and other aids the low weight of aluminium extrusions is appreciated.

Aluminium extrusions are used in a lot of lightweight and modern furniture.

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GROuP COMPANIES

Efficient production

ProfilGruppen constantly strives to increase productivity in the Group's manufacturing plants. Extrusion capacity amounts to 30000 tons per year. During 2006 25 400 tons were delivered.

The basis of ProfilGruppen's production is three production lines for power pressing of aluminium extrusions, which are all at ProfilGruppen Extru- sions. Over the last five years the company has improved productivity in the press lines, measured in kilo per hour, by over 25 per cent.

High-quality production

All three presses can manufacture a broad spectrum of complex extrusions with very narrow tolerances.

The two smaller presses, Press Eva and Press Mia, can be run using the same tools, but Press Eva focuses on optimal productivity and Press Mia on optimal flexibility. Press Eva manufactures around 30 different products per day, Press Mia up to 40

and the largest press, Press Max, 15–20. Set-up times are short for all presses.

High efficiency

Production of aluminium extrusions in the company's press lines amounted to 25625 tons during 2006.

This is an increase of 7 per cent compared with 2005 and 36 per cent compared with 2002. The increase in production has been made possible by the Group's internal programme for competence and productivity development in combination with continued capacity-raising investments. In total over MSEK 7 was invested in press operations during 2006.

ProfilGruppen's method of working with cross- functional production teams has proved to be successful for developing working methods and productivity. The team includes tool correctors, press operators and production engineering. Some teams specialise in producing complex extrusions,

8 ^PRODuCTION

Performs power-press extrusion and surface treatment, and is responsible for administration, development, marketing and sales.

Number of employees including sales companies as of 31 Decem- ber 2006: 398.

Processes components through surface treatment.

Number of employees as of 31 December 2006: 22.

Processes components, including bending and cutting processing.

Number of employees as of 31 December 2006: 47.

A CONDuCTIvE METHOD. Static electricity is a problem affecting many areas. ProfilGruppen's unique method, Alutin, creates electrically conductive surfaces that are also extremely hard-wearing, with low friction and excellent corrosion protection. The method is also environment-friendly.

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which means that a lot of knowledge and experience can be built up around optimal production methods.

Advanced processing

Developing processing services and increasing the share of processing in the Group's deliveries is central to the company's strategy.

Advanced machine processing in-house is performed by the ProfilGruppen Manufacturing subsidiary, and surface treatment of aluminium components by ProfilGruppen Components, while much of the other further processing is handled by independent local companies.

ProfilGruppen Manufacturing specialises in automated processing for long runs. The company also has a high level of expertise in the bending of aluminium extrusions. The company's main focus is on products for the automotive and telecommunications industries. The investment risk is limited through the

Group using standard machines as far as possible.

These can then be reset for use in other projects following completion of specific customer assignments.

As a result of investments made during 2005, the Group has one of Europe's most modern surface treatment plants in ProfilGruppen Components, which has two surface treatment methods at its disposal: anodisation and the Group's unique process called Alutin.

Several significant investments

During 2006 several investments were implemented with the aim of increasing quality and securing delivery capacity. Investments were made in new advanced cutting equipment and in new warehous- ing facilities, among other things. The new ware- house meets the stringent temperature requirements for the entire manufacturing chain imposed by the automotive industry in particular.

PRODuCTION ⁹ vERSATILITy. Cross-functional production teams, high levels of expertise and experience lay the foun-

dations for efficient production.

ACCuMulATED PRODuCTIvITY DEvElOPMENT PER CENT

In the third quarter of 2006, productivity, measured in kilo per hour, fell due to certain disruptions. In total for the year, productivity has increased in relation to the previous year.

0 5 10 15 20 25 30

2002 2003 2004 2005 2006

NET PRODuCTION TTON

The company can increase production continuously with the help of internal programmes for productivity development in combination with capacity-raising investments.

0 5 10 15 20 25 30

2002 2003 2004 2005 2006 19.2 22.2

18.8

24.0 25.6

1,27 1,21 1,37

1,15 1,13

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10 DIRECTORS' REPORT PROFIlGRuPPEN Ab (Publ) 556277-8943 The board of directors and the CEO of ProfilGruppen

Ab (publ.), corporate identity number 556277-8943, hereby submit the parent company and consolidated accounts for the period 1 January–31 December 2006, which is ProfilGruppen’s twenty-sixth year of activity.

ProfilGruppen runs operations in the form of a limited company (publ.) and has its registered office in uppvidinge municipality, Kronobergs county. The company address is: box 36, SE-360 70 Åseda, Sweden.

THE GROuP

ProfilGruppen develops, markets and manufactures customised aluminium extrusions and components.

Sales are conducted through a sales organisation at the head office in Åseda and through wholly-owned sales companies in Denmark, the united Kingdom, Norway and Germany. ProfilGruppen has a presence in China through a representative office.

ProfilGruppen Extrusions Ab is responsible for design, product development and the manufacture of extrusions. Processing is performed by two wholly- owned companies, ProfilGruppen Components Ab and ProfilGruppen Manufacturing Ab, as well as in close cooperation with a number of independent companies.

Turnover and results

ProfilGruppen's net turnover for 2006 amounted to MSEK 1 086.9, which is an increase of over 17 per cent in relation to the previous year. This increase can be explained primarily by a higher volume of deliveries and by increased raw material prices.

For the third year running, the Group has achieved record deliveries and supplied 25 400 tons (24 050) of aluminium extrusions.

The Group's operating profit amounted to MSEK 44.2 (43.2), which corresponds to an operating margin of 4.1 per cent (4.7). The profit after financial items amounted to MSEK 19.3 (38.7). Profit after tax amounted to MSEK 8.6 (26.7), which produced earnings per share equivalent to SEK 1.53 (4.48).

The profit for 2006 has been burdened by a one-off cost of MSEK 31.8 relating to the acquired German company Profilrollen Werkzeugbau GmbH &

Co KG (PWG), of which MSEK 16.4 relates to writing down of the owned share in PWG and also largely to trade debtors in PWG's European operations. After write-downs, the remaining exposure relating to 2007 amounts to approximately MSEK 3.

Investments and depreciation

Investments during the year amounted to MSEK 38.3 (36.8), of which MSEK 21.9 (26.0) comprised

investments for expansion. Of the investments, MSEK 16.4 constitutes a business acquisition of shares in the German company PWG. Total investments over the past five years have amounted to MSEK 181.5. Depreciation and write-downs during the corresponding period have amounted to MSEK 188.2, including a lump sum write-down for the year of MSEK 16.4 for the holding in PWG. Total depreciation according to plan amounted during the year to MSEK 31.7 (33.2). During the year a write-down of MSEK 0.7 was implemented for processing tools.

Financial position and cash flow

ProfilGruppen's net debt/equity ratio has increased during the year to 0.74 (0.23), compared with the target range of 0.75–1.00. The increased net debt is primarily explained by increased borrowing in connection with the redemption scheme implemented during the year. The return on capital employed amounted to 9.3 (13.0) per cent during the year. The profitability target for capital employed was set at 15 per cent in 2006. The equity ratio amounted to 24.5 per cent (38.5) at the end of the year.

liquid assets amounted to MSEK 28.8 (43.4) at the end of the year, while the Group’s non-utilised credit facilities, excluding liquid assets, amounted to MSEK 134.8 (183.7).

The cash flow from current operations amounted to MSEK 72.5 (78.7) and after investment activities to MSEK 42.9 (56.1).

The balance sheet total amounted to MSEK 606.3 (616.9), a decrease of MSEK 10.6. This decrease can be explained primarily by write-downs relating to PWG.

This is partly counteracted by more capital being tied up in stocks and trade debtors, which in turn is largely attributable to increased raw material prices.

Financial risks

ProfilGruppen is exposed to financial risks, which are related mainly to currency in connection with export deals, interest risks connected with liquidity and debt management, as well as risks associated with the purchase of raw materials. Financial instruments and risk management are described in greater detail in note 21.

Market

The strong demand for aluminium extrusions in Western Europe also continued during the last quarter of the year. Growth over the year amounted to over five per cent and was limited by access to raw aluminium. In total the market in Western Europe for aluminium extrusions is estimated to have amounted to approximately three million tons, which is the highest level to date.

Directors' report

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DIRECTORS' REPORT 11 PROFIlGRuPPEN Ab (Publ) 556277-8943

Incoming orders amounted to MSEK 1 121.4 (957.6), which is an increase of 17 per cent on the previous year. Calculated as volume, incoming orders amounted to 25 875 tons (24 650), an increase of five per cent on the previous year. Incoming orders from the Swedish market increased by two per cent and from export markets by seven per cent.

For the first time in ProfilGruppen's 25-year his- tory incoming orders from export markets were on a par with those from the Swedish market.

Manufacturing

The cornerstone of ProfilGruppen’s production is the power pressing of aluminium extrusions at ProfilGruppen Extrusions Ab. The company has three press lines for the manufacture of extrusions.

Proactive investments in the field of production over the last few years have ensured a high production capacity, improved productivity and good competitiveness. The Group's production of aluminium extrusions amounted to 25 625 tons (23 975), an increase of seven per cent compared with 2005.

The Group’s processing companies have at their disposal advanced machinery used mainly for cutting processing, bending and surface treatment.

ProfilGruppen Components Ab specialises in surface treatment, including anodisation and alutin treatments. ProfilGruppen Manufacturing Ab focuses on bending and cutting processing, mainly for larger runs, using automated production lines.

Development work

Constant improvement of processes and products is an important aspect of ProfilGruppen's work. The Group creates new products and product models for existing or potential customer assignments on a daily basis.

Close cooperation between the Group and its customers helps to broaden knowledge of a customer's products, and constructive ideas can be put forward concerning possible improvements to the product's properties. During the design phase, the Group has excellent opportunities to improve the product's environmental impact, life cycle economy and potential for recycling.

Process development work is carried out in partnership with, among others, customers, metal suppliers and tool and machinery manufacturers.

The costs associated with this kind of work do not normally meet the criteria for reporting as assets, but are recorded as cost of goods sold and selling expenses in the consolidated profit and loss account (see note 7). For each development project there is an assessment of whether or not the costs should be set up as assets. During the year no development costs have been set up as assets.

Quality

ProfilGruppen Extrusions Ab was certified in accordance with the quality assurance system ISO 9002 back in 1991. In 2003, ProfilGruppen also trans- ferred to the new standard ISO-9001:2000. In 1999, ProfilGruppen was the first Scandinavian company in its sector to be certified in accordance with QS-9000, which was then the automotive industry's requirement. Since May 2006, ProfilGruppen has been certified in accordance with ISO/TS 16949:2002, which is the new quality system developed by the global automotive industry.

ProfilGruppen has also been approved since 1998 in accordance with environmental management system ISO 14001.

Environmental information

ProfilGruppen contributes to positive developments in the environmental field by offering customers aluminium extrusions and surface treatments using anodisation. This is better from a life cycle perspec- tive and means that environmentally harmful materials and processes can be replaced.

The Group conducts operations that require a permit under the Swedish Environmental Code. Within the Group there are plants for the manufacture of aluminium extrusions and for processing using surface treatment and machining. These activities have an impact on the external environment, mainly in the form of discharges into water and noise. All waste water from activities is purified before being discharged.

In 2006, ProfilGruppen Extrusions Ab was granted a renewed permit for existing and expanded activities concerning pressing and the surface treatment of aluminium extrusions.

A follow-up of the Group's environmental targets is presented elsewhere in the annual accounts. The environmental policy can be viewed on the Internet at www.profilgruppen.se.

Personnel

The average number of employees in the Group amounted to 477 (492), of whom 79 (108) relate to the processing companies ProfilGruppen Components Ab, ProfilGruppen Manufacturing Ab and the Group's share in Realpro bv up until its sale on 30 September 2006. Of the total number of employees in the Group, 25 per cent (26) were women. Staff turnover during the year amounted to 3.3 per cent (4.6).

Payroll expenses amounted to MSEK 152.5 (151.4).

NET TuRNOvER AND PROFIT¹⁾ MSEK

DIvIDEND PER SHARE SEK 2002 2003 2004 2005 2006

461 22.5

473 37.5 490

7.7

514 585 38.7

19.3 283 340

284

413 502 744 813

774

927 1 087

Profit before tax Export Sweden

2002 2003 2004 2005 2006 1.25

2.00

0.75

2.30 2.80³⁾ EARNINGS PER SHARE ²⁾ SEK

2002 2003 2004 2005 2006 2.64

4.49

0.82

4.48

1.53

3)Dividend proposed by the board.

1, 2)The figures in the diagram for 2002–2003

are calculated according to the then applicable Swedish accounting principles and those for 2004–2006 according to currently applicable international accounting principles.

2)The number of shares has been recalculated historically with reference to the redemption scheme implemented during 2006.

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Other important events during the year or after its end Review of the Group’s long-term targets

During the year the board revised ProfilGruppen's long-term targets as follows:

Previous target New target Return on

capital employed, % 15–20 15

Operating margin, % 8.0 6.0

Equity ratio, % 30.0 *

Net debt/equity ratio - 0.75–1.00

* Replaced by target for net debt/equity ratio The equity ratio target is being replaced by a target for the net debt/equity ratio. The new targets indicate the average for an economic cycle and will apply from the start of 2006.

Redemption of shares

A redemption scheme for every seventh share decided upon by the 2006 Annual General Meeting was implemented during the year and payment of MSEK 84.9 in redemption funds was effected on 31 August.

After the redemption and requested reregistration of class A shares, the number of shares in ProfilGruppen amounts to 4 932 517 divided into 21 820 class A shares and 4 910 697 class b shares.

Acquisitions

During the year, ProfilGruppen acquired 18 per cent of shares in the German company PWG, Europe's leading supplier of aluminium components for sunroofs for the automotive industry. PWG also acquired its Dutch rival Realpro, in which ProfilGruppen owned a 40 per cent share. The purchase sum for ProfilGruppen's share of PWG was composed partly of ProfilGruppen's 40 per cent holding in Realpro, and partly of MEuR 1.1 in a cash payment. At the same time, a partnership agreement was signed with a view to making ProfilGruppen PWG's future main supplier of aluminium extrusions.

One-off costs relating to the German company PWG

PWG was hit by acute quality and delivery problems at its uS subsidiary in connection with the start of two large business projects. PWG has begun negotiations with a view to selling its uS subsidiary, which is estimated to lead to significant losses for the German parent company.

As a consequence of this situation having arisen, the result for 2006 has been burdened with a one-off cost of MSEK 31.8, of which MSEK 16.4 relates to the share owned in PWG, while the remainder primarily relates to trade debtors in PWG's European operations. After write-downs, the remaining exposure relating to 2007 amounts to approximately MSEK 3.

During 2006 ProfilGruppen's deliveries to PWG and the Dutch company Realpro, acquired by PWG in 2006, amounted to a value of approximately MSEK 35.

Corporate governance

The work of the board of ProfilGruppen Ab is regu- lated by the formal work plan, which is established annually at the board meeting following election at the Annual General Meeting. Issues concerning an audit or internal control are prepared by the board’s audit committee, while issues concerning remuneration are prepared by the remuneration committee. Prior to the 2007 Annual General Meeting, an election committee will be responsible for proposing board members and fees for the board, committees and auditors. More information on the work of the board and corporate governance at ProfilGruppen is available in the corporate governance report at www.profilgruppen.se.

The authority of the board

In order to finance potential company acquisitions using the company's own shares, the board was authorised at the Annual General Meeting in April 2006 for the period until the next ordinary Annual General Meeting to make decisions on the new issue of class b shares. The number of shares must not exceed 400 000 and new issues may be carried out on one or more occasions. Deviations from the shareholders' preferential rights are permitted. The issue price must correspond to the assessed market value of the shares. In the event of full exploitation of the authority, this corresponds to eight per cent of the total number of shares. This authorisation has not been utilised to date.

Outlook for 2007

Stable development is predicted for the Western European extrusion market for 2007. ProfilGruppen's growth will continue to depend on the development of key customers. The Group's delivery volume for 2007 is expected to reach the previous year's level at least.

12 DIRECTORS' REPORT PROFIlGRuPPEN Ab (Publ) 556277-8943

The operating margin amounted to 4.1 per cent; adjusted for the effects of one-off costs it amounted to 5.1 per cent.

OPERATING MARGIN PER CENT

2002 2003 2004 2005 2006 4.2

5.3

2.6

4.7 4.1 Target 6.0

The return on capital employed fell in 2006 due to one-off costs relating to German company PWG.

RETuRN ON CAPITAl EMPlOYED PER CENT

2002 2003 2004 2005 2006 9.7

13.2

5.8

13.0 9.3 Target 15

NET DEbT/

EQuITY RATIO TIMES

The net debt/equity ratio increased to 0.74, primarily due to the distribution of capital to shareholders that took place during the year.

2002 2003 2004 2005 2006 0.40 0.44

0.78

0.23 0.74 Target 0.75–1.00

profilgruppen 2006