(For table see attached file)

· Operating income increased 10% year on year to MSEK 455 excluding non-recurring items and forward contracts (MSEK 412 excluding divested unit).

· Total non-recurring costs were MSEK 124, of which MSEK 88 were write-downs on facilities and goodwill effected in the third quarter. Additional bad debt of MSEK 6 was posted in the fourth quarter.

· The US powder market rallied somewhat in the fourth quarter. In volume terms, the global market for iron powder was weak in 2005, mainly because of slack US demand.


Full year 2005
Net sales were MSEK 4 594 in the year, a 16% increase excluding SCM’s copper operation. Currency effects exerted a positive turnover impact of 2%.

Volumes, excluding the copper operation, were down 2% on the previous year. Volume growth reflects weaker global market progress than in 2004. Sales volumes were affected by customers reducing inventory levels in 2005, itself the consequence of bringing deliveries in late 2004 forward to mitigate the increased price surcharges of early 2005.

North American car sales for 2005 were consistent with the previous year. After a weak start to the year, a temporary rally occurred through the summer months due to a discounting program introduced in the US. Production was also consistent with the previous year. Increased sales of smaller and more fuel-efficient vehicles, and US automakers losing market share, has resulted in the US powder market - representing 50% of global volumes - contracting in 2005, although there was some recovery in the fourth quarter. Markets in Western Europe also remained weak, with growth in Asia and South America unable to offset these downturns, which meant that overall, global powder market volumes declined.

Nevertheless, Höganäs’ volumes on the American market were healthy. Progress in Western Europe remained negative. Volumes in Eastern Europe and South America remained robust and in Asia, progress varied, with positive performance in Japan and Southeast Asia.

Fourth quarter 2005
Turnover grew by 15% year on year in the fourth quarter. These gains are mainly due to higher prices, caused by higher raw materials prices. Volumes were up 5% in the fourth quarter, quarter on quarter, and consistent with previous quarters of 2005. Volumes benefited in the final quarter 2004 because of the stated effect of deliveries being brought forward, implying that volumes were 8% lower than in the corresponding quarter of the previous year. Currency effects caused turnover to increase by 8%.

Full year 2005
Year-2005 operating income was MSEK 461 (MSEK 600 excluding the SCM copper operation). Excluding the following non-recurring items totalling MSEK 124 and earnings from currency forward contracts operating income was MSEK 455, i.e. a 10% increase compare to last year excluding divested units.

Total non-recurring costs were MSEK 124. MSEK 6 of bad debt in the UK was posted in the fourth quarter. Of total non-recurring costs of MSEK 124 posted to earnings, MSEK 88 was write-downs on facilities and goodwill amortisation in the UK, China, the US and Brazil, a consequence of the review of production structure conducted in the year. In addition, earnings in the year were adversely affected by an imbalance between raw materials costs and price surcharges. The fourth quarter was also subject to a smaller-scale negative imbalance, mainly dependent on scrap and molybdenum. The market prices of nickel and copper rose in the fourth quarter, while those of scrap and molybdenum fell.

Other operating income and operating expenses amounted to MSEK 180 (166) including items such as earnings from currency forward contracts and CO2 emission rights. Earnings from currency forward contracts were MSEK 129 (188).

Income before tax was MSEK 408 (MSEK 567 excluding the divested copper operation). Apart from lower operating income, income before tax was also reduced by deteriorated net financial income and expenses, mainly caused by higher interest costs associated with loans and USD hedging.

Income after tax was MSEK 290 (438), or SEK 8.40 (12.80) per share. The effective tax rate was 28.9% (28.7), which is higher than previous quarters. This is caused by a revaluation in the forth quarter of a deferred tax item, which has affected the group’s total tax cost – however not paid out. For 2006 the effective tax rate is estimated at 26%.

Fourth quarter 2005
Operating income was MSEK 131 (MSEK 154 excluding the SCM copper operation). Income excluding earnings from currency forward contracts and non-recurring items was MSEK 109 (101), equivalent to margins of 9.0% (9.6). In the fourth quarter, price surcharges did not fully compensate for the increased metals costs.

Income before tax was MSEK 115 (MSEK 147 excluding the SCM copper operation). The lower income is due to the aforementioned deteriorated net financial income and expenses and lower operating income.

Iron Powder
The Iron Powder business area’s net sales grew by 14% to MSEK 3 370, the turnover increase largely due to increased prices from surcharges. The business area’s volumes were consistent with the previous year. Volume growth was highest in Eastern Europe, North America, South America and some Asian countries.
Operating income was adversely affected by MSEK 6 of bad debt in the quarter, and by write-downs, bad debt and the revaluation of raw materials in the previous quarter. As previously, earnings from forward contracts are included in the Iron Powder operation’s income. Operating income for 2005 excluding non-recurring items and forward contracts was MSEK 313 (283) and margins were 9.3% (9.6). Accordingly, margins were unchanged despite an imbalance between raw materials costs and price surcharges in 2005.

High-Alloy Metal Powder
High-Alloy Metal Powder’s net sales amounted to MSEK 1 245, a year-on-year increase of 19% excluding the SCM copper operation, divested previously. Turnover gains were mainly dependent on price compensation for higher costs of materials.

In 2005, volumes decreased by 9% year on year, excluding the aforementioned divested business. Volumes increased in North America and Japan, but reduced in other markets.

YTD operating income excluding non-recurring items was MSEK 143, against a figure of MSEK 129 for the previous year excluding SCM’s copper operations. Excluding non-recurring items, margins were 11.5% (12.3% excluding SCM’s copper operation).

Return on capital employed was 12.0% (17.8), while return on equity was 12.2% (21.0). Returns are calculated on the most recent 12-month period.

At the end of the period, the equity/assets ratio was 48.5% against 46.3% at year-end 2004. Shareholders’ equity per share was SEK 73, against SEK 64 as of 1 January.

Consolidated financial net debt was MSEK 1 387, an increase of MSEK 47 since year-end. Net financial income and expenses were MSEK -53 (-35). The deteriorated net financial income and expenses is mainly caused by higher interest costs associated with loans and USD hedging.

Cash flow from ongoing activities was MSEK 422. This can be set against MSEK 383 for the corresponding period of the previous year. Working capital increased by MSEK 72 on year-end 2004 mainly due to higher inventories. Investments in fixed assets amounted to MSEK 260 (286).

Höganäs had 1 551 employees at the end of the period,
against 1 577 as of 1 January 2005. First and foremost, the decrease is sourced from previously divested subsidiary Höganäs Verkstads AB.

Parent company net sales were MSEK 2 490 (2 209), MSEK 1 087 of which to group companies. Income after financial items was MSEK 300 (442). Net investments in tangible fixed assets were MSEK 126 (143). Parent company liquid funds were MSEK 30 at the end of the period, compared to MSEK 18 as of 1 January 2005.

Subsidiary Höganäs Verkstads AB was divested in April. External turnover in 2004 was MSEK 11 and total assets were MSEK 20. Capital gains were in the parent company MSEK 6 and MSEK 0 in the Group.

The stipulations of IAS 39, which governs the accounting of financial instruments, have the biggest impact on Höganäs. The adoption of IFRS means all financial instruments being continuously valued at market price. IAS 39 should be adopted from 1 January 2005, and is exempt from the stipulation regarding the re-calculation of the comparative year. This disclosure increased the opening balance of shareholders’ equity as of 1 January 2005 by some MSEK 270.

The total number of CO2 emission rights received have been accounted as an intangible asset and other operating income, accounted at cost based on their first official quotation. Rights utilised are accounted at cost as cost of goods sold and provision. Thus, net remaining rights affected net income by MSEK 7. The EU has yet to resolve on how emission rights should be valued. The market value of this intangible asset as of the balance sheet date was some MSEK 14 higher than book value, after adjustment for the emission rights already exercised.

A stock option plan was implemented in 2000, with the final exercise date of 31 May 2005. During the year,
580 600 options were redeemed for shares, and as a result, shareholders’ equity increased by MSEK 107.

Höganäs realigned the group’s strategy through the autumn and will be building on its strengths: innovation, cost-efficiency and the corporation’s global presence through sales and production networks. Höganäs will intensify its activities focused on profitable growth, primarily focusing on development activities in closer collaboration with end-customers, supply strategies based on procurement and in-house production, pricing strategies and cutting working capital levels. Consolidated key figures were revised coincident with the strategic review and the following figures apply at consolidated level: operating margin of 15%, return on capital employed of 20% and annual target growth of 6-8% over a business cycle.

The Election Committee, announced coincident with the Q3 Report, comprises Chairman of the Board Ulf G Lindén, Carl-Olof By of Industrivärden, Mikael Garton of SEB Mutual Funds and Henrik Didner of Didner & Gerge Fonder AB. The Chairman of the Board also chairs this Committee.

The Board of Directors is proposing a dividend of SEK 5.75 (5.75) per share to the Annual General Meeting.

Höganäs anticipates the positive progress on Asian and South American powder markets, and the weaker progress in Europe and the US, continuing. Höganäs expects metal prices to remain volatile in 2006.

Earnings from currency forward contracts are estimated to be substantially lower than in 2005 based on today’s currency rates.

Board of Directors

Höganäs, Sweden, 14 February 2006


This Report has been prepared pursuant to IFRS (International Financial Reporting Standards), IAS 34. Previous years’ figures, key indicators, diagrams and tables have been recalculated.
Höganäs intends to publish the following financial information for 2006:
• First-quarter Interim Report 2006, 19 April 2006
• Second-quarter Interim Report 2006, 14 July 2006
• Third-quarter Interim Report 2006, 20 October 2006

Höganäs AB (publ), SE-263 83 Höganäs, Sweden
tel +46 (0)42 33 80 00 fax +46 (0)42 33 83 60

(For entire year end report see attached file)


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