INTERIM REPORT JANUARY – SEPTEMBER 2006

Highlights

(For table, please see the attached file)

· Sustained robust volume growth. Volumes have grown by 10%. Even China/Taiwan have had a robust growth in the quarter.
· The operating income adjusted for non-recurring items and earnings from currency forwards contracts was MSEK 420, a 21% increase year on year.
· The US powder market staged a rally in the third quarter, although so far this year, the market has contracted because of progress in the American automotive industry.

GROUP

NET SALES
YTD third quarter 2006
Net sales grew by 15%, to MSEK 3 890. The higher turnover is primarily due to increased volumes, and to some extent, previously implemented price increases. The new pricing model in Europe, which was introduced in the quarter, had a lesser effect. Currency effects resulting from a weaker krona exerted a 2% positive effect on turnover.

Volumes expanded by 10% year on year despite weak performance on the North American market. Höganäs’ volume growth has been good on all markets apart from China and Taiwan.

North American car sales have decreased YTD, while car production has remained unchanged. The North American powder market staged a rally in the third quarter. The trend towards smaller, more fuel-efficient cars, simultaneous with the two largest American car producers losing market share, mean that the US powder market has contracted this year. The US represents about half of the global powder market. The market in Europe continued to rally.

Third quarter 2006
In the third quarter, turnover increased by 10% year on year. All markets apart from Japan enjoyed healthy year-on-year volume growth. Japanese volumes were on a par with the previous year’s. China/Taiwan, which previously saw volumes decline, posted a healthy increase in the quarter. Third-quarter volumes were higher than in the first quarter, although lower than in the second. The new European pricing model was progressively implemented in the third quarter, and exerted a lesser effect in the quarter. This new pricing model mainly affects the Components business area. Currency effects resulting from a stronger Swedish krona, particularly against the USD, exerted a 4% negative turnover effect year on year.

EARNINGS
YTD third quarter 2006
Operating income was MSEK 456 (330). Excluding the non-recurring items stated below and the profits from currency forwards contracts, income was MSEK 420 (346), a 21% increase.

The increase in turnover has had a positive impact on earnings. Scrap, nickel and copper prices have increased in the year, exerting a negative earnings impact. Rising energy prices also had an adverse earnings impact.

Other operating income and operating expenses were MSEK 36 (130) including earnings from currency forwards contracts of MSEK 49 (102) and non-recurring items. As previously announced, in the second quarter, Höganäs provisioned estimated costs of MBRL 18.1, equivalent to approximately MSEK 62, in its Brazilian operations. The majority of this figure is for value added tax demands. Of the MSEK 62 total, MSEK 41 affects operating income, and the remainder, net financial income and expenses. A smaller product segment in Brazil was divested in the period, generating a capital gain of MSEK 10. Accordingly, non-recurring items amounted to MSEK -13 primarily comprised of tax costs in Brazil of MSEK 41, a capital gain on the product segment in Brazil of MSEK 10 and MSEK 18 of earnings from sales of CO2 emission rights.

Disregarding currency forwards contracts, in 2006, a weaker krona has exerted a negative operating income impact of some MSEK 8 mainly explained by decreased exchange rate of JPY and a reduced net flow of USD during the third quarter.

Income before tax was MSEK 387 (293). The provisioning in Brazil reduced net interest income/expenses by MSEK 21. Non-recurring items had a negative impact of MSEK 34 on income before tax.

Income after tax was MSEK 283 (215), or SEK 8.12 per share before and after dilution (6.25). The effective tax rate was 26.9% (26.6).

Third quarter 2006
Operating income was MSEK 151 (48). Underlying earnings, excluding non-recurring items and earnings from currency forwards contracts, were MSEK 123 (108). The divestment of a minor product segment in Brazil generated a capital gain of MSEK 8. Earnings from currency forwards contracts were MSEK 21 in the quarter. Rising metal prices—particularly nickel—exerted an adverse impact on quarterly profitability. Increased energy costs also had a negative earnings impact.

Income before tax was MSEK 130 (34).

BUSINESS AREAS
As a step towards an increased market orientation, Höganäs has chosen to monitor and report its operations from a market perspective from 2006 onwards. That portion of the metal powder market where Höganäs is active can be divided into two main fields of application: Components and Consumables. Components encompasses all powder where value is added to create components. Consumables covers those powders used in processes such as preparing metals, as supplements to chemical processes, surface coatings or food additives. Components represents some 70% of consolidated turnover, and Consumables, some 30%.

Components
The net sales of the Components business area were MSEK 2 768 (2 336), a 18% increase year on year.
The increase is due firstly to expanded volumes, and secondly to price changes effected in North America and Europe. Exchange rate fluctuations exerted a lesser, positive impact on the turnover. A new pricing model on metals was progressively implemented in Europe in the third quarter—a change that has exerted only a modest impact in the quarter.

Volumes have increased by 11% YTD. All markets sustained positive volume growth, apart from China and Taiwan.

Operating income was MSEK 255 (157). Operating income was negatively affected by the above-stated
non-recurring items. Excluding non-recurring items,
YTD margins were 10.1% (9.9).

Consumables
For Consumables, net sales were MSEK 1 122 (1 044), a year-on-year increase of 7%. The increase is due to higher volumes, metal price fluctuations and price changes effected in the third quarter.

Year to date, volumes increased by 7% year on year. Volume growth remained positive, mainly in Taiwan, South Korea, South America and India.

Operating income was MSEK 152 (71). Non-recurring items had a positive impact on earnings. Operating margins, excluding the non-recurring items, were 12.6% (10.9).

PROFITABILITY
Return on capital employed was 14.9% (12.6) and return on equity was 14.2% (13.9). Returns are calculated on the most recent 12-month period.

FINANCIAL POSITION AND CASH FLOW
The equity/assets ratio continued to strengthen to 49% at the end of the period, against 48% at year-end 2005. Shareholders’ equity per share was SEK 73.70, against SEK 73.30 as of 1 January.

Consolidated financial net debt was MSEK 978 at the end of the period, down MSEK 409 since the previous year-end. This was a consequence of the result and the capital rationalisation package underway since autumn 2005. Net financial income and expenses were MSEK -69 (-37), with provisioning for tax in Brazil exerting a negative impact of MSEK 21 on net financial income and expenses.

Cash flow from operating activities was MSEK 648 (204). Working capital reduced by MSEK 136. Investments in fixed assets were MSEK 149 (200). Emission rights have been sold in the year, affecting cash flow by MSEK 23. Financing activities reduced cash flow for the period by MSEK -407 (-1) comprising dividends paid of MSEK -200 and net change of loans of MSEK -207.

HUMAN RESOURCES
Höganäs had 1 552 employees at the end of the period, against 1 551 as of 1 January.

PARENT COMPANY
Parent company net sales were MSEK 2 179 (1 820) of which MSEK 949 to group companies. Income after financial items was MSEK 317 (244). Investments in tangible fixed assets were MSEK 94 (77). The parent company’s liquid funds were MSEK 115 at the end of the period, against MSEK 30 as of 1 January.

ELECTION COMMITTEE AND ANNUAL GENERAL MEETING
In accordance with the decision taken at the AGM in April a new election committee has been appointed. It comprises Per Molin, Chairman of Höganäs AB, Ulf G Lindén, Lindéngruppen AB, Carl-Olof By, Industrivärden, Ramsay Brufer, Alecta och Henrik Didner, Didner & Gerge Fonder AB.

The Annual General Meeting will be held at 3 p.m. on 25 April 2007 at HB-hallen, Höganäs, Sweden.
OUTLOOK FOR 2006
Höganäs expects continued positive development on Asian and South American powder markets. Höganäs also anticipates weaker development on the US powder market continuing. The powder market in Europe expects to have a slight growth during this year. Metal prices are expected to remain volatile in 2006.

Earnings from currency forwards contracts are estimated to be substantially lower than in 2005, based on current exchange rates.

Alrik Danielson
CEO and President
Höganäs, Sweden, 20 October 2006

ACCOUNTING PRINCIPLES
This Report has been prepared pursuant to IFRS (International Financial Reporting Standards) and IAS 34.
The accounting principles are similar compared to previous year.

This Interim Report has been reviewed by the company’s auditors. A review is substantially less in scope than an audit conducted in accordance with the Standards on Auditing in Sweden RS and other generally accepted auditing practices. The procedures preformed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim report is not prepared, in all material respects, in accordance with IAS 34 and the Annual Accounts Act.

The full Interim Report is available on the web site of the company.


FINANCIAL INFORMATION
Höganäs intends to publish the following financial information in 2007:
· Year-end Report 2006, 9 February
· First-quarter Interim Report, 18 April
· The AGM will be held on 25 April

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

(För complete report, please see the attached file)