Hexagon - Annual Report 2005

Definitions of Key Financial Ratios Annual net sales growth Percentage change in net sales on previous year. Capital employed Total assets less non-interest-bearing liabilities. Capital turnover rate Net sales for the year divided by average capital employed. Cash flow Cash flow from operating activities after change in working capital. Cash flow per share Cash flow from operating activities after change in working capital, divided by average number of shares. Dividend pay-out ratio Dividend divided by earnings per share. Dividend yield Dividend as a percentage of share price. EBITA operating earnings Operating earnings excluding capital gain on shares in group companies, other nonrecurring items and goodwill amortisation. EBITDA operating earnings Operating earnings excluding capital gain on shares in group companies, other nonrecurring items and depreciation/amortisation of fixed assets. EBIT1 operating earnings Operating earnings excluding capital gain on shares in group companies and other non-recurring items. Earnings per share Net earnings divided by average number of shares. Earnings per share excluding goodwill amortisation Net earnings excluding goodwill amortisation and similar fixed assets divided by average number of shares. Equity ratio Shareholders’ equity including minority interests as a percentage of total assets. Interest cover ratio Earnings after financial items plus financial expenses divided by financial expenses. Investments Purchases less sales of tangible and intangible fixed assets, excluding those included in acquisitions and divestitures of subsidiaries. Net debt/equity ratio Interest-bearing liabilities less liquid assets divided by shareholders’ equity excluding minority interests. Operating margin Operating earnings (EBIT1) as a percentage of net sales for the year. P/E ratio Share price divided by earnings per share. Profit margin before tax Earnings after financial items as a percentage of net sales for the year. Return on capital employed Earnings after financial items plus financial expenses as a percentage of average capital employed. Return on capital employed excluding goodwill amortisation Earnings after financial items plus financial expenses and goodwill amortisation as a percentage of average capital employed. Return on equity Net earnings excluding minority interests as a percentage of average shareholders’ equity excluding minority interests. Return on equity excluding goodwill amortisation Net earnings excluding minority interests excluding goodwill amortisation as a percentage of average shareholders’ equity excluding minority interests. Shareholders’ equity per share Shareholders’ equity excluding minority interests divided by the number of shares at year-end. Share of risk-bearing capital The total of shareholders’ equity including minority interests and tax provisions and minority interests as a percentage of total assets. Share Price Last settled transaction on the OMX Stockholm Stock Exchange on the last business day for the period. Annual Report 2005 Directors’ Report 40 Consolidated Income Statement 45 Consolidated Balance Sheet 46 Change in Consolidated Shareholders’ Equity 48 Consolidated Cash Flow Statement 49 Parent Company Income Statement 50 Parent Company Balance Sheet 51 Change in Parent Company Shareholders’ Equity 52 Parent Company Cash Flow Statement 53 Comments and Notes 54 Accounting Principles 54 Note 1 Business Areas and Geographical Markets 58 Note 2 Intra-Group Transactions 60 Note 3 Average Number of Employees 62 Note 4a Employee Benefits 63 Note 4b Remuneration to Senior Executives 65 Note 5 Other Operating Revenues and Operating Expenses 67 Note 6 Non-recurring Items 67 Note 7 Earnings from Financial Investments 67 Note 8 Tax 68 Note 9 Net Assets in Acquired and Divested Subsidiaries 68 Note 10 Intangible and Tangible Fixed Assets 70 Note 11 Financial Fixed Assets 73 Note 12 Shares in Associated Companies 74 Note 13 Auditors’ Fees 74 Note 14 Significant Accruals and Deferrals 75 Note 15 Shareholders’ Equity 75 Note 16 Other Provisions 76 Note 17 Financial Instruments and Financial Risk Management 76 Note 18 Rented Assets 77 Note 19 Memorandum Items 78 Note 20 Quarterly Income Statements 78 Proposed Allocation of Earnings 79 Audit Report 80 39 HEXAGON ANNUAL REPORT 2005