HEXPOL AB (publ)

Annual Report |

2014 in brief

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+EYFIGURES

	2014	2013
Sales, MSEK	8,919	8,036
Operating profit (EBIT), MSEK	1,456	1,255	+ 16%
Operating margin, %	16.3	15.6
Profit before tax, MSEK	1,436	1,236
Profit after tax, MSEK	1,048	930
Earnings per share, SEK	30.45	27.02	+ 13%
Equity/assets ratio, %	69.3	61.5
Return on capital employed, %	28.5	27.0
Operating cash flow, MSEK	1,676	1,418

*Excluding items affecting comparability

Content

2014 in brief
HEXPOL in brief
CEO comments on the year
About the HEXPOL Group
The share and shareholders
Business area HEXPOL Compounding 20
Business area HEXPOL Engineered Products 40
Corporate responsibility
Board of Directors' Report
Financial year 2014
Five-year overview
Risk factors
Sustainability work
Corporate Governance Report
Financial reports
Consolidated income statements
Consolidated balance sheets
Consolidated changes in shareholders' equity 91
Consolidated cash flow statements 91
Accounting policies
Notes of the Group
Parent Company's income statements 103
Parent Company's balance sheets 103
Changes in the Parent Company's
shareholders' equity 104
Parent Company's cash flow statements 104
Notes of the Parent Company 105
Proposed distribution of unappropriated
earnings
Auditor's Report
Board of Directors, Auditor and
Group Management
Shareholder information
Seven-year summary
Definitions
Group companies, addresses

The information in this annual report is a translation of the text in the Swedish-language annual report and, accordingly, corresponds in all material respects with the original Swedish document. In the event of any contradictions between the texts contained in this document and the text in the Swedish-language annual report, the latter shall prevail.

Photography: HEXPOL's subsidiaries, Fredrik Mårtensson/ Reklamfoto, Pixhill.com, Larz G Johansson/G-byrån, among others

Texts: HEXPOL AB · Translation: The Bugli Company Production: G-byrån AB, www.g-byran.se Printed in Sweden by Lenanders Grafiska

HEXPOL in brief

· Innovative solutions in advanced polymer compounds, gaskets for plate heat exchangers and wheels for forklifts and castor wheel applications
· Strong global market positions world leading in market for rubber compounds
· Leading European producer of thermoplastic elastomer compounds (TPE)
· Organised in two business areas with in-depth and extensive polymer and applications expertise
· Acquisition-oriented
· Growth with strong and improved margins
· Well invested with strong cash flow
· Strong financial position

Business area HEXPOL Compounding

Operations HEXPOL Compounding is one of the world's leading suppliers in the development and manufacturing of advanced, high-quality polymer compounds. HEXPOL Compounding focuses primarily on three key segments of the polymer market:

· Rubber compounds
· Thermoplastic elastomer compounds (TPE)
· Thermoplastic compounds (TP)

HEXPOL Compounding supports customers globally through 31 manufacturing units (including RheTech, acquired in January 2015) in Europe, Asia and NAFTA.

Market HEXPOL Compounding's market is global and the largest end-customer segments are the automotive and engineering industries, followed by the construction sector. Other key segments are the medical technology, cable and water treatment, as well as the energy, oil and gas industry. The largest customer segments in the TPE compounding area are the general industry, consumer and medical technology industries.

Customers Manufacturers of polymer products and components who impose rigorous demands on performance and global delivery capacity.

Sales 8,198 MSEK (7,345)

Operating profit 1,364 MSEK (1,177)

Number of employees at 31 December 2,212 (1,958)

Business area HEXPOL Engineered Products

The business area's share of the HEXPOL Group (2014):

Operations HEXPOL Engineered Products is one of the world's leading suppliers of advanced products such as gaskets for plate heat exchangers and wheels for the forklift industry. The business area is also a major player in rubber profiles, mainly for the construction and engineering industries.

Market Within its niche areas, HEXPOL Engineered Products is active in the global market where a considerable focus is on discerning customers and advanced applications. The market for gaskets and wheels is global, with HEXPOL's production units located in Europe and Asia and for wheels also in North America. The market for profiles is primarily Nordic.

Customers For gaskets, the customers are manufacturers of plate heat exchangers; for wheels, manufacturers of forklifts and castor wheels and, for profiles, the construction and engineering industries.

Sales 721 MSEK (691)

Operating profit 92 MSEK (78)

Number of employees at 31 December 1,449 (1,470)

THE GROUP IN BRIEF

HEXPOL is a world-leading polymers group with strong global market positions in advanced polymer compounds (Compounding), gaskets for plate heat exchangers (Gaskets) and wheels made of plastic and rubber materials for forklifts and castor wheel applications (Wheels). Customers are primarily system suppliers to the global automotive and engineering industry, the energy, oil and gas sector, medical equipment manufacturers and OEM manufacturers of plate heat exchangers and forklifts. The Group is organised in two business areas: HEXPOL Compounding and HEXPOL Engineered Products. Customers outside Sweden account for approximately 97 percent of sales and 11 of the Group's 39 production units (including RheTech, acquired in January 2015) are situated in the expansive regions of Asia, Mexico and Eastern Europe.

OPERATIONS AND MARKET

To maintain long-term profitability and sustainable competitiveness, HEXPOL has focused its operations on markets that offer opportunities to capture leading positions.

Customers of the HEXPOL Compounding business area are mainly system suppliers to the global automotive and engineering industry, the energy, oil and gas sector and medical equipment manufacturers. The customers comprise manufactures of polymer products and components that impose stringent demands in terms of quality and delivery reliability.

OEM manufacturers of plate heat exchangers comprise the largest customer group for the HEXPOL Engineered Products business area. Supported by increasing interest in energy efficiency, the market for plate heat exchangers is growing, as is demand for the products offered by HEXPOL Gaskets. At HEXPOL Wheels, the largest customers are in materjalshandling equipment. As a result of the increased volume of materials handling worldwide, these customers are reporting good growth. A shared feature of the business areas is the importance of cutting-edge expertise in polymer materials, applications knowhow and cost-effective production operations.

FINANCIAL OBJECTIVES

The Board has adopted the following financial targets, measured at a yearly average over a business cycle: sales growth (adjusted for currency effects) is to exceed 10 percent and the operating margin (adjusted for items affecting comparability) is to exceed 12 percent.

DIVIDEND POLICY

HEXPOL's earnings development and equity/assets ratio determine the size of the dividend. HEXPOL's dividend policy is that 25 to 50 percent of profit after tax for the year will be distributed as a dividend to HEXPOL's shareholders, provided the company's financial position is regarded as satisfactory.

BUSINESS CONCEPT

HEXPOL's business concept is to operate as a product and application specialist in a limited number

of selected niche areas for the development and production of polymer products. HEXPOL aims to be the most attractive partner for customers in key industries, such as the automotive, engineering and construction, energy, oil and gas sector, medical equipment and materials handling industries, by offering innovative and specialised polymer products and solutions.

VISION

HEXPOL's vision is to be a market leader, ranking number one or two in selected technological or geographical segments, in order to generate growth and shareholder value.

STRATEGY

To maintain its long-term profitability and sustainable competitiveness, HEXPOL attaches great importance to the competitiveness of each individual business line. In order to attain the company's vision, the following five operational strategies are applied:

· Product development through in-depth and broad polymer and applications expertise
Most cost-effective company in the industry
· Efficient supply management that generates volume and technological benefits
· Superior management skills through skilled and experienced teams
· Speed management through short and fast decisionmaking procedures

In addition to the operating strategies outlined above, the Group alsó pursues a strategy to achieve continued growth, both organically and through acquisitions. HEXPOL also pursue a strategy of conducting proactive environmental efforts and taking social responsibility. Such activities help HEXPOL to contribute to sustainable development and we are convinced that this will benefit society, our employees, the shareholders and our business operations. The strategy for achieving sustainable development includes the introduction of environmental management systems, improved energy efficiency, reduced risks arising from chemical products and transparent reporting of the Group's performance in terms of environmental and social responsibility.

VALUE ENHANCING AND SUCCESS FACTORS

Since 2002, Group operations have expanded from annual sales of 631 MSEK to 8,919 MSEK, with strong and improved operating margins. This favourable trend is the result of deep and comprehensive product development skills, cost-effective production plants and successful new establishments and company acquisitions. The Group is also well positioned in segments characterised by healthy growth. The corporate culture is strong, with skilled and experienced employees led by experienced management teams with short and prompt decision-making routes. During the year several acquisitions have been made within the core area rubber compounds. In addition, capacity investments in HEXPOL Compounding Mexico and in HEXPOL TPE Compounding were implemented.

CEO comments on the year

CEO comments on the year Our best year to date – high acquisition activity

Georg Brunstam President and CEO HEXPOL AB

DEAR SHAREHOLDERS,

2014 was another good year for the HEXPOL Group. We continued to improve our market positions in all of our principal markets and we further improved our earnings. Our strategy of both organic expansion and acquired growth in our existing areas, combined with strong cash flow, is successful and stands firm.

Our strategy of growth primarily in the Polymer Compounding area is unchanged and, in 2014, we acquired four Rubber Compounding operations and signed agreement concerning the acquisition of an additional four Thermoplastic Compounding operations. The acquisition of the well-known US Rubber Compounder, Kardoes Rubber, was made in August 2014 and strengthens our position in South Eastern USA. In November, we acquired the similarly wellknown European Rubber Compounder, VIGAR Rubber Compounding, with operations in Spain and Germany. Vigar Rubber Compounding gives us a foothold in the Spanish market for the first time and strengthens our position in the major German market. In early December we acquired another well-reputed US Rubber Compounder - Portage Precision Polymers - an acquisition that enhances our position in North Eastern USA. Just before Christmas, we signed an agreement to acquire RheTech Thermoplastic Compounding, with four American units active in specialised Thermoplastic Compounding, marking our first step into Thermoplastic Compounding. RheTech is a relatively major player in fibre-strengthened Polypropylene Compounds, with the automotive industry as its largest end-user segment. The acquisition was subsequently finalised in January 2015. All of the acquisitions are businesses that are well-known in the market (and by us) and we had been monitoring them for some time. Our opportunities for successful acquisitions are increased by having a well-thought-out and proven integration plan and by always acquiring companies in known areas.

Our strategy also includes growing organically, meaning by increasing our volumes and sales in all of our markets, and by finding new growth markets and growth areas. That's why I am delighted to say that during 2014 we had positive growth in all main markets, including Europe, and in emerging markets such as China and Mexico. In Mexico, we also invested in increased capacity. Our development was also favourable in HEXPOL TPE Compounding, thanks to marketing/sales efforts and capacity expansion.

During 2014, we increased our volumes in all principal markets. Sales rose 11 percent to 8,919 MSEK (8,036) but were impacted by lower sales prices due to lower prices for our principal raw materials during the first three quarters of the year, compared with the preceding year. The price development was stable for our principal raw materials during the year.

In 2014, we yet again sharply improved our earnings per share, which amounted to SEK 30.45 - an increase of 13 percent. Our constant focus on the efficient management of working capital also generated results in the form of a strong operating cash flow and a healthy return on capital employed of 28.5 percent (27.0).

Gratifyingly, the HEXPOL share performed well and the share price increased 54 percent during the year. Continued efforts to enhance competencies within the Group are a key component of our strategy. During 2014, we again implemented extensive programs to this end locally, regionally and nationally. The strategy of internal recruitment stands firm and many positions have been filled by internal candidates. The HEXPOL Group has a strong financial position as a result of its healthy earnings and efficient management of working capital. At year-end, the HEXPOL Group had no net indebtedness and the equity/assets ratio was high at 69.3 percent. All of this provides a solid platform for continued expansion.

CONTINUED GROWTH

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SKILLS DEVELOPMENT AND INTERNAL RECRUITMENT – THE BASE FOR OUR DEVELOPMENT

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LONG-TERM GROWTH IN OUR CUSTOMER SEGMENTS – CONTINUED CAPACITY EXPAN-SION IN MEXICO AND IN TPE COMPOUNDING

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STRONG FINANCIAL POSITION

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PRIORITIES FOR 2015

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About the HEXPOL Group

The Group's brands

Sales for 2014 distributed by business area and geographically

The Group is organised in two business areas: HEXPOL Compounding and HEXPOL Engineered Products. HEXPOL Compounding consists of one product area, HEXPOL TPE Compounding, and three geographic regions: HEXPOL Compounding NAFTA, HEXPOL Compounding Europe and HEXPOL Compounding Asia. HEXPOL Engineered Products has three product areas: HEXPOL Gaskets, HEXPOL Wheels and HEXPOL Profiles. The organisation is structured to facilitate short and prompt decision-making processes, with clear and decentralised responsibility.

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BUSINESS CONCEPT

HEXPOL's business concept is to operate as a product and application specialist in a limited number of selected niche areas for the development and production of polymer products. HEXPOL aims to be the most attractive partner for customers in key industries, such as the automotive, engineering and construction, energy, oil and gas, medical technology and material-handling industries, by offering innovative and specialised polymer products and solutions.

VISION

HEXPOL's vision is to be a market leader, ranking number one or two in selected technological or geographical segments, in order to generate growth and shareholder value.

OPERATIONAL STRATEGY

To maintain its long-term profitability and sustainable competitiveness, HEXPOL attaches great importance to the competitiveness of each individual business unit.

In order to attain the company's vision, the following five operational strategies are applied:

1. Focus on product development

The Group possesses in-depth and wide-ranging polymer and applications expertise. In the HEXPOL Compounding business area, for example, 80 percent of the products marketed in Europe are based on unique proprietary formulas and the Group offers its customers technological cooperation for future development. Product development is conducted at each production unit and the HEXPOL Compounding business area has a corporate technology department in Belgium. HEXPOL Gaskets has a central technology department in Gislaved, Sweden, and HEXPOL Wheels has its central technology department in Laxå, Sweden. Overall, approximately five percent of HEXPOL Compounding's employees are engaged in development work and many of them are highly qualified engineers.

2. Most cost-effective company in the industry

Well-invested plants characterised by a high level of technology and broad-based expertise in a flat and cost-effective organisation that facilitates success and progress.

3. Efficient supply management

The Group continuously focuses on finding costeffective supply solutions in which high volume and advanced technologies are utilised. Close cooperation with customers through a local presence also provides opportunities for effective solutions.

4. Superior management expertise

Skilled and experienced management teams working on the basis of global coordination and a continuous exchange of experience enable all the units to adapt to the best practice in the Group and the industry.

5. Speed Management

Short and prompt decision-making processes and time efficient implementation enhance competitiveness and boost the organisation's capacity.

In addition to the above operating strategies, we pursue a strategy of conducting proactive sustainability efforts and taking social responsibility. Based on various activities, HEXPOL contributes to the achievement of sustainable development and we are convinced that our efforts will benefit society, our employees, the shareholders and our business operations. Our strategy for achieving sustainable development includes the introduction of environmental management systems, improved energy efficiency, reduced risks arising from chemical products and transparent reporting of the Group's performance.

Operating margin* % (Target >12%)

GROWTH STRATEGY

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Organic growth

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FINANCIAL TARGETS

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The operations have since been developed through investments in product development and acquisitions of complementary companies. A large and important step in this development was the acquisition of the Thona group in 2004.

Up to 2008, HEXPOL was part of the Hexagon group. In 2008, HEXPOL was spun off to Hexagon's shareholders and was listed as a separate company, HEXPOL AB, on NASDAQ OMX Nordic.

During 2010, two major acquisitions were completed: ELASTO Group in order to broaden the material base with thermoplastic elastomers (TPE); and Excel Polymers Group, which made HEXPOL the number one in rubber compounds in global terms.

During 2012, a further two major acquisitions were completed. The German company Müller Kunststoffe was acquired, making HEXPOL a leading European

producer of TPE compounds, and Robbins, a leading Rubber Compounder in the US, was acquired which strengthening HEXPOL's US position in rubber compounds.

In August 2014 the business of the well-known Rubber Compounder Kardoes Rubber was acquired, which strengthen the presence in South Eastern US. In November 2014 the business of Vigar Rubber Compounding, a well-known European Rubber Compounder with facilities in Spain and Germany, was acquired. In December 2014 the business of Portage Precision Polymers, a well-known US Rubber Compounder, was acquired which strengthening the market position in North Eastern US. In the end of 2014 an agreement was signed to acquire RheTech Thermoplastic Compounding, with four American facilities, within specialized Thermoplastic Compounding. The acquisition was finalized in January 2015.

STRONG GROWTH

Contributions to sales made by acquisitions in 2002-2014, acquisition month in parenthesis.

Carl Gislow and his brother Wilhelm, founders of Svenska Gummifabriks AB

The principal phases in the development into the current HEXPOL have been:

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The share and shareholders

THE HEXPOL SHARE

HEXPOL AB was listed on NASDAQ OMX Nordic on June 9, 2008 and the Class B share was quoted on the Stockholm Mid Cap list in the industrial sector. On January 2, 2014, the Class B share was moved up from the Mid Cap to the Large Cap segment. The share capital in HEXPOL AB totals 68,840,256 SEK, represented by 34,420,128 shares. Of these, 1,476,562 are Class A shares and 32,943,566 Class B shares. Each Class A share carries ten voting rights and a Class B share one voting right. All shares carry equal rights to the company's assets and earnings.

SHARE PRICE TREND AND TRADING VOLUME

The price of the HEXPOL Class B share rose by 53 percent during 2014 and the closing price at the end of the year was 737 SEK. The highest closing price was 747 sek (December 29). The lowest closing price during the year was 463 SEK (February 4). During 2014, 14.5 million (10.3) HEXPOL shares were traded. Average trading per day in the share was 58,329 shares (41,168). The number of shares traded represented 42 percent (30) of the total number of shares.

OWNERSHIP STRUCTURE

As of December 31 2014, HEXPOL AB had 8,280 shareholders (7,878). The proportion of shares held by Swedish institutions and funds at December 31 2014 corresponded to 24 percent (26) of the capital. The number of shares held by non-Swedish shareholders totaled 36 percent (31) of the capital. The 20 largest shareholders accounted for 62 percent (62) of the capital and 73 percent (73) of the voting rights.

DIVIDEND POLICY

HEXPOL's earnings development and equity/assets ratio determine the size of the dividend. HEXPOL's dividend policy is that 25 to 50 percent of profit after tax for the year will be distributed as a dividend to HEXPOL shareholders, on condition that the Group's financial position is deemed satisfactory.

SHAREHOLDER VALUE AND ANALYSTS

HEXPOL's executive management works continuously to develop the company's financial information to create favourable conditions for valuing the Group in the most accurate manner possible. This includes working actively through meetings with analysts, shareholders and the media.

During the year, the HEXPOL share was monitored and analysed by the following analysts:

· ABG Sundal Collier, Johan Edvardsson [email protected]
· Carnegie Investment Bank, Johan Wettergren [email protected]
· Handelsbanken Capital Markets, Mikael Doepel [email protected]
· Nordea, Henrik Nilsson [email protected]
· SEB Enskilda, Olof Larshammar [email protected]
Swedbank, Mats Liss mats [email protected]
DNB, Simon Sigvardsson [email protected]

MAJOR SHAREHOLDERS, DECEMBER 31 2014

	Number of	Number of	Share capital	Votes
Owner/manager/custodial bank	Class A shares	Class B shares	(%)	(%)
Melker Schörling AB	1,476,562	7,563,715	26.30	46.80
Didner & Gerge Fonder Aktiebolag	0	2,060,472	6.00	4.30
Swedbank Robur fonder	0	1,801,910	5.20	3.80
Handelsbanken Fonder AB RE JPMEL	0	888,890	2.60	1.90
State Street Bank & Trust Com., Boston	0	756,075	2.20	1.60
JPM Chase NA	0	737,163	2.10	1.60
Citibank NA New York	0	595,159	1.70	1.20
Afa Försäkring	0	534,619	1.60	1.10
SEB Investment Management	0	527,169	1.50	1.10
State Street Bank & Trust Com., Boston	0	503,309	1.50	1.10
BP2S London/Saudi Arabian Monetary, Agency	0	461,984	1.30	1.00
Andra AP-fonden	0	424,129	1.20	0.90
AMF - Försäkring och Fonder	0	415,399	1.20	0.90
SSB Cliennt Omnibus AC OM03 (0 PCT)	0	406,667	1.20	0.80
NTC Fidelity Funds Northern Trust	0	394,800	1.20	0.80
Lannebo fonder	0	387,321	1.10	0.80
Bonnier, Simon	0	383.428	1.10	0.80
Nordea Investment Funds	0	327,452	1.00	0.70
Livförsäkringsbolaget Skandia OMS	0	326,741	1.00	0.70
Enter fonder	0	291,242	0.80	0.60
Total of the 20 largest shareholders	1,476,562	19,787,644	61.80	72.50
Total other shareholders	0	13,155,922	38.20	27.50
Total	1,476,562	32,943,566	100.00	100.00

KEY FIGURES PER SHARE

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OWNER STRUCTURE, DECEMBER 31 2014

		Number of Shareholder	Holding	Votes
Shareholder	shareholders	(%)	(%)	(%)
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NUMBER OF SHARES PER SHAREHOLDER, DECEMBER 31 2014

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SHAREHOLDER CATEGORIES, DECEMBER 31 2014

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Business area HEXPOL Compounding

Business area HEXPOL Compounding Continued growth and high acquisition activity

Senior executives within the business area

Tracy Garrison, President HEXPOL Compounding NAFTA

President HEXPOL Compounding Europe/Asia and President HEXPOL TPE Compounding

President HEXPOL Compounding Global Purchasing/Technology, President HEXPOL Compounding Europe/Asia and President HEXPOL TPE Compounding

HEXPOL Compounding in brief

Operations

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Senior Managers at HEXPOL Compounding's operating units

Randy Simpson, COO HEXPOL Compounding, NAFTA

Lars-Åke Bylander, Managing Director HEXPOL Compounding Sweden

Joey Young, General Manager Chase Elastomer, USA

Tom Freshly, General Manager Kardoes Rubber, USA

Ed Dowdall, Managing Director HEXPOL Compounding UK

Kjell Fagerström, Managing Director ELASTO Sweden

Mark George, Managing Director HEXPOL Compounding North Carolina, USA

John Gorrell, General Manager HEXPOL Compounding – Burton Rubber Processing, Burton, USA

Georg Ender, Managing Director Müller Kunststoffe, Germany

Peter Ryzko, Managing Director Müller Kunststoffe, Germany (from Feb 1, 2015)

René Herbiet, Managing Director HEXPOL Compounding Belgium and HEXPOL Compounding Germany

Larry Lowe, General Manager HEXPOL Compounding – Burton Rubber Processing, Jonesborough, USA

Milos Pitela, Managing Director HEXPOL Compounding Czech Republic

Saul Reyes, Regional Director HEXPOL Compounding, Mexico

Ernesto Gutierrez, Managing Director HEXPOL Compounding Aguascalientes, Mexico

Jerry Saxion, Managing Director GoldKey Processing, USA

Shannon Smith, General Manager HEXPOL Compounding – Colonial Rubber Works, USA

Fransisco Viliesid, Managing Director HEXPOL Compounding Queretaro, Mexico

Andrew Wallance, General Manager HEXPOL Compounding – California, USA

Dominic Philpot, Managing Director ELASTO UK

Terry Elgin, Managing Director Robbins, USA

Lars Greiner, General Manager HEXPOL Compounding Viersen, Germany

Compounding Foshan, China

Gareth Jefferson, Regional Director HEXPOL Compounding Asia, Managing Director HEXPOL Compounding Qingdao, China and Managing Director HEXPOL

John T. Levinson, Managing Director RheTech Compounding, RheTech Colors and RheTech Engineered Plastics, USA

Luis Prat, Managing Director HEXPOL Compounding Spain

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High-quality products for demanding applications

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OPERATIONS IN 2014

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Brands in the business area

In August 2014 the business of the well-known Rubber Compounder Kardoes Rubber was acquired, which strengthen the presence in South East US. In November 2014 the business of Vigar Rubber Compounding, a well-known European Rubber Compounder with facilities in Spain and Germany, was acquired. In December 2014 the business of Portage Precision Polymers, a well-known US Rubber Compounder, was acquired which strengthening the market position in North East US. In the end of 2014 an agreement was signed to acquire RheTech Thermoplastic Compounding, with four American facilities, within specialized Thermoplastic Compounding. The acquisition was finalized in January 2015.

OUTLOOK AND PRIORITIES

HEXPOL Compounding aims to offer customers local service in all markets and to be a development partner on a global and local basis. With 31 production and development units (including

RheTech, acquired 2015) in ten countries, our structure is unique for the industry and provides our global customers with local service. HEXPOL Compounding is favourably positioned for continued growth, both from a geographic and an applications perspective.

2015 will be another exciting year characterised by intensive efforts to increase market shares through technological and process advancements in cooperation with customers. HEXPOL assigns priority to continued initiatives in the areas of automotive. medical equipment, energy, oil and gas applications, combined with continued activities in growth markets such as China, Mexico and Central and Eastern Europe. HEXPOL Compounding will also continue to introduce the ISO 14001 environmental management system in all units, also in the acquired units. During 2015, the integration of the acquisitions made during the second half of 2014, will be completed.

HEXPOL acquires Kardoes Rubber

HEXPOL acquired Kardoes Rubber on August 1 2014 from the founder Mr. Frank Kardoes and his family. Frank Kardoes started Kardoes Rubber in 1988 and Kardoes is today a well-known Rubber Compounder in the US market.

"The acquisition is a very good complement to HEXPOL Compounding in the US and broadens and strengthens our presence with Rubber Compounds into end user markets like industrial materials handling, agriculture equipment and off the road tires. Kardoes Rubber expands our capabilities and capacities to serve our customers in a more efficient way", Tracy Garrison, President HEXPOL Compounding NAFTA.

Kardoes Rubber, with a manufacturing facility in LaFayette, Alabama, US, had a turnover of 43 MUSD in 2013 and has around 90 employees.

"This is another step in expanding and strengthening the HEXPOL Group with a further acquisition within our core business. Kardoes Rubber, with its competence and capabilities, will fit nicely into the HEXPOL Group", Georg Brunstam, CEO HEXPOL Group.

The acquisition price amounted to 31.8 MUSD on a cash and debt free hasis

HEXPOL acquires VIGAR Rubber Compounding

HEXPOL acquired the VIGAR Rubber Compounding business from the founder's families on November 17, 2014. Vigar Rubber Compounding is a well-known Rubber Compounder in the Spanish and German markets. Vigar has more than 50 years' experience of rubber compounding.

"The acquisition is a very good complement to HEXPOL Compounding in Europe and broadens and strengthens our presence with Rubber Compounds into the Spanish and German markets. Vigar Rubber Compounding expands our capabilities and capacities to serve our customers in a more efficient way", Ralph Wolkener/Carsten Rüter, Presidents HEXPOL Compounding Europe.

Vigar Rubber Compounding, with manufacturing facilities in Rubi, Spain and Viersen, Germany, had a turnover of 57 MEUR in 2013 and has 134 employees (Spain 88, Germany 46).

"This is another step in expanding and strengthening the HEXPOL Group with a further acquisition within our core business. Vigar Rubber Compounding, with its competence and capabilities, will fit nicely into the HEXPOL Group and gives us a stronger European presence", Georg Brunstam, CEO HEXPOL Group.

The acquisition price is estimated to approximately 17,5 MEUR on a cash and debt free basis.

Interview with Luis Prat, MD HEXPOL Compounding Spain

Welcome to the HEXPOL Group. What is your first reaction?

When we first joined the HEXPOL Group in November 2014 I was positively impressed about the level of company decentralization (although coordinated) and the amount of power given to each individual company which enables the company to meet the common goals.

HEXPOL is a decentralized but extremely coordinated company and will of course keep the VIGAR names and all the brands. Where do you see the synergies and the benefits belonging to the HEXPOL Group?

Vigar has been a well-recognized and valued Rubber Compounding brand in the Iberian market for more than 40 years. HEXPOL's decision to keep the Vigar brand name and logo, combined with the HEXPOL Group umbrella, will improve the Vigar Rubber Compounding image by combining the best of two worlds; local market knowledge and the global HEXPOL power.

Where do you see the biggest possibilities for the future?

Our biggest opportunities will be further growth, especially in the automotive rubber compound market, where Vigar has relatively low presence today.

What are your main objectives for VIGAR in 2015?

Our main objectives in 2015 are to integrate our "local way of doing things" into HEXPOL's coordination and follow up processes.

HEXPOL Compounding, five-year figures

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HEXPOL acquires Portage Precision Polymers

HEXPOL acquired the business of Portage Precision Polymers Inc. on December 1, 2014, from the founder Mr. Doug Hartley and his family. Doug Hartlev started Portage Precision Polymers in 2002 and Portage Precision is today a wellknown Rubber Compounder in the US market.

"The acquisition is a very good complement to HEXPOL Compounding in the US and broadens and strengthens our presence in rubber compounding. Portage Precision expands our capabilities and capacities to serve our customers in a more efficient way. Portage Precision has also a silicon rubber mixing unit in Mogadore, OH, which complements and expands our existing product portfolio", Tracy Garrison, President and CEO HEXPOL Compounding NAFTA.

Portage Precision Polymers, with two manufacturing facilities in Ohio (Ravenna and Mogadore), US, had a turnover of 29 MUSD in 2013. The Ravenna facility is not included in

the transaction and its business will be transferred to other HEXPOL facilities.

"This is another step in expanding and strengthening the HEXPOL Group with a further acquisition within our core business. Portage Precision Polymer product portfolio and customer base will fit nicely into the HEXPOL Group", Georg Brunstam, CEO HEXPOL Group.

The acquisition price amounted to approximately 13.2 MUSD on a cash and debt free basis.

HEXPOL acquires RheTech, a well-known Thermoplastic Compounder in the US market

On December 22, 2014 HEXPOL signed an agreement to acquire RheTech Thermoplastic Compounding from the founders' families. The transaction was completed on January 17, 2015. RheTech has close to 50 years' experience of polymer compounding and is a leading provider of polyolefin compounds, engineered resins and multifunctional colorant and additives.

"The acquisition expands HEXPOL Compounding NAFTA's capabilities and capacities within Polymer Compounding and is a very good complement to our present Polymer Compounding business.", Tracy Garrison, President and CEO HEXPOL Compounding NAFTA

RheTech Thermoplastic Compounding have four facilities (including manufacturing and laboratories) located in Whitmore Lake, MI (RheTech), Fowlerville, MI (RheTech), Sandusky, OH (RheTech Color) and in Blacksburg, SC (RheTech Engineered Plastics). RheTech had a turnover of 117 MUSD in 2013 and has around 212 employees.

"This is a further step in expanding and strengthening the HEXPOL Group with another acquisition within our core business. RheTech, with its competence and capabilities, will fit nicely into the HEXPOL Group and broadens our product range within Polymer Compounding.", Georg Brunstam, CEO HEXPOL Group.

The acquisition price amounted to approximately 112 MUSD on a cash and debt free basis.

Nonconductive EPDM compounds

The request from the automotive industry for electrical nonconductive EPDM compounds is a well-known topic in the rubber compounding industry since many years. The reason for this request is to avoid corrosion of the metallic car body, nowadays more and more based on light weight metals like aluminum or magnesium alloys. Nonconductive rubber profiles can be developed by choosing the correct type and quantity ratios of carbon blacks and mineral fillers.

In 2014, HEXPOL Compounding Sprl in Belgien succeeded to develop a series of black EPDM extrusion compounds with a hardness ranging between 50 Sh A and 90 Sh A as well as cellular rubber compounds with properties as follows:

· Specific electrical volume resistance of at least 109 Ohm.cm, measured at 100 Volt. Compliance with the requirements of the Mercedes standard DBL 5527.
Good extrusion performance resulting in smooth edges on complex profile shapes.
· Very good mechanical properties (tension and compression set)

Customer feedback like "This EPDM rubber quality really feels like rubber (elastic) and not like a dead material anymore" confirms the success of the development.

Parker Composite Sealing Systems Division with plants located in San Diego, California, US and Tijuana, Mexico named HEXPOL Compounding California "Supplier of the Year". Susan Guzman, Technical Manager and Russ Shorter, Field Service Technician, were on hand to receive the award during Parker's Premier Supplier meeting on August 14, 2014.

Parker's Division Sourcing and Procurement Manager, Mark Tucker and his team traveled to the Santa Fe Springs plant on September 11 to present the award and host a luncheon for the plant. They also presented us with a banner and some giveaways for the associates.

HEXPOL Compounding California receives Supplier of the Year award

This award is a major accomplishment for HEXPOL and especially the team in Santa Fe Springs. The award was based on quality, on time delivery and for the service provided to Parker. The award was determined based on a point system and the SFS Team outscored every other supplier to earn the top spot.

"During 2013 we were awarded as one of their premier suppliers but through our efforts of continuous improvement we moved into the top position 2014. Our goal is to continue to work hard so that we can earn the top spot award again next year". Andrew Wallace, General Manager at HEXPOL Compounding California.

HEXPOL Rubber Compounding

ORGANISATION

HEXPOL traces its origins to the rubber industry in 1893, when the Gislow brothers established a rubber factory in Gislaved, Sweden. As a result of continued investment combined with both organic and acquisition growth, HEXPOL has now established itself as a global leader in advanced rubber compounds.

HEXPOL Rubber Compounding has step by step become a global leader in a fragmented rubber compounding industry. Integration of new businesses has been rapid, with good synergies in skills, technologies and supply chain. HEXPOL's dedication to superior performance, from our operations, products and teams, means that HEXPOL Compounding is a strong global supplier with high development capabilities with a well-managed cost base and a proven leadership team.

In 2012, HEXPOL further strengthened its position with the acquisition of Robbins - a leading US rubber compounder. This was yet another acquisition in the core rubber compounding area, which expanded both HEXPOL's customer offering and the product portfolio. In August 2014 the business of the wellknown Rubber Compounder Kardoes Rubber was acquired, which strengthen the presence in South

Eastern US. In November 2014 the business of Vigar Rubber Compounding, a well-known European Rubber Compounder with facilities in Spain and Germany, was acquired. In December 2014 the business of Portage Precision Polymers, a well-known US Rubber Compounder, was acquired which strengthening the market position in North Eastern US.

The Rubber Compounding business is divided into three geographic regions: Asia, Europe and NAFTA. HEXPOL Compounding's units feature some of the most advanced processing lines in the industry. HEXPOL Compounding's customers are product manufacturers who place meticulous demands on performance and global delivery capabilities. The largest market segment is the automotive industry. Other key segments are building and construction, engineering, energy, oil and gas, water treatment, wire and cable, the tire market, roll covering and performance additives.

TECHNOLOGY AND PRODUCTS

The HEXPOL Rubber Compounding businesses offer a comprehensive range of products and capabilities including:

· Rubber Compounding Custom mixing and formulation development.
· Rubber Compounding for roll-covering applications.

· Specialty Products A comprehensive line of custom and standardised performance additives and colour concentrates.
· Tire & Toll Large-volume rubber mixing for tread, retread, sidewall, coating stocks, bead, inner liner, bladder, and white compounding.
· Curing envelopes and tubes for retreading.

The rubber compounds that leave HEXPOL Compounding's production plants are processed further by customers through, for example, extrusion, injection moulding and compression moulding to give the components their final shape. Continuous or discontinuous vulcanisation gives the endproducts their elasticity properties.

HEXPOL Rubber Compounding's production plants have sophisticated quality assurance systems. The production process is computerised to ensure efficiency and quality. Mixing rubber in a closed mixer is what is termed as a batch process and, accordingly, all ingredients must be prepared in compliance with the weight specified in the recipe

or formula. The various weighing stages are monitored by IT systems to ensure maximum precision and enable traceability of the entire batch. Since the formula and the mixing process are both critically important to product quality, HEXPOL Compounding's research and development engineers are responsible for creating the formulas and for the mixing process in accordance with the intended application, ingredients and quality requirements.

HEXPOL Compounding is continuously advancing the technology behind the filtration methods that are built into the process flow so that extremely pure rubber compounds are produced. With advanced technologies, the plants can easily adapt their processes to meet specific customer requirements.

Capacity Expansion in Mexico

HEXPOL Compounding NAFTA continues to expand the company's Mexican operations, investing in added capacity with "Best-in-Class" equipment and technology. Since opening rubber compounding operations in Mexico in 2000, HEXPOL has built two plants in the center of Mexico's OEM auto production corridor.

After having shared with its sister plants in Aguascalientes and Statesville the 2013 HEXPOL "Best Plant of the Year" award, HEXPOL Compounding Queretaro commissioned an eagerly awaited second mixing line during the fourth quarter of 2014. The new line incorporates the best HEXPOL technology to date, including in-line straining, in order to best serve its current and new customers in Mexico as well as new markets under development. This is the fifth mixing line HEXPOL has in Mexico, bringing with it increased versatility to the Mexico business and will ultimately benefit all customers through improved quality and customer service.

"We are thrilled with the continued growth of HEXPOL in Mexico", Tracy Garrison, President & CEO HEXPOL Compounding NAFTA, explained. "Our team has developed tremendous skills over the past 14 years. Queretaro is one of our top performing facilities worldwide. Based on this excellence and market demand, we are committed to continued investments in Mexico".

"The significant investment by HEXPOL is further evidence of the success of our team in the Mexican market", said Queretaro Managing Director Francisco Viliesid. "We continue to develop new markets, applications and channels. Our job, however, is far from finished, and our associates stand ready to continue growing with our customers. This new investment in capacity and capabilities furthers our commitment to our customers and enables us to continue to enhance our service in this key growth market."

HEXPOL TPE Compounding

ORGANISATION

As a result of the acquisition of ELASTO Group in 2010, with plants in the UK and Sweden, HEXPOL broadened its product offering to encompass the fast growing Thermoplastic Elastomers (TPE) sector. TPE Compounding represented a natural next step for HEXPOL, being a complementary technology to rubber with growth potential in a diverse range of markets. The addition of TPE Compounding to our product portfolio strengthened HEXPOL's market position and customer offering while opening up new markets and application areas.

In 2012, HEXPOL completed the acquisition of Müller Kunststoffe. The manufacturer has two production units in Germany, which complement the units in the UK and Sweden. In response to growing demand, HEXPOL increased the capacity at the German plant with a new production line that came on stream in the first quarter of 2013. During 2014, the capacity has further increased at Müller Kunststoffe and construction of a new technical laboratory has started. With the integration of ELASTO and Müller Kunststoffe, HEXPOL has now established a robust European organisation for TPE Compounding, with progressive solutions, a very high level of technical expertise and ideally positioned to capture growth.

In 2012 HEXPOL invested in a new TPE compounding unit in southern China. The production facility operate from HEXPOL Compounding's existing Foshan site in the expansive Guangzhou area, a key location for polymer component manufacturing. HEXPOL TPE Compounding has supplied customers in Asia for a number of years, initially to European and US manufacturers with local business in the area but increasingly to locally owned producers. As sales to Asia continue to grow, it is important that our existing and new customers benefit from the same high-quality production, technical expertise and local support as our European customer base.

With the creation of HEXPOL TPE Compounding, immediate growth and innovation synergies were achieved. HEXPOL TPE Compounding is focused on delivering TPE solutions to facilitate high-growth in markets offering strong growth potential, such as the consumer, medical technology, toys and automotive markets, as well as markets for caps and closures.

In the caps and closures area, HEXPOL TPE Compounding consolidated its product offering in July 2012 by taking over the business activities of European Plastic Sealants (EPS) based in Germany. EPS specialise in the development of compounds for beverage caps and closures. Sales are worldwide under the EPSeal® product brand to a range of closures markets including beverage sealants in crown corks, aluminium and plastic closures. The sales has continued to develop favourable in 2014.

TECHNOLOGY AND PRODUCTS

The TPE market includes a number of material classes, each based on different chemistries and technologies. The various classes display different properties and end-use applications.

HEXPOL TPE Compounding offers one of the strongest portfolios of TPE compounds in the marketplace covering the following technologies:

· Styrenic block copolymers (TPE-S or TPS compounds based on SBS, SEBS)
· Polyolefin blends (TPE-O or TPO)
· Elastomeric alloys (TPE-V or TPV)
· Thermoplastic polyurethanes (TPE-U or TPU)

The expertise in this diversified TPE offering positions HEXPOL so that it can supply each customer with the right compound for their application or indeed multiple compounds from different classes.

A number of the markets in which HEXPOL TPE Compounding is active, for example, the markets for medical technology, toy and food contact, require the highest level of production control, material traceability and consistency. HEXPOL operates state-of-the-art compounding and product development facilities in Europe and Asia with a strong emphasis on operational excellence and optimisation. HEXPOL invests in high-quality compounding technology and supporting sub-systems, while also operating extremely versatile processes that have allowed HEXPOL to develop a comprehensive product offering.

HEXPOL TPE Compounding has a strong heritage in its home markets, with a trusted reputation for technical, custom-formulated solutions. ELASTO was among the first companies to start producing TPE compounds and has continually invested in people, production and technology to expand capacity and support the growing global customer base.

With European and Asian production facilities and sales offices, HEXPOL TPE Compounding is ideally placed to provide flexible, local support to its customers and to quickly respond to demand. Since a

number of customers operate across both Europe and Asia, they now partner with HEXPOL on a global scale.

Our TPE customers place a strong value on the high levels of product development and technical support HEXPOL TPE Compounding provides. The development departments are the core of the business, with the aim of engineering intelligent solutions which precisely match application requirements but also to find solutions that meet gaps in the market. HEXPOL's technical and sales teams work hand-in-hand with the customer, providing in-the-field support and the expertise to engineer solutions that transform our customers' ideas into superior products.

Another result of this customer-focused activity has been the development of a number of speciality compounds that have creatively addressed the challenges our customers are facing. This work is supported by the close cooperation HEXPOL Compounding has with its suppliers. As new raw materials and technologies are brought to market. HEXPOL's experience and know-how allows the engineering of new combinations which our customers can capitalise on.

Close personalised service, a diversified product offering and high-technology operations translate into high value solutions for HEXPOL's customers, thus facilitating the achievement of widened margins and growth opportunities.

ELASTO expands medical TPE offering

ELASTO Sweden, part of the HEXPOL TPE group, has expanded their Mediprene portfolio of thermoplastic elastomers for medical device applications with the development of TPE compounds with both high levels of transparency as well as vibrant colours.

The Mediprene compounds offer crystal clear transparency with the added benefit of colour to give an attractive, enriched appearance. The ability to clearly see through a product to monitor the patient is an important feature for many medical devices such as face masks. Transparent TPEs can also be used in tubing and dental applications. In medical devices and pharmaceutical packaging colour is also often used functionally for product identification, to differentiate products with different uses or sizes. The vibrant colours achievable with coloured Mediprene TPE compounds allow brand owners to add value to their products and create visual appeal. A blue or green colour is often used in medical transparent or translucent products to disguise the yellowing phenomena that can be caused by for example gamma sterilization.

The Mediprene TPE compounds were developed in response to an increasing interest in transparent compounds from the medical market. The coloured transparent compounds are made from medical grade raw materials only. The colour masterbatch supplier has been selected with care, ensuring that not only the colorants and carriers are compliant with USP Class VI or corresponding parts of ISO 10993 but also that the masterbatches are manufactured under rigorous controls with regard to traceability, consistency and change control, thereby fitting the Mediprene concept at ELASTO Sweden's ISO 13485 accredited facilities. A fully colour compounded TPE gives a perfectly dispersed, consistent colour with a correct and reproducible addition level. Mediprene coloured transparent compounds ensure colour reproducibility and deliver a compound ready for use, with no additional steps for the moulder or extrusion company. A series of Mediprene transparent TPE compounds has been developed with hardnesses ranging from 30 to 90 Sh A in 5 Sh A increments.

Niklas Ottosson, Medical Technical Manager for ELASTO Sweden commented, "With the Mediprene TPE compounds the benefits of colour and crystal clear transparency are united, opening up further design and brand identification possibilities for the medical device market. Our customers also have the security of a fully compounded TPE, manufactured from medical grade raw materials only, matched to their requirements and ready for use."

Kjell Fagerström, Managing Director at ELASTO Sweden added, "The development of coloured, transparent medical TPEs is part of our on-going commitment to supply leading quality TPE products and the highest levels of support. These compounds are possible due to the rigorous standards and controls of our compounding processes. This year we have further strengthened our local support abilities, with the creation of a new office in Belgium to serve our medical customers in Germany, Austria, Switzerland and Benelux. We have also recently announced our investment in a new twin-screw TPE production line at our facility in Åmål, Sweden."

ELASTO Sweden announces further investment in medical TPEs

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International Elastomer Conference in Nashville, USA

During the third week in October, the American Chemical Society held a trade show, the International Elastomer Conference 2014, at the Nashville Convention Center in downtown Nashville. This was their 186 consecutive trade show which also included a technical meeting and an educational symposium. HEXPOL, along with many customers, suppliers and competitors were in attendance.

HEXPOL's booth was created in collaboration with Karen Wilson at Rodgers Display and was a great success at the expo. The International Elastomer Conference drew a total of 2,745 attendees and included 490 for the technical sessions that were also offered.

HEXPOL held an event for suppliers and customers at the Country Music Hall of Fame and Museum right in the heart of town. This event included 280 specially invited guests.

Müller Kunststoffe open new technical centre

Müller Kunststoffe, the German arm of HEXPOL TPE, expanded operations with a new production line in 2014. The new line increased TPE production by around 4,800 tonnes per annum, bringing the capacity of the HEXPOL TPE Compounding, which also includes the ELASTO businesses in Sweden, UK and China, to more than 70,000 tonnes per annum, making them a significant player in the TPE market.

In addition to the new production line, the investment also included the construction of a new 600sqm building to expand the technical centre at Müller Kunststoffe's main Lichtenfels site. The technical centre houses the R&D, product safety, analytics and process technology departments for Müller Kunststoffe. It provides profile extruders, film

extruders and various injection moulding machines together with advanced polymer testing and analytical equipment

The investment will support the development of customised thermoplastic elastomers including TPS, TPO, TPU and polymer blends. Müller Kunststoffe also place a strong importance on product safety and reliability, the new technical centre and its specialist equipment will increase capacity to perform diagnostic, processing and quality assurance testing.

The production expansion and investment in technical resources is a result of our growth over recent years and will ensure continued fast and responsive customer support, as well as the development of new polymer combinations and compounds.

New Warehouse in Eupen improves logistics

Several years of continuous efficiency improvements has led to a much higher production output for the HEXPOL plant in Eupen, Belgium. The original warehouse has reached its capacity limits and has become a bottleneck.

Today, depending on the product mix, the theoretical annual production volume amounts to 22.000 tones. In order to be efficient in raw material handling and prepared for future storage challenges (e.g. environmental legislation changes, higher degree of capacity utilization), HEXPOL has decided to invest in a storage capacity expansion.

The new building, which is an annex to the existing warehouse, will have two levels with approximately 1.400 m² of warehouse space for raw materials, pallet storage and a new area for chemical preparations. The storage capacity for oil has also been increased with two new 70.000 liter tanks. The warehouse is built according to the latest standards for an optimized material flow and compliance with current legislation.

The construction work started in September 2014 and commissioning is foreseen in April 2015. With this expansion HEXPOL Belgium is well set for future challenges.

Business area HEXPOL Engineered Products

Business area HEXPOL Engineered Products Strong market positions and improved margins

Senior executives in the business area

Lars-Åke Bylander, President HEXPOL Gaskets President HEXPOL Profiles

Jan Wikström, President HEXPOL Wheels

HEXPOL Engineered Products in brief

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HEXPOL Engineered Products possesses unique material technology expertise which, along with its extensive application technology and efficient manufacturing processes, enables it to create attractive offerings for its customers. A large part of production is marketed and distributed globally, placing huge requirements on having an efficient logistics chain. Greater demand for shorter lead times and for high delivery reliability pose special requirements on operations. In recent years, a major initiative has been implemented on the logistics side with the creation of several local distribution centres. The centres, together with a well-developed business management system, ensures that communications, from reception of orders to delivery, occurs entirely without manual intervention. This has significantly reduced internal throughput times.

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HEXPOL Gaskets

ORGANISATION

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TECHNOLOGY AND PRODUCTS

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MARKET

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DISTRIBUTION

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plex with deliveries worldwide that have to meet to short lead times. Each product is unique and, in many cases, there are only tools in one of the production units that can be used to manufacture the unique product. In recent years, HEXPOL Gaskets has consciously focused on developing an efficient distribution system. A new distribution centre has been built in Sri Lanka adjacent to the gasket plant, to be able to distribute gaskets directly to the Asian market. Distribution goes directly from the manufacturing plant in China to the local distribution centre in China. Distribution from the Swedish manufacturing plant focuses primarily on Europe. During the past year, a distribution centre was also opened in the US, to more effectively supply the NAFTA area. By offering more local distribution, HEXPOL Gaskets is creating a market advantage for its customers, in the form of short lead and transport times, while increasing the efficiency of total tied-up capital. Synergies are also achieved, primarily through marine transports, since fully loaded containers can be sent to the respective distribution centres.

BUSINESS MODEL AND STRATEGY

HEXPOL Gaskets is a global product specialist that develops, manufactures and markets high-quality gaskets for plate heat exchangers under the Gislaved Gummi brand.

Materials development with leading-edge expertise The composition of the rubber material is key to the gasket's function and service life. For decades, HEXPOL Gaskets has focused on a materials development team in which years of experience is mixed with youthful curiosity and initiative. The material developers have extensive insight and knowledge into how a heat exchanger operates within their

respective areas of application. This is gained through very close cooperation with customers, which provides invaluable input for a materials development project. Development of rubber materials for a new gasket application for plate heat exchangers usually takes several years. Before the material is approved and released onto the market, extremely rigorous evaluations are conducted in laboratory environments, which are then followed up with service life testing with some of our customers.

Sales with a customer focus

It should be easy to do business with HEXPOL Gaskets. The goal is to have the highest expertise and availability in the market, including sales representatives. By having a large presence in the marketplace, HEXPOL Gaskets can catch signals from customers early on and thereby take steps to ensure that the customer is always satisfied. Most manufacturers of plate heat exchangers are global, with plants in several countries, and frequently also on several continents. In order to meet the global needs of our customers, HEXPOL Gaskets works with Key Account Managers. The marketing organization works from Gislaved. Sweden, with the exception of the market in China, where there is also a local sales organization that reports to a sales manager in Gislaved, Sweden.

Operating units

Manufacturing occurs at the three units in Gislaved, Sweden, Bokundara, Sri Lanka, and Qingdao, China. The strategy is to manufacture low-volume items and gaskets made of special materials in Sweden, while medium and high-volume production takes places primarily in Sri Lanka. The unit in China manufactures a complete range of the gaskets that are sold in the Chinese market, but also serves

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Gummi, Sweden

Hisaka, Japan, strengthens its market position with new gasket design from Gislaved Gummi

The Japanese company, Hisaka Works Ltd, manufactures and sells products across a wide range of categories to the world to support human life. The company's Plate Heat Exchanger division offers a wide range of heat exchangers for various applications. In the early 1980s, a partnership was initiated between Hisaka Works Ltd and Gislaved Gummi AB. The business relation quickly flourished, creating trust between the two companies which led to the rapid development of joint transactions in the 1990s, whereby Gislaved Gummi precipitously increased its market shares.

Hisaka has enjoyed major success around the world during the years. In 2014, they received some fabulous project orders which have resulted in business in both mature and new markets. The new plate heat exchangers, equipped with new designed gaskets from Gislaved Gummi, will be in operation in Asia. Middle East, and other parts of the world. The segments are: Petrochemical refinery complex, Petrochemical plant, FLNG and Coal-fired electricity generating plant.

HEXPOL Gaskets adapting to new market conditions

The gasket market for plate heat exchangers has in recent years increased focus on service and availability of gaskets. Gasket volumes are today spread all over the world, as HEXPOL Gaskets customers continue to decentralize its operations to come closer to each market.

This has resulted in that Gislaved Gummi in recent vears has implemented a number of major projects to meet customer expectations and increase competiveness in each strategic geographic region. Three years ago, HEXPOL Gasket had only one warehouse located in Sweden for supplying the whole world with gaskets. Today, most of the volumes are shipped directly from production sites or via stock hubs, which has resulted in new business and shorter lead-times to customers.

The entire IT platform has been changed to make availability of items visually clear to customers. HEXPOL Gaskets customers can log on into their customized website and download live information about inventory and shipping information from our ERP system. This has proven to be a strength, when customers need quick answers to the market. The live information from our ERP systems is available 24/7 no matter what time zone you are in.

Stellana China strengthens positions in the Material Handling and General Industries markets

With the successful commissioning of a new polyurethane wheel production line, Stellana China has further expanded its product range. The new PU wheels line is a perfect complement to the existing TP wheels family and strengthens Stellana's position as a world class solutions provider of wheels.

Stellana China has earned a good reputation among the top three foreign fork lift OEM's in China but also with most of their domestics counterparts with which there are a close partnership today. The Stellana brand also reach into other related areas including a variety of different end applications.

One of the new accounts outside the traditional fork lift industry is a global supplier of baggage handling systems. As the world leader in this area they have very high standards in their selection of wheels which Stellana China

has been able to meet. "We know about our applications and you know about the wheels" said one of the customer's engineers. Stellana China has managed to create new design solutions in tread patterns and material layers which optimize performance. This has distinguished Stellana from competition and created added value for the customer.

Other target areas for Stellana China are the mining- and automotive industries. Stellana tries to focus on performance beyond the wheel itself by working with the customer to reduce cost and optimize performance such as product life, end user downtime and application performance.

HEXPOL Wheels

ORGANISATION

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in Germany has started, with the aim of providing better service to customers in the after-market since it will have access to products and offer rapid delivery. Several major customers are increasing production capacity to rapidly expanding Asian markets. HEXPOL Wheels' global presence enables it to monitor customers and quickly offer quality products in the local market.

OPERATING UNITS

HEXPOL Wheels has production facilities in Laxå, Sweden, Lake Geneva, the US, Horana, Sri Lanka, and Qingdao, China. The Swedish unit cooperates closely with European OEM manufacturers of forklifts and is often involved in development of new products. An extensive test databank and an advanced wheel lab enable the wheel's properties to be simulated and optimised at an early stage of the development process. The Swedish unit manufactures wheels in cast polyurethane (including Vulkollan) and polyamide, as well as smaller quantities of rubber and thermoset wheels. The establishment of a distribution centre in Germany is being managed from Laxa, Swden, but the centre will manage products from the other units.

The US unit in Lake Geneva is one of the largest suppliers of polyurethane tyres and castors in the North American market. Here, product development is also conducted in close cooperation with major OEM manufacturers. Wheels are tested in wheel laboratories to be able to adjust the wheel's properties to the desired results at an early stage in the development process.

The plant in Horana, Sri Lanka, manufactures rubber castor wheels, injection-moulded thermoplastic wheels and solid tyres. The unit has an extensive machinery fleet and proprietary rubber compounding equipment. It also has development resources with access to advanced testing equipment. Unlike the product area's other units, all sales are conducted on an export basis. Most products are exported to Europe, but also to Asia, Africa, the Middle East, Australia and the US. Products from Sri Lanka will also be distributed via the distribution centre being established in Germany.

The Chinese unit in Qingdao produces polyurethane and polyamide wheels. Both Chinese and global forklift manufacturers are expanding their manufacturing capacity in China. Stellana has established a position as a supplier of high-quality wheels and has succeeded in entering into cooperation with most of the major manufacturers. In addition to forklift wheels. efforts to become a supplier of wheels for the general industry have also yielded fine results.

Senior Managers at HEXPOL Wheels Operating units

Jan Wikström President HEXPOL Wheels. Managing Director Stellana Sweden

Roger Jonsson. Managing Director Elastomeric Wheels, Sri Lanka

Peter li Managing Director Stellana China

Mark Shea Managing Director Stellana US

European Distribution Center for HEXPOL Wheels

Stellana will open a distribution center just south of Hamburg in Germany to better serve the large German market with products. This hub will also be used to supply customers in other central European countries.

The main beneficiaries of this new warehouse hub will be smaller aftermarket customers who normally buy smaller lots and depend on fast deliveries to support and service their customers. Stellana will now reach a broader customer base, be able to cut delivery time and supply smaller batches at a lower cost.

The distribution center will stock products from both Stellana Sweden and Elastomeric Wheels enabling customers to choose from Vulkolan wheels, PU wheels and Solid Tires. This product breath will make Stellana unique compared to competition and enable customers to buy their entire need from one source.

Positive feedback from many customers calls for a successful launch of this customer focused initiative.

Energy Management System - ISO 50001 Introduced

Elastomeric Wheels and Gislaved Gummi Lanka have become the first two companies to be certified under ISO 50001 achieving another millstone in the history of HEXPOL.

ISO 50001, which is also known as an Energy Management System in the industry helps organizations worldwide to preserve depleting resources, tackle climate change and save money through the use of more energy efficient processes in a sustainable manner. The Elastomeric group of companies through the use of Bio Mass energy has already managed to decrease the carbon dioxide emissions by 95% related to thermal energy usage.

Today most industries strive to reduce production cost to be competitive and meet customer satisfaction. With ISO 50001 in place there is a significant positive impact on the cost due to a systematic approach and a focus on efficient energy usage, waste minimization and promotion of low-carbon emission renewable technologies.

All these items combined will help to facilitate the environmental work and lead us to the objective to be an even more environmental friendly company.

Elastomeric Wheels and Gislaved Gummi Lanka have also received certifications according to ISO 9001. ISO 14001 and OHSAS 18001 standards.

HEXPOL Profiles

ORGANISATION

HEXPOL Profiles is a small product area in HEXPOL Engineered Products. The operation is concentrated to Gislaved, Sweden, where the product area's management is also located.

TECHNOLOGY AND PRODUCTS

HEXPOL Profiles specialises in manufacturing thinwalled solid profiles made from rubber and silicone. The profiles are manufactured through continuous vulcanisation on five different extrusion lines. HEXPOL Profiles applies three different vulcanisation methods: hot air, microwave and salt bath, which enable optimal cost-effective manufacturing of a broad range of profiles. Production is highly automated and manufacturing is conducted in a continuous process.

In connection with new development, where competencies in rubber materials combined with the design of the profile create an optimal product that satisfies customer needs for function and cost-effectiveness, HEXPOL Profiles cooperates closely with its customers. In recent years, HEXPOL Profiles has developed a number of methods for reducing the profile's friction during assembly. There are currently rubber compounds with integrated antifriction agents, but also several methods that are applied continuously on the process line. HEXPOL Profiles sees increased demand for various antifriction treatments.

The profiles are generally delivered in running metres, whereby the customers cut the profiles themselves in connection with assembly. Demand for this is increasing as the assembly equipment of the customers becomes more automated. Certain customers, who want to avoid the cutting feature, demand ready-cut profiles in exact lengths, whereby manual assembly is primarily used. A minor portion of the product area's sales is generated from profiles with vulcanised joints in the form of rings. All products delivered by HEXPOL Profiles are specially adapted for various OEM applications.

MARKET

HEXPOL Profiles has a stable customer base with strong market positions. Customers are generally very quality conscious and frequently have a high degree of automation in their own manufacturing. This poses exacting demands on delivery reliability, lead times and quality. Customers are found primarily within the construction and other engineering/ manufacturing industries.

BUSINESS MODEL AND STRATEGY

HEXPOL Profiles offers high-quality customer-adapted profiles for delivery primarily in the Nordic market. HEXPOL Profiles aims to be perceived as a reliable and flexible supplier, with whom it is easy to do business.

HEXPOL Profiles has five focus areas to increase customer value:

· Short lead times and the highest delivery reliability through flexible production and advanced IT support
· Fast and customized materials solutions developed in-house
· The right quality through reliable manufacturing processes
· The right product function through ongoing customer follow-up
· Cost-efficient manufacturing processes

OPERATING UNITS

Operations are located in Gislaved, Sweden.

Senior Manager at HEXPOL Profiles' operating unit

Lars-Åke Bylander. President HEXPOL Profiles Magaging Director Gislaved Gummi, Sweden

Corporate responsibility Prerequisite for long-term value creation

Corporate responsibility is integrated into HEXPOL's corporate culture and is a prerequisite for longterm value creation. The Group focuses on matters involving environmental impact, social responsibility and business ethics - considerations that apply both to everyday work and strategic planning. During the year, there was an update of "Materializing Our Values", which sets out the Group's values, guidelines and policies in the area of corporate responsibility. The update included more clearly communicating what "whistleblowing" means, and Group-wide guidelines for evaluating the sustainability work of suppliers were introduced.

MATERIALIZING OUR VALUES

"Materializing Our Values" is our ethical compass and it summarises HEXPOL's fundamental approach to business ethics, information, the environment and occupational health and safety. The guidelines constitute the Group's code of conduct and provide guidance to everybody in respect of legal liability, accounting, conflicts of interest, working conditions, social issues and sound business ethics.

The Board of Directors, the CEO and the Executive Management Group have overall responsibility for ensuring that "Materializing Our Values" becomes a natural feature of the way we work. In the daily operations, the responsibility rests with managing directors and all managers at HEXPOL. The role of the individual employees in the practical application of the values is naturally very important. The Annual Report and the Sustainability Report outline how work related to these value is developing.

In a number of areas covered by "Materializing Our Values", a practice of zero tolerance is applied to nonconformity. This applies, for example, to the need to abide by legislation and to respect human rights, the prohibition of bribery and other forms of corruption and the fact that competition law must be complied with. In other areas, the code of conduct provides an approach that is based on preventive measures and continuous improvement, for example, in the environmental and work environment area.

"Whistleblowing" is encompassed by the Group's fundamental values and means that all employees have the right to blow the whistle to bring serious irregularities to the attention of the Board of Directors and company management. Whistleblowing is done by e-mailing the Audit Committee and does not give rise to reprisals against the informant. No cases of "whistleblowing" were registered during the financial year.

LEGAL AND REGULATORY REQUIREMENTS

Group companies identify and take actions to introduce and apply the ordinances, rules and laws that impact on business operations. These take the form of major national and international laws in many areas, such as bans on the formation of cartels, export and import ordinances affecting international business transactions, trade embargoes and economic sanctions. The prevailing legislation in the environmental and work environment areas is also wide-ranging and here the ISO 14001 and OHSAS 18001 management systems contribute to ensuring its application in a structured manner.

* Supported by a Compliance Program relating to Competition and Anti-trust law.

** Policies available for all employees but not externally distributed.

In addition to the legal requirements, there are various customer requirements in the field of sustainable development. These requirements are increasing as time progresses, which is something that contributes constructively to the development of HEXPOL's sustainability work.

BUSINESS ETHICS GUIDELINES

The business ethics guidelines constitute a component of "Materializing Our Values" and provide guidance to employees concerning what is and what is not permitted in business contacts with customers, suppliers, competitors and distributors. The guidelines are complemented by a detailed Compliance Program, in which all senior executives in the Group confirm with their signatures that he/she is complying with the rules. The managers undergo regular reviews of the importance of complying with the business ethics guidelines and zero tolerance is applied to non-compliance.

SUSTAINABLE STRATEGY

Corporate responsibility creates value for the Group's stakeholders and, by integrating sustainable development into the HEXPOL business model, conditions are created for a strategy that is sustainable long-term for both the Group and society. As apparent from the figure below, the Group has taken steadily increasing actions to further develop its sustainability work. Priority areas include energy optimisation, reduction in chemical risks, lower atmospheric emissions and reduced amounts and greater recycling of waste. Offering customers knowledge of and solutions concerning environmentally compatible product development is another important area. Group-wide long-term targets have been established in several key areas.

INTERACTION WITH STAKEHOLDERS

Since the views of stakeholders are crucial, we endeavour wherever possible to engage in dialogues and exchanges of information with them. The intention is to understand and fulfil the expectations and requirements to which HEXPOL and its employees are exposed. Interaction with stakeholders includes:

· Fulfilling customer requirements in respect of quality, delivery precision, sustainable development and other areas.

· Following up requirements and specifications involving the Group's suppliers in a large number of countries.
· Communicating with the capital market, including shareholders, investors, analysts, banks and media.
· Dialogue with the Group's approximately 3,700 employees.
· Interacting with neighbours, authorities, media. schools, universities and representatives of society.

How the interaction with stakeholders proceeded in 2014 is outlined in the separate Sustainability Report.

RELEVANT INFORMATION TO OWNERS AND INVESTORS

HEXPOL aims to provide shareholders and other players on the capital market with relevant information that offers a basis for accurate valuation of the Group. The objective is to apply a candid and factual approach and provide a high level of service in financial reporting. The aim is enhance confidence in the company among existing and potential shareholders.

The Group complies with customary accounting policies, applies internal controls and drives processes to ensure that accounting and reporting comply with legislation, ordinances and listing agreements. HEXPOL applies a policy of transparency in its reporting and, in line with the Group's communication policy, provides well-founded, comprehensive information to the market. Corporate governance is described in the Corporate Governance Report on pages 82-87 and is available at www.hexpol.com. All published financial information is also available on the website, as are presentations, press releases, financial statements and annual reports.

PROFESSIONAL CUSTOMER RELATIONS

HEXPOL's relationship to its customers is characterised by professionalism, high service level and quality awareness. In accordance with "Materializing Our Values", the Group focuses on impeccable business ethics and thus competes fairly in business activities, including marketing and advertising. HEXPOL complies with prevailing competition regulations in the geographical markets in which the company is active. Business decisions are taken in accordance with the Group's interests and are not based on personal considerations or relations.

EXAMPLES OF ACTIVITIES THAT CONTRIBUTE TO SUSTAINABLE DEVELOPMENT

2009

· ISO 14001 introduced on a wide front in the Group.
Sustainability reporting in accordance with GRI at level C.
· Development of guidelines for environmental audits when companies are acquired.

2010

· · Sustainability reporting in accordance with
GRI level B.
· Reporting of climate impact in accordance with CDP. · 80 percent of facilities certified in accordance with
100770001
Sustainability issues included in strategic planning.
· Projects to increase energy efficiency implemented.

2011

· Group objectives concerning energy and climate introduced.
· Energy-efficiency improvements implemented at several units
· Compliance Program for business ethics introduced.
· Positive trend in key figures for sustainability.
· Implementation of ISO 14001 in acquired units

In the field of sustainable development, customer requirements are steadily increasing and, in 2014, 92 percent (85) of the companies reported requirements pertaining to such matters as certified environmental management systems, the phaseout of hazardous substances, product declarations and requirements for a code of conduct and social responsibility. At half of the Group's production units. customers implemented follow-ups of their requirements. Although the results of surveys and audits were generally highly favourable, there were one or two cases of customers who requested expanded controls of HEXPOL's suppliers, an area in which the Group will increase its activity in the years ahead.

CONTINUOUS IMPROVEMENTS

Employee responsibility for and contributions to operational improvements are in the interest of both the employees themselves and the Group. Accordingly, the concept of continuous improvements is an integral feature of the corporate culture and encompasses all conceivable activities. Product quality is a key competitive factor and quality-assurance work is conducted in accordance with the requirements of the international ISO 9001 standard. All units are certified and conducting work to achieve continuous improvements is a fundamental requirement of the quality management system. The purpose of quality-assurance work is to ensure the right quality, fulfil security and legal requirements and to exceed customer needs and expectations. For this reason, customers and suppliers are frequently involved in connection with the development of new products or changes in existing products.

STRICTER DEMANDS ON SUPPLIERS

When assessing suppliers, requirements such as technical performance, quality, delivery capacity and solvency have to be fulfilled. Within the scope of ISO 14001, requirements concerning the environment and work environment are imposed and HEXPOL considers it important to cooperate with suppliers that display good business ethics and take responsibility in matters involving the environment and social conditions. Irrespective of the size of suppliers or their global or local status, we expect them to meet the same requirements in terms of the environment and social conditions that we impose on ourselves.

In order to strengthen the requirements and be clearer in communications with the suppliers, a Group-wide guideline has been formulated. The Supplier Sustainability Guideline specifies the sustainable development requirements the Group imposes on its suppliers and this new guideline will be introduced on a broad front in 2015.

During 2014, nearly 170 suppliers (80) were evaluated concerning the environment and social responsibility, a number that is expected to rise in the years ahead.

DIVERSITY, COMPETENCE, COMMITMENT AND WELL-BEING

Employees in eleven countries

During the financial year, the average number of employees was 3,666 (3,433), of whom 2,212 (1,958) worked in HEXPOL Compounding and 1,449 (1,470) in HEXPOL Engineered Products. The Parent Company has 5 employees (5).

HEXPOL is a global company and 91 percent (91) of the employees work outside Sweden. Since the workforce is relatively evenly spread across the US/ Mexico, Europe and Asia, diversity in the form of various cultures is a natural feature of daily activities. With the Group's presence in global markets, the mix of competencies is an important precondition for the ability to grow nationally and internationally.

Number of employees per country

01

· Stricter goals for sustainable development introduced.
88 percent of facilities certified in accordance with ISO 14001.
Two units certified according to OHSAS 18001.
Greater social involvement in many countries.
Many measures aimed at energy efficiency were introduced. Safe work environment through systems to
register near misses.

2013

· Materializing Our Values introduced.
· Increased use of biofuels
· Energy-efficiency enhancements yield positive results.
· Continued phase-out of hazardous chemicals.
Activities to rouse the interest of students in
the polymer industry.
· Adaptations to GRI G4 initiated.

2014

· Supplier Sustainability Guideline introduced.
Sustainability targets updated.
· Update of Materializing Our Values whistleblowing.
· Use of biofuels on the increase.
· Successful energy-efficiency projects implemented. The ISO 50001 energy management system introduced.
· Additional units ISO 14001 certified.
· Work to achieve environmentally compatible product development continues.

Because local presence in the various geographical markets is particularly important, we endeavour to recruit necessary competencies in the region or country concerned.

For HEXPOL, diversity encompasses a full-spectrum perspective, respect and professionalism, as supported by the open corporate culture, Materializing Our Values and our desire to make continuous improvements. Efficient leadership is a prerequisite for our success and the work climate should encourage responsibility, creativity and innovation. We encourage involvement and seek to engage all employees in our improvement work. Considerable emphasis is placed on creating a culture of rapid decision-making paths without unnecessary bureaucracy.

Training/education and experience exchange

Since a prerequisite for developing the business and the products is having committed, experienced and skilled employees, the training/education and skills development of employees takes place globally. HEXPOL LEADERSHIP DEVELOPMENT PROGRAM -MATERIALIZING THE DIFFERENCE is designed for managers in the midst of their career, with the aim of further developing the participants so that they can work as leaders in a multicultural company.

By working in networks and project organisations, the overall level of competency is enhanced and, for this reason, many projects are implemented with participants from various cultures, with knowledge in different areas. This could be technology and product development or purchasing and marketing. At our annual conferences for the Group's top management, the topics discussed include strategic issues, the outcome of projects, finances, markets, products and sustainable development.

A good work environment and respect for human rights Materializing Our Values has its background in internationally known agreements and guidelines concerning human rights, social responsibility and sustainable development, including the UN Global Compact. The Group's requirements are that workplaces should be safe, facilitate development and comply with occupational health and safety and labour legislation. No employee may be discriminated due to gender, religion, age, physical or mental disability, sexual orientation, nationality, political opinions or origin. HEXPOL encourages diversity and distances itself from all forms of discrimination. Equal rights issues are addressed in a decentralised manner and the employees are entitled to form and join trade unions and to collective negotiations. They also have complete insight into and the right of codetermination in accordance with the provisions of national legislation. During the year, many employees underwent refresher courses in HEXPOL's values, and Materializing Our Values is included in the induction of new employees.

Work environment efforts focus on preventive measures and include risk analyses, training programmes and technical improvements. It is particularly important to highlight incidents and adopt preventive measures. Creating a good work environment and well-being are the responsibilities of executive management and improvement programmes are conducted in cooperation with employees and employee representatives. For more information about health and safety, refer to pages 79-80.

In terms of equal opportunities, the polymer industry is male dominated and HEXPOL is no exception. The average proportion of female employees is 14 percent (14) and the level is highest in Sweden and China at about 40 percent. The opposite prevails in Sri Lanka, where women account for only 5 percent of the workforce and men account for more than 90 percent of the workforce at several facilities. The proportion of females is 29 percent (17) on the Board of Directors, 14 percent (14) in Group management and 11 percent (10) in the management teams of subsidiaries.

During the year, nothing arose that showed that the Group had breached the guidelines concerning human rights, equal opportunities or diversity.

Personal development and remuneration

Job satisfaction, employment security and opportunities for personal advancement are important factors for many employees. At HEXPOL, the remuneration level is on market terms and competitive. Basic principles are that wage formation should comply with legislation, at least match the minimum wage levels in the countries in which the Group is active and be fully market based. Variable remuneration linked to the earnings trend that a person can influence is paid in certain parts of the Group. Personnel costs during 2014 totalled 1,025 MSEK (894).

Social involvement

The employees at HEXPOL's units participate in many different social activities. These include "open houses" for employees and their relatives, contacts and projects in cooperation with schools and universities, and financial support for sports, health projects and associations. From a strategic perspective, it is important that young people and students are informed about the future opportunities offered by the polymer industry. Companies in the US are particularly active in contacts with polymer technology students by arranging study visits, development projects, degree projects and traineeships. ELASTO in Amal is participating actively in a project aimed at encouraging girls at upper secondary school to show an interest in technical professions.

Other examples of HEXPOL's social involvement include social projects in the US together with the YMCA, Elastomeric in Sri Lanka, which is contributing financial support for the purchase of school ERRNVIRUWKHFKLOGUHQRIHPSOR\HHVDQGEORRG GRQDWLRQVE\VWDIIDW*ROG.H\LQWKH86*ROG.H\ DOVRJLYHVVXSSRUWWRPHGLFDOFDUHDQGVRFLDODFWLYL WLHV

SUSTAINABLE DEVELOPMENT

RESPONSIBILITY FOR PEOPLE AND THE ENVIRONMENT

Long-term objectives

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Sustainability Report

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blish long-term strategies. The Group's Sustainability Report is based on the guidelines stipulated in GRI G4 (Global Reporting Initiative) and HEXPOL participates in the annual reporting of the business community's climate impact in accordance with the guidelines in the CDP (Carbon Disclosure Project).

Risk analyses

The Group's risk analyses include the consequences of developments in terms of legislation, stakeholder requirements and expectations and scientific advances in sustainability. Environmental risks in conjunction with the acquisition of other companies are a prioritised area. The issues involved could be soil pollution and breaches of environmental legislation. Read more about environmental risks on pages 69, 75 and 78.

Certified management systems in HEXPOL (% of total number of facilities)

HEXPOL leader ship development program "Materializing the Difference"

HEXPOL continues to develop present and future leaders through the "Materializing the Difference" leadership program. During the latest program, the third class, there are 16 HEXPOL employees from all over the group active in different positions with a variety of backgrounds.

One of the objectives with the program is to include HEXPOL employees from recently acquired companies. In this way the program contributes both in terms of increasing competence and network building which is important for the future success of HEXPOL.

The program is designed to link theoretical knowledge in areas such as financial analysis, accounting, strategy and market analysis, leadership and group dynamics with practical skills in managing strategic projects. The different parts of the program are also linked to CSR and sustainable development.

Development of the leader's capability to participate in strategic development within the group is a focus area. This is a something that becomes more and more important as HEXPOL grows and external demands increases.

The participants have managed three strategic projects during 2014 where one is an analysis of the development within the automotive industry, another explores how HEXPOL can strengthen the customer satisfaction and the last project covers social media.

Participants: Thorsten Henz, Richard Hjertén, Jeremy Lawson, Sven Johansson, Daniel Pankert, Joel Karczewski, Bryan Ball, Lisa Davis, Dulip Karunatilake, Manuela May, Michaela Niklová, Angelica Rönnholm, Karen Chickletts, Omar Guifarro, Felipe Teran and Kim Keskisalo.

Suppliers sustainability guidelines

Collaboration with suppliers to manage environmental issues, work environment, social responsibility and business ethics in a responsible way is important to HEXPOL. Environmental issues and work environment have since long been part of the HEXPOL companies supplier evaluation process and is also an integrated part within the environmental- and management systems framework.

During 2014 we increased our ambitions and a group wide set of guidelines for suppliers were developed - the "HEXPOL Supplier Sustainability Guidelines". The guidelines cover the entire sustainability area and clarify the expectations of suppliers. The guidelines are based on the "HEXPOL Materializing Our Values" and the basic principle is that the suppliers should have the same code of conduct and the same level of ambitions as we have.

The "Supplier Sustainability Guideline" covers the following areas:

· Environment Compliance with legislation and a documented and systematic approach to prevent environmental impacts
· Work environment Compliance with legislation and a documented and systematic approach to prevent work related injuries and illness
· Workplace Conditions and Human Rights Requirements regarding discrimination, equal opportunities, child labor and right to collective bargaining
Business Ethics Requirements regarding anti bribary, cartels and sound business- and marketing practices

Supply Chain Practices - Requirements that the supplier shall take actions to ensure that its suppliers, contractors, consultants, and other actors in the supply chain, comply with the HEXPOL guidelines or a comparable standard, as well as assess their performance against it.

The "Supplier Sustainability Guideline" will be rolledout group wide during 2015 with the intent to reach all suppliers. The objective is that the guidelines should reduce risk and contribute to sustainable development. At the same time we strive for elimination of all unnecessary bureaucracy. The implementation will be done step by step based on specific sustainability risks at each supplier.

In the first phase all suppliers will receive the guidelines and are supposed to comply with them. In the second phase selective suppliers will be asked to comply with the "Supplier Sustainability Guideline" in writing and complete a self-assessment of their own sustainability process. HEXPOL will then select specific suppliers for sustainability audits based on the self-assessment and a general risk assessment.

WHEXPOI

Materializing Our Values

At HEXPOL we recognize that our activities have an impact on people and the environment, both locally and globally, but we are convinced that we can contribute to sustainable development being responsible citizens.

Our primary objective is to create profitable growth and a prerequisite for doing that is to show responsibility for people and the environment, and to demonstrate sound business ethics. These commitments - Materializing Our Values - are deeply rooted in our culture and strategy,

meaning that we strive to limit the Group's impact on the environment and to offer a secure and stimulating work environment for our employees worldwide. It is equally important that HEXPOL is associated with credibility and healthy values in our contacts with customers, suppliers and business partners.

"Materializing Our Values" represents the Group's Code of Conduct and states the principles governing relations with employees, business partners and other stakeholders.

The guidelines offer direction to those active in the Group in respect of legal, finance and accounting, conflicts of interest, labor conditions, and social aspects as well as good business ethics.

You can find the document on our website www.hexpol.com.

To order printed copies please contact the Group Headquarter at [email protected].

Board of Directors' Report

HEXPOL AB (publ), Corp. Reg 556108-9631

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INDUSTRY AND MARKET RISKS

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STRATEGIC AND OPERATIONAL RISKS

Technological progress and market development

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Materials and energy costs

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Suppliers

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LEGAL RISKS

Legislation and regulation

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Health, safety and the environment

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Tax risks

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and regulations in the various countries and tax authorities in question. The Group has obtained advice on these matters from independent tax advisors. However, it cannot be generally ruled out that the Group's interpretation of applicable laws, tax agreements and regulations or their interpretation or administrative application by the authorities may be deemed incorrect or that such rules may change, possibly with retroactive effect. Decisions by the relevant authorities could thus change HEXPOL's tax situation and have an adverse impact on the Group's operations, financial position and earnings.

Disputes

HEXPOL is occasionally involved in disputes as part of its normal business operations. Major and complicated disputes could be costly in terms of time and resources and could interfere with normal business operations. It cannot be ruled out that the result of such disputes could have a negative impact on HEXPOL's earnings and financial position.

Intellectual property rights, etc.

HEXPOL sells its products under several wellknown brands. It is of major commercial significance for the Group that these brands can be protected against unauthorised use by competitors and that the goodwill associated with the brands can be maintained

HEXPOL must continuously develop new technological solutions and applications in order to meet market requirements. To secure a return on the resources that HEXPOL invests in research and development, it is vital that new technology can be protected against unauthorised use by competitors. There is no guarantee that HEXPOL will not be considered to infringe upon the intellectual property rights of other companies, or that HEXPOL's rights will not be challenged or contested by others. In addition, HEXPOL's competitors could develop or acquire intellectual property rights that could prove essential for parts of HEXPOL's operations.

HEXPOL is also dependent on technical know-how that falls outside the realm of protectable intellectual property rights. It cannot be ruled out that competitors could develop corresponding know-how, or that HEXPOL will not succeed in protecting its knowledge effectively.

If it should become apparent that HEXPOL's operations are considered to infringe on another party's valid intellectual property rights or entail impermissible use of another party's business secrets, it cannot be ruled out that the resulting claims could have a negative effect on HEXPOL's operations, earnings and financial position.

According to a licence agreement with Bayer AG, HEXPOL is entitled to use the Vulkollan brand and logotype in connection with the manufacture

and marketing of wheels produced by HEXPOL Wheels. The licence agreement with Bayer extends for one-year periods and notice may be given three months prior to the end of the agreement. Notice of termination of the agreement by Bayer would have a negative impact, since Vulkollan currently accounts for a major share of the sales of the subsidiary Stellana AB.

FINANCIAL RISKS

Currency risk

In its operations, HEXPOL is exposed to various financial risks, of which currency risk is the dominant one. Exchange-rate fluctuations affect HEXPOL's earnings, in part when sales and purchases take place in different currencies (transaction exposure) and, in part when the income statements and balance sheets of foreign subsidiaries are translated to SEK (translation exposure).

HEXPOL's global operations give rise to extensive foreign-currency cash flows. The key currencies in the Group's payment flows are SEK, USD and EUR. Exchange-rate fluctuations have an impact on the Group's earnings in the translation of foreign Group companies' profit or loss to SEK. Since a considerable portion of the Group's earnings is generated outside Sweden, exchange-rate fluctuations could have a significant impact on the Group's profit or loss. In conjunction with the translation of the Group's investments in foreign subsidiaries to SEK, there is a risk that exchange-rate fluctuations could have an impact on the Group's balance sheet. Exchangerate fluctuations could have an adverse impact on HEXPOL's sales, financial position and earnings. A sensitivity analysis shows that a shift of 10 percent in the SEK against all currencies would have an impact of 159 MSEK on operating profit.

Interest-rate and credit risks

HEXPOL is also affected by interest-rate fluctuations. Changes in interest rates affect the Group's net interest income and cash flow. Based on the average fixed interest period in the Group's total loan portfolio at December 31 2014, a simultaneous change of one percentage point in all of HEXPOL's loan currencies would have an effect on full-year earnings of about 6 MSEK before tax.

The financial risks to which HEXPOL is exposed also include credit risks, meaning that a customer or business partner will be unable to fulfil their payment obligations or to settle receivables that HEXPOL has invoiced or intends to invoice. There is no significant concentration of credit risks, either geographically or to any given customer segment. Financial credit risks are defined as the risk that counterparties with which the Group has invested cash and cash equivalents, has current bank investments or has entered into financial instruments will be unable to fulfil their obligations.

If HEXPOL's actions to minimise its interest-rate and credit risks prove insufficient, HEXPOL's financial position and earnings could be adversely impacted.

Financing and liquidity risk

To enable corporate acquisitions or otherwise achieve strategic objectives, HEXPOL's operations could ultimately require additional financial resources. HEXPOL's ability to ensure future capital requirements depends to a great extent on successful sales of the Group's products and services. There are no guarantees that HEXPOL will be able to secure the necessary capital. In this regard, general developments in the share capital and credit markets are also of considerable significance. The liquidity risk is defined as the risk that the Group will be unable to entirely fulfil its payment undertakings when they fall due or will only be able to do so on highly unfavourable terms.

HEXPOL could also require additional financing to refinance loans that expire. HEXPOL's three major loan agreements form the basis for the Group's long-term financing requirements and include traditional financial covenants. It cannot be ruled out that HEXPOL could ultimately be forced to breach these covenants in the future due to, for example, the general economic trend or disruptions in the share capital and credit markets. This could have a negative impact on HEXPOL's financial position and earnings.

EQUITY MARKET RISKS

Share price performance

There any no guarantees that HEXPOL's share price will perform positively. The price of the share will be impacted by variations in the company's earning and financial position, changes in the market's expectations regarding future profits, supply and demand for the shares, developments in the company's market segments and general economic trends. This means that the price at which the share trades will vary and that even if HEXPOL's business develops positively, investors may risk incurring a loss of capital when the shares are sold.

Future dividends

Future dividends will be proposed by HEXPOL's Board of Directors. In its assessment, the Board of Directors will take into consideration several factors, including business development, earnings, cash flow, financial position and expansion plans. See also the section "Dividend policy" on page 17. There are risks that could affect the Group's earnings negatively, and there are no guarantees that HEXPOL will be able to generate earnings that permit the payment of a dividend to shareholders for each financial year in the future.

Sustainability work

ENVIRONMENTAL RESPONSIBILITY

MANY KEY ENVIRONMENTAL ISSUES

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ENVIRONMENTAL LEGISLATION

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taken action to reduce the adverse effects of the odour

· Environmental legislation was breached at a facility in the US where some underground tanks had not been correctly registered with the authorities. The infringement resulted in a minor penalty but no legal consequences.

ENERGY CONSUMPTION

Higher energy consumption is a result of the Group's expansion with an increasing number of production facilities and higher production volumes. Here, mixing machines, presses and other production equipment contribute to higher energy consumption, but significant amounts of energy are also used for heating, cooling, ventilation and moving of material. During 2014, energy consumption rose to 313 GWh (275) but the increase was partly offset by many energy-saving projects. The increased use of biofuel resulted in higher energy consumption, thus contributing to a slightly higher energy KPI (GWh/net sales) compared with the preceding year.

About two thirds of the energy consisted of purchased electricity, nearly 20 percent of natural gas and the rest derived from other sources. The use of biofuel and "green" electricity rose during the year to 9 percent (4). The total energy cost during 2014 was about 179 MSEK (143).

POLYMERS AND OTHER CHEMICAL PRODUCTS

The manufacture of rubber compounds is based on polymers, softening agents, filler and various chemical substances. The recipe depends on the technical properties to be achieved and the compound includes various types of synthetic rubber, process oils as softening agents, carbon black and other fillers, as well as a large number of chemicals and additives that give the compound the desired properties. Some compounds include natural rubber.

In addition to the above-mentioned group of substances, a significant amount of polyurethane plastics, thermoplastic elastomer (TPE), metals, solvents and dyes is used. In terms of volumes, the synthetic rubber polymers are predominant but TPE and polyurethane plastics are also used to a great extent. The use of natural rubber accounts for about 9 percent of total polymer consumption and recycled polymers for about 3 percent. The natural material, cork, is used in certain TPE applications.

SAFF CHEMICAL MANAGEMENT

At HEXPOL, many different recipes and thousands of chemical substances are used. The Group objective for safe chemical management is that chemicals deemed as hazardous for humans and the environment are to be replaced with other substances or that relevant risk-limitation measures are to be taken. EU chemical legislation (REACH) and

MORE EFFICIENT ENERGY CONSUMPTION

A key sustainability target for HEXPOL is to increase energy efficiency. Here are some examples of activities during the year:

· Installation of more energy efficient production equipment, compressors and ventilation systems.
· Lighting and fixtures continue to be changed and energy-efficient LED bulbs are being used to a greater extent. Where possible, daylight into premises was increased.
· Installation of steam traps on presses and insulation of furnaces. Switching off equipment not in use.
· Shorter mixing cycles reduced energy consumption in several facilities.
· The ISO 50001 energy management system introduced at facilities in Sri Lanka and Germany.
· Reduction in energy consumption during peak periods on the electricity network.
Surplus energy sold to the local district heating network in Gislaved, Sweden.

laws concerning labelling and risk information are crucial to the Group's chemical work, but equally important are the demands placed by customers. The ultimate aim is to protect humans and the environment by developing more environmentally compatible products.

The preventive chemical effort has accelerated and a number of chemicals have been phased out or had their usage reduced, such as certain phthalates, brominated flame retardants and heavy metals, as well as chemicals that generate nitrosoamines.

During the year, a handful of chemicals were phased out and another ten substances have been identified for future measures. This work is complicated since there is no global harmonised legislation and substances that are banned in one part of the world may be permissible in others. Regardless of this, we strive to offer customers options that are advantageous from an environmental and health perspective but without lowering technical performance.

EMISSIONS TO THE ATMOSPHERE

CLIMATE IMPACTING GASES

One of the Group's sustainability targets is to reduce the emission of the climate-changing gas, carbon dioxide, from energy consumption. The amount of emissions during the year, which are affected by the use of fuel oil, natural gas, district heating and electricity, totalled 115,000 tonnes (109,000). Despite higher production and more facilities, the Group's KPI (tonne carbon dioxide/ net sales) remained unchanged compared with the preceding year.

The indirect emissions through purchases of electricity dominated and accounted for 84 percent (84) of the total amount of carbon dioxide. Here, the purchase of "green" electricity in the Czech Republic reduced emissions. Emissions from direct energy consumption were positively impacted by higher consumption of biofuels in Sri Lanka, a measure that has not yet had full effect because another boiler for biofuels will be installed in 2015.

OTHER EMISSIONS

Energy consumption caused 29 tonnes (55) of atmospheric emissions of sulphur dioxide and nitrogen oxide. The strong reduction derived from the use of biofuels in Sri Lanka. Emissions of VOC (volatile organic compounds) from dyes and solvents totalled some 24 tonnes (24) and are caused by the manufacture of polyurethane wheels. Emission of ozone-degrading gases (HCFC) amounted to a few kilogrammes and corresponds to about 1 percent of the Group's total amount of installed cooling agents.

WATER CONSUMPTION

Water issues are important to society and the business community and access to high-quality water is a key issue in many parts of the world. The annual documentation of water-related matters in the Group's shows that HEXPOL has no production facilities in areas suffering from water shortages or where the aquatic eco-system is threatened. One exception is a unit in California, USA, where the State has suffered a severe draught in recent years. From a natural resources perspective, there are many reasons to be economical with water and this applies to cooling, cleaning, irrigation and hygiene.

In 2014, approximately 226,000 m3 (190,000) of municipal water was consumed, 17,000 m3 (16,000) from proprietary wells and 441,000 m³ (360,000) from streams. Higher production, testing of new production equipment and leakages in technical systems contributed to an increase in water consumption. In addition, higher temperatures in a neighbouring waterway resulted in the use of a larger amount of cooling water than normal. There are cooling systems with recirculated water at most of the production facilities and various measures have been implemented to reduce water consumption such as leak searches, training and technical measures. The total cost of water was 2.8 MSEK (2.4)

Emissions to wastewater from production processes are limited and premises are normally not fitted with draining gutters. Wastewater consists mainly of organic materials and nutrients from sanitary facilities and cleaning. Emissions of cooling water that has not been in contact with raw materials and products, as well as rainwater from roofs and land areas, also occur. Production plants are connected to municipal wastewater treatment plants or equivalent. Measurements of the composition of the waste-

Energy consumption

Carbon dioxide emissions

Amount of waste

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ENVIRONMENTAL ADAPTATION OF PRODUCTS CONTINUES

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ENVIRONMENT-RELATED RISKS

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HEXPOL Further Reduces Emissions - A second Bio Mass Boiler in Sri Lanka

In line with HEXPOL's focus on sustainable development and goals to reduced environmental impacts Elastomeric Engineering invested in another Bio Mass Boiler. This is the second Bio Mass Boiler installed in Sri Lanka. The first unit was installed in Gislaved Gummi Lanka in September 2013 and has proven to be very efficient.

Previously Elastomeric Engineering used furnace oil boilers, which generated substantial carbon dioxide and nitrogen dioxide emissions. High availability of wood logs and saw dust, mainly from the furniture industry, enabled Elastomeric Engineering to invest in a Bio Mass Boiler. This new boiler minimizes emissions as well as reduces energy cost. With this investment Elastomeric Engineering is estimated to reduce fossil carbon dioxide emissions by approximate 97 percent compared to 2014.

Elastomeric Engineering has implemented a fully integrated management system incorporating the use of energy and all other aspects contained in the ISO 9001, ISO 14001, OHSAS 18001 and ISO 50001 certifications. Since Elastomeric Engineering implemented ISO 14001, the company has been able to achieve substantial benefits throughout the Environmental Management System.

Wellness at the Workplace

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Wellness Program Initiatives:

WELLNESS COMMITTEE: Develops new ideas and implements activities at the campus.

WELLNESS BOARD & MONITOR: Post a different wellness topic each month and wellness related educational information.

SUGGESTION BOX: Promotes associates to provide ideas for new activities and ask questions.

WALKING CONTESTS: We provided all associates with a GK pedometer; points were earned for 10k or 20k steps per day.

FRUITS & VEGETABLES: Monthly challenge to eat 5 fruit or vegetables per day. We provided fruits and vegetables once a week for lunch. WELLNESS BINGO: Bingo board with monthly wellness challenges to complete in each box of the bingo card.

WEIGHT LOSS CHALLENGE: A 6 month program with weigh-ins for prizes. The winner at the end of the contest lost 35 pounds or 15% of their total weight. The total weight loss for the first challenge for all participants was over 300 kgs.

EXERCISE CHALLENGE: 3 month initiative that challenged associates each month starting with the 30 min. of exercise a day at least 3 days a week in the first month, 30 min. a day at least 4 days a week in the second month and 30 min. a day at least 5 days a week in the third month. This was to create the momentum for our associates to continue to increase their exercise and make this not an event, but a life change to develop their minds, bodies and souls through a daily routine. HEARING CONSERVATION: Free annual on-site hearing testing. INDUSTRIAL HYGIENE SURVEY: Air audits, noise monitoring, ergonomic studies conducted by Bureau of Workers Compensation. FIRST AID / CPR: Free certification training for associates that desire to participate.

Stellana US receives ISO 14001 Certificate of Approval

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SOCIAL RESPONSIBILITY

PREVENTIVE MEASURES FOR OCCUPATIONAL HEALTH AND SAFFTY

During the year, there were 104 occupational accidents (68) resulting in more than one day's absence from work. Total absence due to occupational accidents amounted to 1,875 days (1,016) days. The number of accidents and days of absence increased and the common causes of accidents were falls, equipment, manual work and heavy lifts. A higher accident frequency rate was reported at a couple of facilities, at which a program is now being implemented in the form of preventive technical measures and training. One occupational accident involving a contractor was reported and 18 (15) work-related illnesses were confirmed. Impaired hearing, allergies and injury to muscles and skeleton were dominant among illnesses.

The objective is for no work accidents to occur and the Group's occupational health and safety effort is based on preventive measures and a systematic approach. One example is the OHSAS 18001 occupational health and safety system, which was successfully introduced in the facilities in Sri Lanka. Work on safety committees is also important and such organisations exist in 89 percent (85) of the facilities. Risk analyses, occupational health and safety measurements, technical measures, training and safety rounds were implemented during the year. The measurements included exposure to dust, solvents and noise. Special health checks of the workforce are conducted at units handling isocyanates. Other types of recurring health checks are common in the Group.

The systems for registering near misses, meaning events that could potentially cause an occupational accident, were further developed in 2014. Such systems have now been introduced in 89 percent (85) of the units. A total of 438 near misses (233) were registered, indicating that the reporting systems are being used in daily work. Naturally, the aim of the reporting is to take preventive and remedial measures to reduce the risk of accidents.

In the legislative area, new legislation about labelling and risk information about chemicals (GHS/ CLP) will mainly impact the Group in coming years. Accordingly, facilities are focusing on preparedness ahead of the changes.

EMPLOYEE DEVELOPMENT

Training and competency development occur continuously in Group companies and totalled 76,000 hours (55,000) in 2014. This corresponds to more than 20 hours per employee. About 2,500 employ-

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RIGHT TO REPRESENTATION

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EQUAL OPPORTUNITIES AND EQUAL RIGHTS

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HEXPOL supports family for the holidays

Every year GoldKey associates come together to support charitable activities in the local community. "We always feel very blessed that we are able to help those less fortunate than ourselves. As part of the family culture we have built, the team is always looking for the best way to pay it forward to provide assistance to others", Jerry Saxion, Managing Director GoldKey Processing, USA.

This year, the GoldKey team decided that the best way to pay it forward was to find someone locally that really needed assistance to not only to have a better holiday season for their family, but hopefully make a positive change in their life. The team found a family in the Middlefield area that needed just this kind of assistance. This single mother family with four children, one who is disabled, needed someone to help them out in their time of need to get back on their feet, especially during the holiday season.

The GoldKey team introduced themselves to the family by providing gift cards to the local grocery store to take care of their Thanksgiving dinner. At that time they also received a wish list of presents they hoped for to brighten their Christmas.

The wish list was placed below the GoldKey Christmas tree at campus and the associates then proceeded to fill the family's wishes out of their own generosity. The Gold-Key team was very generous by filling the wishes of each of the children with gifts, while also providing gift cards and cash donations totaling over \$600 to the family. It was a wonderful and humbling feeling to be able to play Santa by delivering the gifts in our sleigh, the GoldKey van, to our adopted family at their home and see the joy we could bring.

The GoldKey family also continued to support other local charities including: The DDC clinic for genetic disorders in the Amish community, Santa's Hideaway for terminally ill children, The American Heart Association, The American Red Cross, Relay for Life, Wounded Warriors and other local community groups.

Corporate Governance Report

HEXPOL applies a transparent approach to the communication of information to shareholders and capital markets. The company is governed in accordance with HEXPOL's Articles of Association, the Swedish Companies Act, the Swedish Code of Corporate Governance, NASDAQ OMX Nordic's rules for issuers and other applicable Swedish and foreign legislation and regulations.

GROUP GOVERNANCE AND APPLICATION OF THE SWEDISH CODE OF CORPORATE GOVER-NANCE

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SHAREHOLDERS

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NOMINATION COMMITTEE

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COMPLIANCE WITH SWEDISH CODE OF CORPORATE GOVERNANCE (THE CODE)

As a Swedish public limited liability company whose shares are registered for trading on NASDAQ OMX Stockholm, HEXPOL applies the Swedish Code of Corporate Governance apart from one deviation:

Code Rule 7.3 Audit Committees must include at least three Board members.

Comment: To create a vigorous and effective Board, HEXPOL has decided to have a limited number of Board members. As a result, the Audit Committee has fewer than three members.

BOARD OF DIRECTORS HEXPOL AB

	Year of birth	Nationality	Elected	Audit- Committee	Remuneration- committee	Independent in relation to the company and management shareholders	Independent in relation to major	Holdings Number of A shares	Holdings Number of B shares
Melker Schörling Chairman	1947	Swedish	2007	No	Yes	Yes	No	1,476,562	7,563,715
Georg Brunstam President and CEO	1957	Swedish	2007	No	No	No	No		186,150
Alf Göransson	1957	Swedish	2007	No	No	Yes	No
Malin Persson	1968	Swedish	2007	Yes	No	Yes	Yes
Ulrik Svensson	1961	Swedish	2007	Yes	Yes	Yes	No
Jan-Anders E. Månson	1952	Swedish	2008	No	No	Yes	Yes
Märta Schörling	1984	Swedish	2014	No	No	Yes	No

Henrik Didner representing Didner & Gerge Fonder and Anders Algotsson representing AFA Försäkring should be members of the Nomination Committee ahead of the 2015 AGM. Should a shareholder who is represented by one of the members of the Remuneration Committee cease being one of the largest shareholders in HEXPOL, or should a member of the committee no longer be employed by such a shareholder or for any other reason leave the committee prior to the AGM 2015, the committee is entitled to appoint another representative from among the major shareholders to replace such a member.

During the year, the Nomination Committee held two minuted meetings during which the Chairman presented an account of its evaluation work. The Committee discussed the desired changes and decided on proposals to be submitted ahead of the 2015 AGM.

BOARD OF DIRECTORS

Composition of the Board and independence

According to the Articles of Association, HEXPOL's Board is to consist of at least five and no more than ten members, with no more than two deputies. The Board is elected annually at the AGM for the period up until the next AGM. HEXPOL's AGM on May 7, 2014 resolved to elect a Board consisting of seven persons, including the President and CEO. Refer to the table above for the Board's composition. The Board was elected for the period up to the 2015 AGM. HEXPOL's CFO participates in Board meetings. On request, other HEXPOL employees attend Board meetings to present certain specific issues.

The Board's assessment of its members' independence in relation to the company, its management and major shareholders, which is shared with that of the Nomination Committee, is presented in the table above. According to the requirements presented in the Code, the majority of the Board members elected by the AGM shall be independent in relation to the company and its management, and at least two of the Board members shall also be independent in relation to the company's major shareholders. As shown in the table, HEXPOL meets these requirements. Members can be reached at the address of HEXPOL's head office.

Responsibilities of the Board of Directors

The Board is responsible for determining the Group's overall objectives, developing and monitoring the general strategy, decisions on major acquisitions, divestments and investments and ongoing monitoring of operations during the year. The Board is also responsible for ongoing evaluation of management and for ensuring that there are effective systems for monitoring and internal control of the company's operations and its financial position, and for the Group's organisation and management pursuant to the Swedish Companies Act. The Board also appoints the President and CEO. the Audit Committee and Remuneration Committee, as well as deciding on matters involving the salary and other remuneration of the President and CEO. The activities of the Board and division of responsibility between the Board and executive management are governed by the Board's work procedures. Work procedures include instructions for the President and CEO in respect of financial reporting as well as instructions for the Audit Committee and Remuneration Committee. These are reviewed and set annually.

Board committees

The Board has established two committees from among its members: the Audit Committee and Remuneration Committee. The Board's Audit Committee, which, on behalf of the Board, has the task of preparing matters involving the procurement of auditing services and auditing fees, monitoring the work of the auditors and the company's internal control system, as well as the current risk profile, following up external auditing and the company's financial information and other issues that the

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Board activities in 2014

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AUDITORS

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CEO AND GROUP MANAGEMENT

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the Swedish Companies Act, other legislation and ordinances, applicable rules for listed companies, including the Code, the company's Articles of Association and the instructions and strategies established by the Board. The President/ CEO shall ensure that the Board receives unbiased, detailed and relevant information required to enable the Board to make well-founded decisions. In addition, the President and CEO is responsible for keeping the Board informed of the company's development between Board meetings.

The President and CEO has appointed a Group Management consisting of the Chief Financial Officer (CFO) and the company's business and product area managers. Group Management has overriding responsibility for the Group's operations and the allocation of financial resources among business operations and for the financing and capital structure. Regular Group Management and Steering Committee meetings serve as the forum for the implementation of the Group Management's overall governance down to each business and product area, and, in turn, down to the subsidiary level. The organisation is structured to facilitate short and prompt decision-making processes, with clear, decentralised responsibility. Group Management is presented on page 112, in terms of descriptions of their employment period at HEXPOL, educational background, year of birth, shareholding, etc.

INFORMATION ON REMUNERATION

Refer to Note 3 on pages 97-98 for information on remuneration, pensions and other benefits for the Board, President and other senior executives.

FINANCIAL REPORTING

HEXPOL provides continuous market information concerning the company's progress and financial position. HEXPOL aims to be open, factual and provide a high degree of service in terms of financial reporting in an effort to build market confidence in the company and enhance interest in the HEXPOL share among current and potential investors.

The company's prevailing information policy is reviewed annually. The policy complies with the information requirements imposed by the stock market and is designed to conform to the recommendations of the NASDAQ OMX Nordic exchange as a supplement to the rules for issuers. The information policy deals with such issues as who should represent the company as spokesperson; who should decide what is price-sensitive information; how share price-sensitive information should be managed; and the information content and communications methods in relation to players in the financial market. HEXPOL regularly discloses financial information in Swedish and English in the form of interim reports, annual reports, press releases and news and share price-sensitive events. The company's website provides information on HEXPOL's progress, other information for the stock market as well as other key data.

The company's systems for internal control pertaining to financial reporting for the 2014 financial year

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Financial reports

Consolidated income statements

MSEK	Note	2014	2013
Sales	1	8,919	8,036
Cost of goods sold		-6,984	-6,370
Gross profit		1,935	1,666

Sales costs		-118	-112
Administration costs		-330	-266
Research and development costs		-64	-55
Other income and expenses		33	22
Operating profit	1,3,4,7,8	1,456	1,255

Financial income	5	9	17
Financial expenses	5	-29	-36
Profit before tax		1,436	1,236

Tax	6	-388	-306
Profit after tax		1,048	930
of which, attributable to Parent Company shareholders		1,048	930

		2014	2013

Earnings per share, SEK Average number of shares before and after dilution, thousands		30.45 34,420	27.02 34,420

Consolidated statement of comprehensive income

MSEK	2014	2013
Profit after tax	1,048	930
Items that will not be re-classified to the income statement Re-measurement of defined benefit pension plans Income tax relating to items that will not be	0	-3
re-classified to the income statement	0	1
Items that may be re-classified to the income statement
Cash-flow hedges	0	0
Hedge of net investment	-143	1
Income tax relating to items that may be
re-classified to the income statement	32	0
Translation difference	805	-14
Comprehensive income	1,742	915
of which, attributable to the Parent Company's shareholders	1,742	915

Consolidated balance sheets

MSEK	Note	2014	2013
ASSETS
Fixed assets
Intangible fixed assets	7	3,364	2,730
Tangible fixed assets	8	1,427	1,186
Financial fixed assets		1	0
Deferred tax assets	6	40	30
Total fixed assets		4,832	3,946

Current assets
Inventories	9	580	488
Accounts receivable	10	945	725
Current tax receivables		55	70
Other current receivables		21	30
Prepaid expenses and accrued income		25	22
Cash and cash equivalents		826	597
Total current assets		2,452	1,932

TOTAL ASSETS		7,284	5,878

SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
Share capital		69	69
Other capital contributions		598	598
Reserves		586	-108
Profit brought forward		2,748	2,128
Profit for the year		1,048	930
Total equity attributable to parent company's shareholders	11	5,049	3,617
Attributable to non-controlling interests		0	0
Total shareholders' equity		5,049	3,617

Non-current liabilities
Interest-bearing liabilities	12	219	928
Deferred tax liabilities	6	240	191
Pension provisions	13	20	17
Total non-current liabilities		479	1,136

Current liabilities
Interest-bearing current liabilities	12	348	34
Accounts payable		1,017	775
Current tax liabilities		32	49
Other current liabilities		28	18
Other provisions	14	29	0
Accrued expenses and deferred income	15	302	249
Total current liabilities		1,756	1,125

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES		7,284	5,878
Pledged assets	16	5	5
Contingent liabilities	16	0	0

Consolidated changes in shareholders' equity

	Attributable to Parent Company shareholders
	Share	Other capital		Profit brought
MSEK	capital	contributions	Reserves	forward	Total
Per December 31 2012	69	598	-93	2,335	2,909
2013
Total comprehensive income
Profit after tax	-	-	-	930	930
Other comprehensive income	-	-	-15	-	-15
Total comprehensive income	-	-	-15	930	915
Transactions with shareholders
Dividend	-	-	-	-207	-207
Per December 31 2013	69	598	-108	3,058	3,617
2014
Total comprehensive income
Profit after tax	-	-	-	1,048	1,048
Other comprehensive income	-	-	694	-	694
Total comprehensive income	-	-	694	1,048	1,742
Transactions with shareholders
Dividend	-	-	-	-310	-310
Per December 31 2014	69	598	586	3,796	5,049

Consolidated cash flow statements

Cash flow from operating activities 17 Operating profit 1,456 1,255 Adjustment for non-cash items 166 156 Net financial items -21 -38 Tax paid -341 -293 Cash flow from operations before changes in working capital 1,260 1,080 Cash flow from changes in operating capital Changes in operating receivables 28 8 Changes in operating liabilities 144 135 Non-recurring items 0 0 Cash flow from operations 1,432 1,223 Investing operations Investments in tangible fixed assets -127 -142 Sales of tangible fixed assets 11 9 Investments in intangible fixed assets -2 -3 Acquisition of business combinations 20 -413 -3 Cash flow from investing activities -531 -139 Financing activities Loans raised 105 1,996 Amortisation of liabilities -572 -2,849 Dividend -310 -207 Cash flow from financing activities -777 -1,060 Cash flow for the year 124 24 Cash and cash equivalents at January 1 597 564	MSEK	Note	2014	2013

























Exchange-rate differences in cash and cash equivalents 105 9
Cash and cash equivalents at December 31 826 597

Operating cash flow, Group

MSEK	2014	2013
Operating profit	1,456	1,255
Depreciation/amortisation/impairment	166	156
Change in working capital	172	143
Sales of tangible fixed assets	11	9
Investments	-129	-145
Operating cash flow	1,676	1,418

Accounting policies

HEXPOL's consolidated accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the EU.

Furthermore, recommendation RFR 1, Supplementary accounting rules for corporate groups, issued by the Swedish Financial Reporting Board has been applied.

The Parent Company applies the Annual Accounts Act and RFR 2, Accounting for legal entities, as issued by the Swedish Financial Reporting Board. This means that the Parent Company applies the same accounting policies as the Group, except as outlined on page 96.

The applied accounting policies correspond to those applied in the preceding year.

During the year, the Group introduced the following new and amended accounting standards with effect from 1 January 2014:

New:

· IFRS 10 Consolidated Financial Statements
· IFRS 11 Joint Arrangements
· IFRS 12 Disclosure of Interests in Other Entities

Amended:

· IAS 27 Consolidated and Separate Financial Statements
· IAS 32 Financial Instruments: Presentation
· IAS 36 Impairment of Assets
· IAS 39 Financial Instruments: Recognition and Measurement

None of these new or revised accounting standards that entered into force in 2014 have had any significant impact on the Group.

New standards (IFRS 9, IFRS 14, IFRS 15, IFRIC 21) and amended standards (IFRS 10, IFRS 11, IAS 16, IAS 19, IAS 27), which have been decided to apply as of the 2015 calendar year or later, are not deemed to have any material impact on consolidated financial statements beyond what is specified below.

IFRS 9 - Financial Instruments addresses the classification, measurement and recognition of financial assets and liabilities. The standard is effective for fiscal year beginning January 1, 2018. Earlier application is permitted. IFRS 9 has not yet been approved by the EU. The Group has not yet assessed the impact of the introduction of the standard.

IFRS 15 - Revenue from Contracts with Customers regulates the recognition of revenues. The principles IFRS 15 builds on will provide users of financial statements more useful information about the company's revenues. IFRS 15 enter into force on January 1, 2017. Earlier application is permitted. IFRS 15 is not yet approved by the EU. The Group has not yet assessed the impact of the introduction of the standard.

BASIS OF REPORTING FOR THE PARENT COMPANY AND THE GROUP, INCLUDING CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

The functional currency of the Parent Company is Swedish kronor (SEK), as is the reporting currency for the Parent Company and the Group.

Assets and liabilities are reported at historical cost with the exception of certain financial instruments (derivatives), which are reported at fair value.

Board of Directors and corporate management carry out accounting estimates and assumptions that affect the application of the accounting policies and the reported figures for assets, liabilities, revenues and expenses. These estimates are based on historical experiences and the different assumptions believed to be reasonable under current circumstances. The actual outcome could deviate from these accounting estimates. Certain accounting matters involving such estimates and assumptions, which may have significant impact on the Group's earnings and financial positions, such as assessment of the present value of forecasted cash flows in the analysis of possible impairment of goodwill, calculation of deferred tax assets and liabilities, calculation of provisions for restructuring measures, the outcome of legal disputes and contingent liabilities.

CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements consolidate the Parent Company and the other companies in which the Parent Company has a direct or indirect controlling influence. The consolidated financial statements have been prepared in accordance with the purchase method, which means that the Parent Company's acquisition value of shares in subsidiaries is eliminated against subsidiaries' shareholders' equity at the time of acquisition. The shareholders' equity of acquired subsidiaries is determined on the basis of a measurement of the fair value of assets and liabilities at the time of acquisition including those not reported earlier by the acquired company.

In those cases where the acquisition value of shares in subsidiaries exceeds the acquired shareholders' equity as stated above, the discrepancy is accounted as goodwill in the balance sheet. If the acquisition value is less than the fair value of the acquired net assets, the difference is recognised directly in profit and loss.

Acquisitions of non-controlling interests are reported as transactions within equity. Acquisitionrelated costs are expensed when they occur.

Impairment testing of goodwill is conducted annually or more frequently if there is an indication of a value decline.

Divested companies are consolidated up to their date of time when HEXPOL's controlling interest over them ceases, while acquired companies are consolidated from the time of acquisition onwards, meaning from the time when a controlling interest was attained.

The current method is used for the translation of foreign subsidiaries, meaning that balance sheets are translated from the subsidiaries' functional currency to the Group's reporting currency, which is SEK, at the exchange rate prevailing on the balance-sheet date. The subsidiaries' income statements are translated to SEK at average exchange rates, which represent an approximation of the exchange rates prevailing at the various transaction dates. The resulting translation differences are recognised in other comprehensive income. The value of the net assets of foreign subsidiaries, including goodwill and other intangible assets, is partly hedged, mainly through foreign-currency loans.

In the consolidated financial statements, the after-tax effects of hedging activities offset the resulting translation differences that were recognised in other comprehensive income regarding the foreign subsidiaries.

The Group has lending in foreign currency to certain subsidiaries, in which the loans represent an enduring portion of the Parent Company's financing of these companies. These loans are recognised at the exchange rate prevailing on the balance-sheet date, whereby the exchange-rate differences on the loans are recognised in other comprehensive income.

Intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated.

ASSOCIATED COMPANIES

The equity method is applied for associated companies. Associated companies are those companies over which the Parent Company, directly or indirectly, has a significant influence but non-controlled. Any differences between the acquisition value and equity value at the time of acquisition are termed goodwill, and are included in the acquisition value.

In the consolidated balance sheet, holdings in associated companies are recognised at acquisition value adjusted for dividends, shares in earnings/losses during the holding period and any impairment losses on goodwill.

The consolidated income statement includes shares in associated companies' earnings after elimination of any inter-company gains. Associated company taxes are included in the Group's tax expenses. At the close of every reporting period, the carrying amounts for associated companies, including implicit goodwill values, are impairment tested.

TRANSACTION WITH RELATED PARTIES

Group's transactions with related parties relates to purchases from associated companies. Pricing occurs at market price and condition, refer to Note 2. In addition, remuneration to Board of Directors and senior executives, refer to Note 3.

SEGMENT REPORTING

An operating segment is the part of the Group that engages in business activities from which it may earn revenues and incur expenses and for which separate financial information is available. For the HEXPOL Group, lines of business (business areas) represent the basis of division into operating segments. Segment information is presented in accordance with IFRS 8 for the Group. Segment earnings, assets and liabilities include items directly attributable items and items that can be allocated to the segment on a reasonable basis. Unallocated items comprise interest and dividend income, gains/losses on disposal of financial investments, interest expense and income taxes. Assets and liabilities that are not allocated to the reportable segments are tax assets and liabilities, financial investments and financial liabilities. Internal billings between business areas occur at market value.

REVENUF

HEXPOL applies the following principles for revenue recognition:

Sale of goods

Revenues from sales of goods are recognised when all the following conditions are satisfied: The company has transferred the essential risks and benefits associated with the ownership of the goods to the buyer. The company does not retain any commitment in ongoing management usually associated with ownership, and nor does the company exert any actual control over the goods that have been sold. Revenues can be reliably calculated. It is likely that the financial benefits for the seller that are associated with the transaction will arise for the seller. The expenditure that has arisen or is expected to arise as a consequence of the transaction can be reliably calculated.

Interest income

Interest income is recognised following accrual over the maturity periods, applying the effectiveinterest-rate method.

RESFARCH AND DEVELOPMENT EXPENDITURE

Expenditure for research is expensed as incurred, while expenditure for development is capitalised as follows:

Capitalisation of development expenses in the Group are only applied to new products where significant development costs are involved, where the products have a probable earnings potential that could accrue to the Group and the costs are clearly distinguishable from ongoing product development expenditure.

I FASING

The Group has entered into both capital and operational leases. The agreements are classified in accordance with their financial implication when they were entered into. Capital leases are not material. For operational leases, the lease payments are expensed straight-line over the lease period according to the main rule. For capital leases the leased asset is carried on the balance sheet with a corresponding liability for future lease payments. The leased asset is depreciated over the same period as for assets of the same kind owned by the Group. Interest expense on the liability is recognised as a Financial expense.

FINANCIAL INSTRUMENTS

Financial instruments that are recognised in the balance sheet include cash and cash equivalents, accounts receivable, other financial receivables, accounts payable, loans payable and derivative. Financial instruments are initially recognised at acquisition value and subsequently at fair value or accrued acquisition value depending on their classification. Financial assets and liabilities are recognised in, and deducted from, the balance sheet applying settlement-date accounting. Accrued acquisition value is calculated based on the determined effective interest rate on the date of acquisition.

Financial assets and liabilities are classified as one of the following categories:

Financial assets and liabilities recognised at fair value through profit and loss.

Financial derivative instruments recognised at fair value with changes in value in profit and loss, except when the derivative fulfils the all the criteria for cash-flow hedging, in which case the change in value is recognised in other comprehensive income on the date that the hedged item is recognised. When establishing fair value, official market listings on the balance-sheet date are used.

Loans and accounts receivables

Receivables are recognised at the amount expected to be received on a case-by-case basis. The credit risk is evaluated individually based on the specific customer's ability to pay. Impairment losses for accounts receivable are recognised in operating expenses.

Cash and cash equivalents

Cash and cash equivalents comprise liquid funds and credit balances at banks and similar institutions, within a maturity date of three months from the date of acquisition.

Other financial liabilities

Financial liabilities are mainly measured at accrued acquisition value, applying the effectiveinterest-rate method. Accounts payable are recognised at accrued acquisition value.

HEDGE ACCOUNTING

Balances and transactions are hedged, and hedge accounting is applied if the hedging actions taken have the stated objective of constituting a hedge, have a direct correlation to the hedged item and effectively hedge the item. An effective hedge generates financial effects that offset those that arise through the hedged position. When hedging fair value, the change in the fair value of the hedging instrument is recognised in the income statement together with the change in the value of the liability or asset to which the risk hedging applies.

RECEIVABLES AND LIABILITIES IN FOREIGN CURRENCY

Foreign-currency receivables and liabilities are recognised at the exchange rates prevailing on the balance-sheet date. The exchange-rate difference on current receivables and current liabilities is recognised in operating profit, while the exchange-rate difference on financial receivables and liabilities is recognised in net financial items.

BORROWING COSTS

Borrowing costs for qualified assets are included in the asset's acquisition value. Other borrowing costs are charged against earnings during the period to which they apply. Costs for raising loans are accrued over the maturity of the loan.

PENSION AND SIMILAR COMMITMENTS

HEXPOL predominantly has defined-contribution pension obligations. In addition, a few employees have defined-benefit pensions. Expenditure for defined-contribution plans are expensed as incurred. Expected expenditure under defined-benefit plans are recognised as a liability calculated in accordance with actuarial models. Pension expense for the year consists of pensions vested, interest expense during the period and, if applicable, accrued actuarial gains and losses. A

deduction is made for the yield on plan assets intended to cover the obligation. The net cost is recognised in the income statement. Obligations related to defined-benefit plans are recognised net in the balance sheet, meaning after a deduction of the value of any plan assets.

Defined-benefit plans for which the insurer (Alecta in Sweden) cannot specify the Group's share of the total plan assets and, pending this information becoming available, pension obligations are recognised as defined-contribution plans. At 31 December 2014, Alecta's surplus in the form of the collective consolidation level was 144 percent (148).

PROVISIONS

The Group recognises provisions when the Group has a legal or informal undertaking as a result of the occurrence of an event and it is likely that an outflow of resources will be required to settle the undertaking and a reliable estimate can be made of the amount. A provision for restructuring is recognised when a detailed formal action plan has been established and expectations have been created among those who will be affected by the actions.

INCOME TAX

Income tax expenses for the year consist of current and deferred tax, and shares in the tax of associated companies. Tax is recognised in the income statement, except when the tax relates to items recognised in other comprehensive income or directly in equity. In such cases the tax is also recognised in other comprehensive income and equity.

Income taxes comprise: Current tax, meaning the tax calculated on taxable earnings for the period, and adjustments regarding prior periods.

Deferred tax represents tax on temporary differences arising between the value of assets and liabilities for tax purposes and their carrying amount in the consolidated financial statements, deductible loss carry-forwards and other tax deductions. Deferred tax is also recognised for transactions included in other comprehensive income and shareholders' equity. Deferred tax is calculated applying tax rates that have been decided or announced on the balance-sheet date. Temporary differences on shares in subsidiaries are not recognised because it is not probable that these will be utilised in the foreseeable future. Deferred tax assets are recognised insofar as it is probable that future taxable surpluses will be available to offset them against.

INVENTORIES

Inventories are valued according to the lowestvalue principle, meaning at the lower of acquisition value and net realisable value at the balance sheet date. The acquisition value is measured in accordance with the first-in firstout principle. For manufactured goods, the acquisition value comprises the cost of raw materials, direct payroll costs, other direct costs and a portion of indirect manufacturing costs.

Net realisable value comprises the selling price less variable selling costs.

Market terms are applied for intra-Group transactions.

GOODWILL

Goodwill comprises the difference between the acquisition cost and the fair value of the identified net assets of the acquired company on the date of acquisition. Acquisitions of less than 100 percent of an operation are considered on a case-by-case basis to determine whether full goodwill or partial goodwill is to be applied.

TANGIBLE AND OTHER INTANGIBLE FIXED ASSETS

Tangible and other intangible fixed assets are recognised at acquisition value less accumulated depreciation/amortisation according to plan and any impairment losses.

DEPRECIATION/AMORTISATION ACCORDING TO PLAN

Depreciation/amortisation according to plan is performed on a straight-line basis, or alternatively on the basis of the utilisation rate in connection with the start-up of new facilities, and is calculated on the depreciable amount (acquisition cost less estimated residual value) and is based on the useful life of the asset. Useful life and residual value are revised on a continuous basis.

The following depreciation/amortisation according to plan is applied:

Development work	3-10 years
Patents and trademarks	20 years
Other intangible assets	3-15 vears
IT equipment	3-8 years
Machinery and equipment	3-15 vears
Office buildings	20-50 years
Industrial buildings	20-50 years
Other buildings	25 years
Land improvements	5-30 vears

IMPAIRMENT LOSSES

Goodwill is analysed on an annual basis with regard to any impairment requirements. Other assets are analysed for indications of impairment requirements, meaning whether the recognised value of an asset exceeds its recoverable amount. The recoverable value is the higher of the asset's net realisable value and the value in use, meaning the discounted present value of future cash flows. Previous impairment losses are reversed insofar as impairment is no longer warranted, although goodwill impairments are never reversed.

The basic assumption used to determine whether or not there is an impairment requirement is as follows: When calculating the present value of future cash flows, a cost of capital of 10.5 percent (11.0) before tax has been applied. In the calculation of WACC, the fact that the operations are financed by means of loans and shareholders' equity has been taken into account. The cost of shareholders' equity is based on expectations regarding a certain return on invested capital in the financial market. The cost of borrowed capital is based on borrowing costs in the financial market. Specific risks are included in the calculation by applying individual beta values and these are updated annually based on available market data. The calculation is based on an internal assessment of the next five years. The definition of cash-generating units complies with the Group's organisation and comprises the Group's two business areas. According to the calculations, there is no impairment requirement.

ACCOUNTING POLICIES IN THE PARENT COMPANY

The Parent Company applies the same accounting policies as the Group with the following exceptions:

· The Parent Company does not apply IAS 39.
· In accordance with RFR 2, Group contributions are recognised as financial income, in accordance with the main rule.
· In the Parent Company, shares in Group companies are recognised at acquisition value before any impairment losses.
· The Parent Company applies hedge accounting, in accordance with RFR 2, in terms of loans in foreign currencies intended to effectively hedge assets in subsidiaries denominated in corresponding currencies. Accordingly, changes in exchange rates are not recognised for such loans.

Notes of the Group

Note 1 Segment reporting

Information about operating segments

The Group's operations are reported in two business areas: HEXPOL Compounding and HEXPOL Engineered Products.

HEXPOL Compounding manufactures advanced polymer compounds. HEXPOL Engineered Products manufactures gaskets for plate heat exchangers, forklift wheels and castor wheel applications.

Assets and liabilities included in each business area pertain to operating assets, such as accounts receivables, inventories, other receivables, tangible and intangible fixed assets, as well as accrued income, and operating liabilities, such as accounts payable, other liabilities, other provisions and accrued expenses. Unallocated assets and liabilities relates to cash and cash equivalents, taxes and loans are not reported by business areas. No individual customer accounts for more than 10 perpercent of the Group's sales.

		HEXPOL	HEXPOL
		Compounding	Engineered Products		Group
MSEK	2014	2013	2014	2013	2014	2013

Sales, external		8,198 7,345	721	691		8,919 8,036
Operating profit		1,364 1,177	92	78		1,456 1,255
Operating margin, %	16.6	16.0	12.8	11.3	16.3	15.6
Net financial items					-20	-19
Tax					-388	-306
Profit for the year					1,048	930
Operating assets		5,918 4,754	444	427		6,362 5,181
Unallocated assets	-	-	-	-	922	697
Group Total		5,918 4,754	444	427		7,284 5,878
Operating liabilities	1,279	951	98	91		1,377 1,042
Unallocated liabilities	-	-	-	-		858 1,219
Group Total	1,279	951	98	91		2,235 2,261
Investments	101	109	28	36	129	145
Depreciation/amortisation	125	132	25	24	150	156

Sales per
Geographic markets		recipient country		Operating capital
MSEK	2014	2013	2014	2013

Europe		2,731 2,523		1,443 1,336
NAFTA		5,677 5,083		3,095 2,406
Asia	511	430	447	397
Total		8,919 8,036		4,985 4,139

Note 2 Related-party transactions

Transactions between Group companies occur on market-based conditions.

In 2014, the Group purchased energy for 11 MSEK (13) from the associated company, Megufo AB, in Sweden.

On 31 December 2014, the Group had a liability of 1 MSEK (1) to this associated company.

Note 3 Employees and personnel costs

Costs for remuneration of employees
MSEK		2014	2013
Salaries and remuneration, etc.	882	752
Total				882	752
To the Board and Presidents,					71
of which bonus and similar items				33	24
Pension costs	17	17
Social-security costs				126	125
Total				143	142

Average number		of whom		of whom
of employees	2014	men		2013	men
Sweden	310	63%		320	61%
Belgium	65	83%		58	83%
Czech Republic	102	94%		98	95%
Germany	183	91%		166	90%
Mexico	218	87%		210	87%
Luxembourg	3	67%		3	67%
USA	1,173	89%		1,160	89%
China	293	62%		291	60%
Sri Lanka	1,034	95%		1,016	96%
UK	97	85%		89	88%
Spain	15	93%		-	-
Total	3,493	86%		3,411	86%

Personnel costs per country
MSEK	2014	2013
Sweden	220	203
Belgium	42	37
Czech Republic	20	18
Germany	79	68
Mexico	29	26
Luxembourg	11	12
USA	517	446
China	32	27
Sri Lanka	33	29
UK	37	28
Spain	5	-
Total	1,025	894

Remuneration of the Board of Directors

		Board fee Commitee fee			Total
TSEK	2014	2013	2014	2013	2014	2013
Melker Schörling, chairman	575	500	75	75	650	575
Alf Göransson	285	250			285	250
Jan-Anders E. Månson	285	250			285	250
Malin Persson	285	250	100	75	385	325
Märta Schörling	285	-			285	-
Ulrik Svensson	285	250	250	200	535	450
Total		2,000 1,500	425	350	2,425 1,850

Remuneration of senior executives							Car, housing and
	Basic salary			Variable salary Pension costs			other benefits		Total
TSEK	2014	2013	2014	2013	2014	2013	2014	2013	2014	2013
Georg Brunstam, President and CEO	7,700	5,819	6,664	5,939	3,024	2,373	1,275	645	18,663 14,776
Other members of Group management, 6 persons (6) 16,708 14,506				12,614 13,535	2,049	1,885	860	1,090	32,231 31,016
Total		24,408 20,325		19,278 19,474	5,073	4,258	2,135	1,735		50,894 45,792

Principles for remuneration of the Board and senior executives

Remuneration is paid to the Board of Directors in accordance with resolutions from the Annual General Meeting.

The Remuneration Committee submits proposals to the Board of Directors for remuneration of the President and other senior executives. Remuneration of the President and other senior executives comprises basic salary, variable remuneration, other benefits and pension. The variable remuneration is based on earnings, earnings per share and the return on capital employed.

Between the company and President, the President is entitled to employment termination notice of six months. If employment termination is initiated by the company, the period of notice is 24 months. For other senior executives, the period of notice is six months and from the company the norm is 12 months. There are no agreements concerning severance pay and there are no outstanding pension obligations.

Note 4 Fees and cost remuneration paid to auditors Note 5 Financial income and expenses

MSEK	2014	2013
EY
Audit assignment	4	5
Audit activities in addition to audit assignment	1	1
Tax consultancy	1	0
Other services	0	0
Other auditors
Audit assignment	0	1
Tax consultancy	0	1
Other services	0	0
Total	6	8

MSEK	2014	2013
Interest income	2	4
Exchange rate gains	7	13
Other financial income	0	0
Financial income	9	17

Interest expense	-20	-24
Exchange rate loss	-4	-8
Other financial expenses	-5	-4
Financial expense	-29	-36

Net financial expense	-20	-19

Note 6 Taxes

MSEK	2014	2013
Current tax expense
Tax expense on profit for the year	-347	-287
Total	-347	-287

Deferred tax expense
Deferred tax pertaining to temporary differences	-38	-22
Utilised/revaluation of loss carryforwards	-3	3
Total	-41	-19

Total recognised tax expense	-388	-306

At 31 December 2014, the Group had loss carryforwards of 76 MSEK (86) that had not been capitalised due to uncertainty concerning their value for tax purposes. Of the total, 61 MSEK (60) expires within five years.

Reconciliation of effective tax

MSEK	2014	%	2013	%
Profit before tax	1,436		1,236
Tax according to applicable tax rate for the parent Company	-316	-22	-272	-22
Effect of other tax rates for foreign subsidiaries	-70	-5	-55	-4
Non-deductible expenses	-2	0	-1	0
Non-taxable income	3	0	0	0
Deductible goodwill amortisation	6	0	6	0
Revaluation of tax-loss carry-forwards/temporary differences	-9	-1	-3	0
Tax attributable to prior years	0	0	19	1
Total reported tax expense	-388	-27	-306	-25

Deferred tax assets/liabilities		Opening Recognised			Recognised directly in Translation					Closing
		balance		in profit/loss		Acquisitions		comprehensive income differences				balance
MSEK	2014	2013	2014	2013	2014	2013	2014	2013	2014	2013	2014	2013

Intangible assets	-90	-69	-26	-20	-	-	-	-	-22	-1	-138	-90
Tangible assets	-92	-88	-3	-20	-	16	-	-	-8	0	-103	-92
Current assets	17	12	-10	6	-	-	-	-	-1	-1	6	17
Operating liabilities	6	-6	1	12	-	-	-	1	2	-1	9	6
Loss carryforwards	3	0	-3	3	-	0	-	-	0	0	0	3
Liabilities	-5	-5	0	0	-	-	32	-1	-1	1	26	-5
Other	0	0	0	0	-	-	-	-	-	-	0	0
Total	-161	-156	-41	-19	-	16	32	0	-30	-2	-200	-161

Note 7 Intangible fixed assets

				Other intangible
Accumulated acquisition value		Goodwill	assets		Total		Goodwill distributed by operating segment
MSEK	2014	2013	2014	2013	2014	2013	MSEK	2014	2013
Opening balance on January 1	2,633	2,615	159	161		2,792 2,776	HEXPOL Compounding	3,215 2,599
Acquisitions	213	22	6	-6	219	16	HEXPOL Enginereed Products	27	23
Investments	-	-	2	3	2	3	Closing balance, December 31		3,242 2,622
Translation difference	407	-4	27	1	434	-3
Closing balance, December 31		3,253 2,633	194	159		3,447 2,792
Accumulated amortisation
Opening balance on January 1	-11	-11	-51	-47	-62	-58
Acquisitions	-	-	-1	8	-1	8
Amortisation according to plan for the year	-	-	-11	-12	-11	-12
Translation differences	-	-	-9	0	-9	0
Closing balance, December 31	-11	-11	-72	-51	-83	-62

Carrying amount, December 31		3,242 2,622	122	108	3,364 2,730

Other intangible assets pertain to mainly acquired customer relations and remaining amortisation period is between 11 and 14 years.

Goodwill and other assets are impairment tested annually or more frequently if there is an indication of a value decline. Such testing is based on the Group's cashgenerating units, which are the Group's two business areas. The recoverable value is the higher of the asset's net realisable value and the value in use, meaning the discounted present value of future cash flows.

When calculating the present value of future cash flows, a cost of capital (WACC) of 10.5 percent before tax (11.0) has been used for both operating segments, since the risk profile is considered to be similar. In the calculation of WACC, the fact that the operations are financed by means of loans and shareholders' equity has been taken into account. The cost of shareholders' equity is based on expectations regarding a certain return on invested capital in the financial market. The cost of borrowed capital is based on borrowing costs in the financial market. Specific risks are included in the calculation by applying individual beta values and these are updated annually based on available market data. The calculation is based on an internal estimation of the three years ahead, followed by assumed annual growth of 2 percent (2). According to the calculations, there is no impairment requirement. A sensitivity analysis shows that a 50-percent decrease in sustainable growth, an increase in WACC by 2 percentage points and a decline in sustainable profitability (EBITDA) by 2 percentage points would still not result in the need for impairment in any operating segment.

Note 8 Tangible fixed assets and Operational leasing

Operational leasing
Non-cancellable leasing payments amount to
MSEK	2014	2013
Within one year	31	24
Between one and five years	50	37
Longer than five years	15	13
Total	96	74

Leasing expenses
MSEK	2014	2013
Minimum leasing fees	33	25
Total	33	25

The Group's operational leasing agreement primarily includes cars, facilities, forklifts and office equipment.

primarily includes cars, facilities, forklifts and
office equipment.

Distribution of depreciation/amortisation of
tangible and intangible assets for the year
MSEK	2014	2013	Accumulated impairment
Costs of goods sold	140	144
Selling costs	0	0
Administration costs	8	10
Product development costs	2	2
Other	16	0
Total 166 156

Tangible fixed assets	Land			Machinery and
MSEK		and buildings		equipment		Total
	2014	2013	2014	2013	2014	2013
Accumulated acquisition value
Opening balance on January 1	644	648		2,020 1,992		2,664 2,640
Investments	12	4	115	138	127	142
Acquisitions	22	-12	216	-36	238	-48
Divestments, disposals	-7	-6	-37	-70	-44	-76
Reclassification	0	6	0	-6	0	0
Translation difference	83	4	305	2	388	6
Closing balance, December 31	754	644		2,619 2,020		3,373 2,664

Accumulated depreciation value
Opening balance on 1 January	-210	-189		-1,268 -1 224	-1,478 -1,413
Acquisitions	0	0	-138	11	-138	11
Depreciation according to plan for the year	-24	-23	-115	-121	-139	-144
Divestments, disposals	2	3	31	65	33	68
Translation difference	-24	-1	-184	1	-208	0
Closing balance, December 31	256	-210		-1,674 -1 268		-1,930 -1,478
Accumulated impairment

Opening balance on 1 January	0	0	0	0	0	0
Impairment	-4	0	-12	0	-16	0
Translation difference	0	0	0	0	0	0
Closing balance, December 31	-4	0	-12	0	-16	0

Carrying amount	494	434	933	752		1,427 1 186

Note 9 Inventories Note 10 Accounts receivables

MSEK	2014	2013
Raw materials	372	322
Goods in production	29	23
Finished goods	179	143
Total	580	488

Age distribution of accounts receivables			Provisions for bad debt losses
MSEK	2014	2013	MSEK	2014	2013
Not due	885	654	Opening balance	-52	-51
Past due, 1–60 days	60	71	Provision for the year	-2	-2
Past due, more than 60 days	0	0	Acquisitions	0	0
Accounts receivable	945	725	Actual losses	1	1
			Closing balance	-53	-52

No significant impairments have been made during the year.

Note 11 Shareholders' equity

			Total
2014	2013	2014	2013


	2013 1,476,562 1,476,562		32,943,566 32,943,566 34,420,128 34,420,128 32,943,566 32,943,566 34,420,128 34,420,128

	2014	2013	Class A shares	Class B shares	Total
Average number of shares		34,420,128 34,420,128	Number of votes 14,765,620 32,943,566 47,709,186

Each Class A share entitles the holder to ten votes and each Class B share to one vote.

Note 12 Interest-bearing liabilities

Non-current liabilities		Loans	2014		2013
MSEK	2014	2013	MSEK		Utilised Unutilised		Utilised Unutilised
Liabilities to credit institutions	219	928	Bilateral loan, 750 MSEK	219	531	473	277
Non-current liabilities	219	928	Bilateral loan, 125 MUSD	-	976	26	788
			Bilateral loan, 100 MUSD	-	-	429	222
Current liabilities			Total non-current liabilities	219		928
MSEK
			Bilateral loan, 100 MUSD	312	469	-	-
Liabilities to credit institutions	348	34	Other	36	0	34	0
Other liabilities	0	0
Current liabilities	348	34	Total current liabilities	348		34

The Group has the following three credit agreements with Nordic banks:

A three-year credit agreement with a limit of 750 MSEK that will fall due in February 2016. The loan was raised in SEK and EUR.
A five-year credit agreement with a limit of 125 MUSD that will fall due in February 2018. The loan was raised in USD.
A five-year credit agreement with a limit of 100 MUSD that will fall due in October 2015. The loan was raised in USD.

All loans are amortisation free and carry floating interest. All bilateral credit agreements include financial covenants, all of which were fulfilled at 31 December 2014. HEXPOL had no interest-bearing or currency derivatives at 31 December 2014 involving external borrowing.

Note 13 Pension provisions

MSEK	2014	2013
Provisions for pensions	20	17
Total	20	17

Change in provisions
MSEK	2014	2013
Opening balance on January 1	17	13
Adjustment according to the revised IAS 19	-	3
Provisions for the year	3	1
Closing balance on December 31	20	17

The Group has pension provisions in a Swedish subsidiary and in subsidiaries in Sri Lanka. The revised IAS 19, Employee Benefits, started to be applied on 1 January 2013 and entailed an increase of 3 MSEK in pension liabilities. Adjusted for this change, the closing balance on 31 December 2013 totals 17 MSEK.

Note 14 Other provisions

2014	2013
0	0
27	0
0	0
2	0
29	0

Other provisions relate to, among others, integration and restructuring costs related to the acquisition of Vigar including costs for the planned closure of the German factory in Viersen.

Note 15 Accrued expenses and deferred income

MSEK	2014	2013
Personnel-related expenses	205	161
Accrued expenses goods and services	20	18
Other	77	70
Total	302	249

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Note 16 Pledged assets and contingent liabilities Note 17 Cash flow statement

Pledged assets
MSEK	2014	2013
Fixed assets	0	0
Current assets	5	5
Total	5	5

Contingent liabilities
Guarantee for the benefit of associated companies	0	0
Total	0	0

Financial items received and paid
MSEK	2014	2013
Financial income received	9	20
Financial expenses paid	-30	-58
Adjustments for non-cash items MSEK	2014	2013
Depreciation/amortisation
/impairment	166	156
Total	166	156

Note 18 Financial instruments and risk management

Information about carrying value MSEK	2014 Carrying value	2013 Carrying value
Assets
Financial assets measured at fair value through profit or loss
The Group's currency derivatives outstanding – commercial exposure	-	-
The Group's currency derivatives outstanding – financial exposure	0	0
Total	0	0
Loans and accounts receivables
Accounts receivable	945	725
Total	945	725

Cash and cash equivalents	826	597
Liabilities
Financial liabilities measured at fair value through profit and loss
The Group's currency derivatives outstanding – commercial exposure	0	0
The Group's currency derivatives outstanding – financial exposure	0	0
Total	0	0
Financial liabilities measured at accrued acquisition value
Non-current loans	219	928
Current loans	348	34
Total	567	962

Accounts payable	1,017	775

Derivative instruments outstanding for managing currency risks related to commercial assets and liabilities All forward contracts fall due within one year

Sell forward contracts outstanding at December 31 MSEK		2014 Nominal value		2013 Nominal value
Currency forward contracts	-		30
	2014 Nominal Average		2013 Nominal Average
Currency distribution	value	hedging rate	value	hedging rate
EUR/SEK	-	-	30	8.95

Derivative instruments outstanding for managing currency risks related to financial assets and liabilities The revaluation is recognized in the income statement.

Forward contracts outstanding at December 31 MSEK		2014 Nominal value	2013 Nominal value
Currency forward contracts	85		85
	2014			2013
	Nominal	Average	Nominal	Average
Currency distribution	value	hedging rate	value	hedging rate
CZK/SEK	85	0.35	85	0.33

Sell forward contracts outstanding at December 31 MSEK		2014 Nominal value	2013 Nominal value
Currency forward contracts	94		104

	2014		2013
	Nominal	Average	Nominal	Average
Currency distribution	value	hedging rate	value	hedging rate
GBP/SEK	94	12.12	104	10.77

Note 19 Quarterly data

	2014			2013
MSEK	Kv 4	Kv 3	Kv 2	Kv 1	Kv 4	Kv 3	Kv 2	Kv 1
Sales		2,331 2,312 2,145 2,131				1,923 2,039 2,060 2, 014
Operating profit	344	388	360	364	321	324	312	298
Profit after tax	248	280	258	262	254	232	228	216

Note 20 Acquisitions

In August 2014, the HEXPOL Group acquired the business in Kardoes Rubber Co. Frank Kardoes founded Kardoes Rubber in 1988 and the company is today a well-known producer of rubber compounds in the US market. Kardoes Rubber, with one manufacturing unit in LaFayette, Alabama, USA, had a turnover of 43 MUSD in 2013 and approximately 90 employees. The acquisition price amounted to 31,8 MUSD on a cash and debt free basis. Transaction cost amounted to 2 MSEK and has been taken as a cost in the income statement. The business was consolidated as of August 2014. The acquired net assets and goodwill are presented below. MSEK

Goodwill	113
Fair value of acquired net assets	-106
Purchase consideration	219

Goodwill is attributable to the strategic importance of the acquisition in terms of the increased breadth it adds to the HEXPOL Group's existing product offering. The acquisition generates synergy effects in the short and medium-terms, in the areas of purchasing, product development, sales and administration. The fair value of the acquired net assets is preliminary and may change during 2015. The following assets and liabilities were included in the acquisition:

MSEK

Cash and cash equivalents	0
Current assets	63
Tangible assets	58
Intangible assets	0
Deferred tax assets	0
Current liabilities	-15
Financial liabilities	0
Deferred tax liabilities	0
Acquired net assets	106

Goodwill	113
Total purchase consideration	219

Cash and cash equivalents in acquired operations 0 Change in the Group's cash and cash equivalents resulting from the acquisition 219 In August 2014, the HEXPOL Group acquired the business in Vigar Rubber Compounding. The company has more than 50 years' experience of rubber compounding and is today a well-known rubber compounder in the Spanish and German markets. Vigar Rubber Compounding with manufacturing units in Rubi, Spain and Viersen, Germany, had a turnover of 57 MEUR in 2013 and 134 employees (Spain 88, Germany 46). The acquisition price is estimated to approximately 17,5 MEUR on a cash and debt free basis including a non-exercised option to buy the real estate in Spain. Transaction- , integration-, and restructuring cost including a planned closure of the German manufacturing unit is estimated to 38 MSEK and has been taken as a cost in the income statement. The business was consolidated as of November 2014. The acquired net assets and goodwill are presented below.

MSEK

Goodwill	30
Fair value of acquired net assets	-80
Purchase consideration	110

Goodwill is attributable to the strategic importance of the acquisition in terms of the increased breadth it adds to the HEXPOL Group's existing product offering. The acquisition generates synergy effects in the short and medium-terms, in the areas of purchasing, product development, sales and administration. The fair value of the acquired net assets includes 5 MSEK for the estimated value of acquired customer relations. The fair value of the acquired net assets is preliminary and may change during 2015. The following assets and liabilities were included in the acquisition:

MSEK

Acquired net assets	80
Deferred tax liabilities	0
Financial liabilities	0
Current liabilities	-6
Deferred tax assets	0
Intangible assets	5
Tangible assets	39
Current assets	42
Cash and cash equivalents	0

Goodwill	30
Total purchase consideration	110

Cash and cash equivalents in acquired operations 0 Change in the Group's cash and cash equivalents resulting from the acquisition 110

Acquisition of Kardoes Rubber 2014 Acquisition of Vigar Rubber Compounding 2014 Acquisition of Portage Precision Polymers 2014

In December 2014, the HEXPOL Group acquired the business in Portage Precision Polymers. The company is today a well-known producer of rubber compounds in the US market. Portage Precision Polymers with two manufacturing units in Ohio (Ravenna and Mogadore), USA, and had a turnover of 29 MUSD in 2013. The Ravenna facility was not included in the transaction and its business will be transferred to other HEXPOL facilities. The acquisition price amounted to 13,2 MUSD on a cash and debt free basis of which 11,2 was paid at the time of the acquisition. A conditional part of the purchase price of maximum 2 MUSD will be paid 12 months after the acquisition if certain criteria are met. Transaction cost amounted to 1 MSEK and has been taken as a cost in the income statement. The business was consolidated as of December 2014.

MSEK

Goodwill	70
Fair value of acquired net assets	-29
Purchase consideration	99

MSEK

Acquired net assets	29

Deferred tax liabilities	0
Financial liabilities	0
Current liabilities	-12
Deferred tax assets	0
Intangible assets	0
Tangible assets	3
Current assets	38
Cash and cash equivalents	0

Goodwill	70
Total purchase consideration	99
Contingent consideration	-15
Cash and cash equivalents in acquired operations 0
Change in the Group's cash and cash equivalents
resulting from the acquisition	84

Parent Company's income statements

MSEK	Note	2014	2013
Sales	21	35	32
Administration costs		-59	-47
Operating profit	22, 23	-24	-15

Financial income	24	354	399
Financial expenses	24	-51	-27
Profit after financial items		279	357

Appropriations		0	8
Profit before tax		279	365

Tax	25	1	0
Profit after tax		280	365

Comprehensive income matches profit after tax.

Parent Company's balance sheets

MSEK	Note	2014	2013
ASSETS
Fixed assets
Tangible fixed assets	26	23	24
Intangible fixed assets		0	0
Interest-bearing intra-Group receivables		644	589
Financial fixed assets	29	4,322	4,308
Deferred tax assets		1	0
Total fixed assets		4,990	4,921

Current assets
Intra-Group operating receivables		48	14
Interest-bearing intra-Group receivables		728	643
Prepaid expenses and accrued income		5	8
Cash and cash equivalents		580	363
Total current assets		1,361	1,028

TOTAL ASSETS		6,351	5,949
SHAREHOLDERS' EQUITY AND LIABILITIES
Restricted shareholders' equity
Share capital		69	69
Total restricted shareholders' equity		69	69

Non-restricted shareholders' equity
Share premium reserve		598	598
Accumulated earnings		2,262	2,208
Profit after tax		280	364
Total non-restricted shareholders' equity		3,140	3,170
Total shareholders' equity		3,209	3,239

Non-current liabilities
Liabilities to credit institutions	28	219	940
Total non-current liabilities		219	940

Current liabilities
Accounts payable		1	1
Current tax liabilities		0	6
Interest-bearing intra-Group liabilities		2,615	1,735
Interest-bearing liabilities to credit institutions	28	267	–
Other current liabilities		0	0
Accrued expenses and prepaid revenues	27	40	28
Total current liabilities		2,923	1,770

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES		6,351	5,949
Pledged assets	30	146	128
Contingent liabilities		-	-

Changes in the Parent Company's shareholders' equity

		Share premium	Accumulated	Total share
MSEK	Share capital	reserve		earnings holders' equity
Per December 31, 2012	69	598	2,414	3,081
2013
Total comprehensive income
Profit after tax	-	-	365	365
Transaction with shareholders
Dividend	-	-	-207	-207
Per December 31, 2013	69	598	2,572	3,239
2014
Total comprehensive income
Profit after tax	-	-	280	280
Transaction with shareholders
Dividend	-	-	-310	-310
Per December 31, 2014	69	598	2,542	3,209

Parent Company's cash flow statements

MSEK	2014	2013
Cash flow from operations
Operating profit	-24	-15
Adjustment for non-cash items, depreciations	1	1
Financial income received	26	22
Financial expenses paid	-51	-25
Tax paid	-6	0
Cash flow from operations before changes in working capital	-54	-17

Cash flow from changes in working capital
Changes in working receivables	5	-3
Changes in current receivables	11	6
Cash flow from operations	-38	-14

Investing operations
Investments in tangible fixed assets	0	0
Investments in intangible fixed assets	0	0
Dividends from subsidiaries	282	367
Shareholders' contribution	-14	-
Incorporation of subsidiaries	0	-
Group contributions received	46	11
New share issue in subsidiaries	0	-
Cash flow from investing activities	314	378

Financing operations
Change in interest-bearing receivables	-176	123
Change in interest-bearing liabilities	427	-178
Dividend	-310	-207
Cash flow from financing operations	-59	-262

Cash flow for the year	217	102
Cash and cash equivalents at January 1	363	261
Cash and cash equivalents at December 31	580	363

Notes of the Parent Company

Note 21

Of the Parent Company's net sales, 100 percent pertains to sales to other Group companies and of the Parent Company's purchases, no part pertains to purchases from other Group companies.

Note 22 Employees and personnel expenses

Average number of employees	2014	2013
Women	2	2
Men	3	3
Total	5	5

Salaries, other remuneration and social-security costs

Total	40	29
Social security costs, pension costs and payroll tax	14	10
Other employees	6	4
CEO	18	13
Board of Directors	2	2
MSEK	2014	2013

Note 23 Fees and expense reimbursement to auditors

TSEK	2014	2013
EY
Audit assignment	646	525
Tax consultancy	220	229
Other services	297	144
Total	1,163	898

Note 24 Financial income and expenses

MSEK	2014	2013
Dividend	282	367
Group contributions	46	11
Interest income	1	0
Interest income from Group receivables	25	21
Exchange-rate gains	0	0
Other financial income	0	0
Financial income	354	399

Interest expense	-17	-21
Interest expense for Group liabilities	-4	-2
Exchange-rate loss	-28	0
Other financial expense	-2	-4
Financial expenses	-51	-27

Note 25 Taxes

Total reported tax expense 1	0
Deferred tax expense Deferred tax pertaining to temporary differences 1	0
Current tax expense Tax expense for the year 0	0
2014 2013

Note 26 Tangible fixed assets

Accumulated acquisition value	Land and buildings		Machinery and equipment		Total
MSEK	2014	2013	2014	2013	2014	2013
Opening balance on January 1	25	25	2	2	27	27
Disposals	-	-	-2	-	-2	-
Closing balance on December 31	25	25	0	2	25	27

Land and buildings		Machinery and equipment		Total
	2013	2014	2013	2014	2013
-1	0	-2	-2	-3	-2
-1	-1	0	0	-1	-1
-	-	2	-	2	-
	-1	0	-2	-2	-3

	24	0	0	23	24
	2014 -2 23

Note 27 Accrued expenses and deferred income

MSEK	2014	2013
Personnel-related expenses	35	24
Other	5	4
Total	40	28

Note 28 Interest-bearing liabilities to credit institutions

Non-current liabilities
MSEK	2014	2013
Liabilities to credit institutions	219	940
Non-current liabilities	219	940
Current liabilities MSEK
Liabilities to credit institutions	267	-
Current liabilities MSEK	267	-
Bilateral loan, 750 MSEK	219	473
Bilateral loan, 125 MUSD	-	26
Bilateral loan, 100 MUSD	-	441
Total non-current liabilities	219	940
Bilateral loan,100 MUSD	267	-
Total current liabilities	267	-

The Parent Company applies hedge accounting in accordance with RFR 2 in terms of the loans in foreign currencies that are designed to effectively protect the assets of the subsidiary in the corresponding currencies. Some exchange differences are therefore not recognized in respect of these loans.

Note 29 The Parent Company's holdings of shares and participations in Group companies

Holdings of shares in Group companies
MSEK	2014	2013
Opening balance		4,308 4,308
Shareholder contributions	14	-
Incorporation of subsidiaries	0	-
Carrying amount		4,322 4,308

			2014		2013
Subsidiaries				Proportion Carrying	Proportion Carrying
MSEK	Corp. Reg. No.	Registered office	of equity	amount	of equity	amount
			(%)		(%)
Gislaved Gummi AB	556112-2382	Gislaved, Sweden	100	101	100	101
Megufo AB	556421-2453	Gislaved, Sweden	50		50
Stellana AB	556084-8870	Laxå, Sweden	100	29	100	29
Elastomeric Engineering Co., Ltd. 1)		Sri Lanka	99.6	58	99.6	58
Gislaved Gummi Lanka (Pvt) Ltd.		Sri Lanka	100		100
Elastomeric Tools & Dies (Pvt) Ltd. 2)		Sri Lanka	100		100
HEXPOL Compounding HQ Sprl		Belgium	100	469	100	469
HEXPOL Compounding Sprl		Belgium	100		100
HEXPOL Compounding s.r.o		Czech Republic	100	435	100	435
HEXPOL Compounding (Qingdao) Co., Ltd.		China	100	56	100	56
HEXPOL Compounding S.A de C.V 4)		Mexico	100		100
HEXPOL Services Compounding S.A de C.V 4)		Mexico	100		100
Gislaved Gummi (Qingdao) Co., Ltd.		China	100	33	100	33
Stellana (Qingdao) Co., Ltd.		China	100	7	100	7
Thona Canada BV		The Netherlands	100		100
HEXPOL Compounding GmbH		Germany	100	70	100	70
Müller Kunststoffe GmbH		Germany	100		100
HEXPOL Compounding Viersen GbmH		Germany	100		-	-
ELASTO Sweden AB	556191-5777	Åmål, Sweden	100	261	100	261
ELASTO UK Ltd.		Great Britain	100	23	100	23
HEXPOL sàrl		Luxembourg	100	0	100	0
HEXPOL Compounding S.L.U		Spain	100	14	-	-
HEXPOL Holding Inc.		USA	100	231	100	231
Robbins Holding Inc.		USA	100		100
Robbins LLC		USA	100		100
Synpol LLC		USA	100		100
HEXPOL UK Ltd		Great Britain	100		100
Stellana U.S. Inc.		USA	100		100
GoldKey Processing Inc.		USA	100		100
HEXPOL Compounding NC Inc.		USA	100		100
HEXPOL Compounding LLC 3)		USA	100		100
HEXPOL Compounding (UK) Ltd		Great Britain	100		100
Chase Elastomer (UK) Ltd.		Great Britain	100		100
HEXPOL Compounding Services Queretaro S.A. de C.V. 5)		Mexico	100		100
HEXPOL Compounding Queretaro S.A. de C.V. 6)		Mexico	100		100
HEXPOL H.K Co., Ltd.		USA	100		100
HEXPOL Asia LLC		USA	100		100
HEXPOL Compounding (Foshan) Co., Ltd.		Kina	100		100
HEXPOL Finance UK Ltd		Great Britain	100	2,535	100	2,535
Total carrying amount in the Parent Company				4,322		4,308

1) Gislaved Gummi AB owns 200 shares included in this holding. The remaining 0.4% of the shares is owned by external parties.

2) Gislaved Gummi Lanka (Pvt) Ltd. owns 69,6% and Elastomeric Engineering Company Ltd 30.4% of the shares.

3) HEXPOL UK Ltd owns 60% and HEXPOL Holding Inc owns 40% of the shares.

4) HEXPOL AB owns 99% and HEXPOL Compounding HQ Sprl owns 1% of the shares.

5) HEXPOL Compounding LLC owns 99% and HEXPOL Compounding Queretaro S.A. de C.V. owns 1% of the shares.

6) HEXPOL Compounding LLC owns 99% and HEXPOL Compounding Services Queretaro S.A. de C.V. owns 1% of the shares.

Note 30 Assets pledged

MSEK	2014	2013
Sureties for subsidiaries	146	128
Total	146	128

Proposed distribution of unappropriated earnings

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Opinions

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REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company's profit or loss and the administration of the Board of Directors and the Managing Director of HEXPOL AB (publ) for the year 2014. We have also conducted a statutory examination of the corporate governance statement.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss. The Board of Directors and the Managing Director are responsible for administration under the Companies Act and that the corporate governance statement on pages 82-87 has been prepared in accordance with the Annual Accounts Act.

Auditor's responsibility

Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company's profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden. As a basis for our opinion on the Board of Directors' proposed appropriations of the company's profit or loss, we examined the Board of Directors' reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.

As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

We believe that the audit evidence which we have obtained is sufficient and appropriate in order to provide a basis for our opinions.

Furthermore, we have read the corporate governance statement and based on that reading and our knowledge of the company and the group we believe that we have obtained a sufficient basis for our opinion. This means that our statutory examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden.

Opinions

We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.

A corporate governance statement has been prepared, and its statutory content is consistent with the other parts of the annual accounts and the consolidated accounts.

Malmö March 12, 2015

Ernst & Young AB

Stefan Engdahl Authorized Public Accountant Board of Directors, Auditors and Group Management

Board of Directors, Auditor and Group Management

Board of Directors HEXPOL AB	Year of birth	Nationality	Elected	Audit commitee	Remuneration commitee	Independent in relation to the company and management	Independent in relation to major shareholders	Holdings Number of Class A shares	Holdings Number of Class B shares
Melker Schörling Chairman	1947	Swedish	2007	No	Yes	Yes	No	1,476,562	7,563,715
Georg Brunstam President and CEO	1957	Swedish	2007	No	No	No	No		186,150
Alf Goransson	1957	Swedish	2007	No	No	Yes	No
Malin Persson	1968	Swedish	2007	Yes	No	Yes	Yes
Ulrik Svensson	1961	Swedish	2007	Yes	Yes	Yes	No
Jan-Anders E. Manson	1952	Swedish	2008	No	No	Yes	Yes
Märta Schörling	1984	Swedish	2014	No	No	Yes	No

Board of Directors

Melker Schörling

Born in 1947. B.Sc. (Econ.) Chairman and Member of the Board since 2007. Chairman of the Remuneration Committee

Other assignments: Chairman of the Board of Melker Schörling AB (MSAB), Hexagon AB, AAK AB and Securitas AB. Member of the Board of H&M Hennes & Mauritz AB.

HEXPOL shareholding: 1,476,562 Class A shares and 7,563,715 Class B shares, through Melker Schörling AB.

Alf Göransson Born in 1957, International B.Sc. (Econ.). Member of the Board since 2007.

Other assignments: Member of the Board and President and CEO of Securitas AB. Member of the Board and Chairman of Loomis AB. Member of the Board of Axel Johnson Inc., USA.

HEXPOL shareholding: -

Georg Brunstam Born in 1957, M.Sc. (Eng.) President and Chief Executive Officer. Member of the Board, since 2007.

Other assignments: Member of the Board of Nibe Industrier AB, Beckers Industrial Coatings Holding AB, DIAB Group AB and Båstadtennis & Hotell AB.

HEXPOL shareholding: 186.150 Class B shares.

Ulrik Svensson Born in 1961, B.Sc. (Econ.) Member of the Board since 2007. Chairman of the Audit Committee and member of the Remuneration Committee.

Other assignments: President of Melker Schörling AB (MSAB). Member of the Board of AAK AB, Loomis AB, Hexagon AB, ASSA ABLOY AB and Flughafen Zürich AG.

HEXPOL shareholding: -

Märta Schörling Born in 1984, B.Sc. (Econ.) Member of the Board since 2014.

Other assignments: Member of the Board of Melker Schörling AB (MSAB) and AAK AB.

HEXPOL shareholding: -

Malin Persson Born in 1968, M.Sc. (Eng.) Member of the Board since 2007. Member of the Audit Committee.

Other assignments: Member of the Board of KCI Konecranes Plc., Beckers Industrial Coatings Holding AB, Kongsberg Automotive and Mobile Climate Control.

HEXPOL shareholding: -

Jan-Anders E. Månson

Born in 1952, M.Sc. (Eng.) and Doctor of Technology. Member of the Board since 2008.

Other assignments: Professor at Ecole Polytechnique Fédérale de Lausanne, Chairman of the Board of AISTS. Member of the Board of EELCEE SA and the Royal Swedish Institute of Technology (KTH).

HEXPOL shareholding: -

Auditor Ernst & Young AB

Stefan Engdahl Born in 1967 Authorised Public Accountant and member of FAR SRS

Other audit assignments: KABE AB, XANO Industri AB, DORO AB and AGES Industri AB.

The term Holdings refers both to shares held by the person indicated and shares held by related parties, as well as via companies at 31 December 2014.

Group Management

Georg Brunstam Born in 1957. M.Sc. (Eng.) President, Chief Executive Officer and

member of Board, employed in 2007. Other assignments: Member of the Board of Nibe Industrier AB, Beckers Industrial Coatings Holding AB, DIAB Group AB and Båstadtennis

HEXPOL shareholding: 186,150 Class B shares.

& Hotell AB.

Lars-Åke Bylander Born in 1965, Technician. President of product areas HEXPOL Gaskets and HEXPOL Profiles, employed in 2000.

Other assignments: Member of the Board of Anicho Invest AB and Ferbe Tools AB. Partner in Body & Beauty SW KB.

HEXPOL shareholding: 66,443 Class B shares.

Jan Wikström Born in 1972, M.Sc. (Eng.) President of HEXPOL Wheels product area, employed in 2009.

Other assignments: -

HEXPOL shareholding: 83,250 Class B shares.

Ralph Wolkener Born 1971, B.Sc. (Econ.) President of HEXPOL Compounding Europe/ Asia and President of HEXPOL TPE Compounding, employed in 1997.

Other assignments:

HEXPOL shareholding: 8,850 Class B shares.

Other assignments: -

HEXPOL shareholding: 18,325 Class B shares.

Tracy Garrison Born in 1967, Engineer. President of HEXPOL Compounding NAFTA, employed in 2002.

Other assignments: -

HEXPOL shareholding: 105,450 Class B shares.

Carsten Rüter

Born in 1971, M.Sc. (Eng.) President of HEXPOL Compounding Europe/Asia, HEXPOL Compounding, Global Purchasing/Technology and President of HEXPOL TPE Compounding, employed in 1997.

Other assignments -

HEXPOL shareholding: 10,000 Class B shares.

The term Holdings refers both to shares held by the person indicated and shares held by related parties, as well as via companies at 31 December 2014.

Shareholder information

Annual General Meeting

The Annual General Meeting will be held on May 4, 2015, at 3:00 p.m. CET in Malmö, Sweden (Börshuset, Skeppsbron 2). The Annual Report for 2014 will be available on HEXPOL's website and at the head office no later than April 13, 2015 and will be distributed to shareholders no later than the week beginning Monday, April 20. Share-holders who wish to participate in the AGM must be registered in the shareholders' register maintained by Euroclear Sweden AB not later than April 27, 2015, and notify their intention to participate to HEXPOL's head office not later than April 28. Shareholders whose shares are registered with a trustee must temporarily reregister the shares in their own name not later than April 27 to be entitled to participate in the AGM.

Proposal for dividend

The Board proposes to the Annual General Meeting on May 4 to approve a dividend of SEK 12.00 (9.00), an increase by 33 percent.

Calendar for financial information HEXPOL AB will publish financial information on the following dates:

Activity	Date
2014 Annual Report, published	April 13, 2015
Interim report January-March 2015	May 4, 2015
Annual General Meeting	May 4, 2015
Half year report January-June 2015	July 20, 2015
Interim report January-September 2015 Oct. 23, 2015
Year-end report 2015	Feb. 2016

Financial information is also available in Swedish and English on HEXPOL AB's website www.hexpol.com.

Shareholders who do not wish to receive printed annual reports, please submit complete information (name, address and civil registration number/corporate registration number) to [email protected].

For more information, contact:

Georg Brunstam,
President and Chief Executive Officer Tel: +46 70 855 12 51
Karin Gunnarsson, Chief Financial Officer, Investor Relations Tel: +46 70 555 47 32

Seven-year summary

MSEK	2014	2013	2012	2011	2010	2009	2008

INCOME STATEMENTS, condensed
Sales	8,919	8,036	8,007	7,197	3,798	2,608	3,190
Operating expenses	-7,463	-6,781	-6,938	-6,302	-3,402	-2,445	-2,880
Operating profit	1,456	1,255	1,069	895	396	163	310

Net financial items	-20	-19	-22	-23	-26	-23	-52
Profit after tax	1,436	1,236	1,047	872	370	140	258
Tax	-388	-306	-294	-253	-97	-38	-75
Resultat efter skatt	1,048	930	753	619	273	102	183

BALANCE SHEETS, condensed
Assets
Fixed assets	4,832	3,946	3,971	3,365	3,438	1,977	2,167
Current assets	1,626	1,335	1,372	1,286	1,155	494	692
Cash and cash equivalents	826	597	564	557	318	317	342
Total assets	7,284	5,878	5,907	5,208	4,911	2,788	3 201

Shareholders' equity and liabilities
Shareholders' equity	5,049	3,617	2,909	2,473	1,327	1,217	1,157
Interest-bearing liabilities	567	962	1,809	1,698	2,592	1,128	1,535
Other liabilities and provisions	1,668	1,299	1,189	1,037	992	443	509
Total shareholders' equity and liabilities	7,284	5,878	5,907	5,208	4,911	2,788	3,201

CASH FLOW STATEMENT
Cash flow from operating activities	1,432	1,223	1,115	726	387	359	393
Net investments in tangible and
intangible fixed assets	-118	-136	-177	-103	-32	-23	-105
Acquisitions of operations	-413	-3	-926	1	-1,827	0	0
Cash flow from financing activities	-777	-1,060	33	-390	1,498	-358	-194
Cash flow for the year	124	24	45	234	26	-22	94
Cash and cash equivalents, January 1	597	564	557	318	317	342	228
Exchange rate difference in cash flow	105	9	-38	5	-25	-3	20
Cash and cash equivalents, December 31	826	597	564	557	318	317	342

MSEK	2014	2013	2012	2011	2010	2009	2008
Key figures
Average shareholders' equity, MSEK	4,333	3,263	2,691	2,038	1,268	1,187	1,091
Average capital employed, MSEK	5,116	4,664	4,458	4,057	2,780	2,530	2,562
Return on shareholders' equity, %	24.2	28.5	28.0	30.4	21.5	8.6	16.8
Return on capital employed, %	28. 5	27.0	24.0	22.3	13.9	6.4	13.2
Net sales growth, %	11.0	0.4	11.3	89.5	45.6	-18.2	16.8
Operating margin, %	16.3	15.6	13.4	12.4	10.4	6.3	9.7
Profit margin before tax, %	16.1	15.4	13.1	12.1	9.7	5.4	8.1
Earnings per share, SEK*	30.45	27.02	21.88	18.65	9.30	3.47	6.23
Net cash, MSEK	259	-312	-1,215	-1,096	-2,239	-760	-1,193
Net debt/equity ratio, multiple	0,0	0.1	0.4	0.4	1.7	0.6	1.0
Equity/assets ratio, %	69.3	61.5	49.2	47.5	27.0	43.7	36.1
Shareholders' equity per share, SEK*	146.69	105.08	84.51	71.85	44.88	41.44	39.40
Dividend, MSEK	310	207	172	103	27	-	-
Dividend per share, SEK	9,00	6.00	5.00	3.00	1.00	-	-
Cash flow from operating activities, MSEK	1,432	1,223	1,115	726	387	359	393
Cash flow from operating activities per share, SEK*	41.60	35.53	32.39	21.87	13.18	12.22	13.38
Average number of employees	3,493	3,411	3,112	3,041	2,133	1,809	2,315
Number of employees at year-end	3,666	3,433	3,332	3,020	3,037	1,827	2,230
Sales per employee, MSEK	2.55	2.36	2.57	2.37	1.78	1.44	1.38
Key figures adjusted for items affecting comparability
Operating profit, MSEK	1,456	1,255	1,069	895	460	261	310
Operating margin, %	16.3	15.6	13.4	12.4	12.1	10.0	9.7
Profit before tax, MSEK	1,436	1,236	1,047	872	434	238	258
Profit after tax, MSEK	1,048	930	753	619	318	172	183
Earnings per share, SEK*	30.45	27.02	21.88	18.65	10.83	5.86	6.23
Return on shareholders' equity, %	24.2	28.5	28.0	30.4	25.1	14.5	16.8
Return on capital employed, %	28.5	27.0	24.0	22.3	16.2	10.3	13.2

* After the implemented rights issue in 2011, the historical share data was adjusted to take into account a bonus issue element.

Financial definitions

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Business definitions

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Injection moulding Injection moulding is a common manufacturing method for various polymer products. The equipment comprises an injection unit and a mould-locking unit, as well as form or tool that is unique for each product. The injection unit is fed with granulated polymer in a funnel that leads down into a heated cylinder. The polymer is propelled by a screw, which also functions as a piston. The form, which is frequently two-part, opens and fills with the melted polymer, which is cooled.

NAFTA North American Free Trade Agreement is a free-trade agreement between Mexico, Canada and the US. In the text of the annual report, NAFTA refers to the region comprising Mexico, Canada and the US.

OEM Original Equipment Manufacturer is a term for companies that manufacture the end-product to be sold on the open market. The product may consist exclusively of proprietary components or, most commonly, a combination of proprietary components and components purchased from subsuppliers that are assembled by the OEM company for the end product. Outsourcing means that a company lets another company handle one or more processes.

Outsourcing means that a company lets another company handle one or more processes.

PA Polyamide, a commonly used thermoplastic.

PCB Polychlorinated biphenyls are a group of industrial chemicals that are hazardous to health and the environment. Use of PCBs was prohibited in Sweden in 1972, but they are still present in the environment due to their long decomposition time.

PE Polyethylene is a thermoplastic resin with high elasticity.

PHE Plate Heat Exchanger.

PP Polypropylene, a low-density, high-tensile thermoplastic made of propylene.

PU Polyurethane, a polymer that is highly resistant to heat and abrasion, and possesses excellent electrical-insulation properties.

PVC Polyvinyl chloride, one of the most common types of plastics.

REACH Chemicals legislation within the EU intended to ensure safer handling of chemicals. Chemical substances have to be registered for a certain use and particularly hazardous substances can be prohibited.

RoHS Restrictions of Hazardous Substances. EU legislation restricting the use of certain substances that are hazardous to the environment and health.

Sh Shore scale for measuring the hardness of different materials.

Tier 1 The tier structure is a traditional description of the relationship between vehicle manufacturers and suppliers. A tier 1 supplier (first-line supplier) develops, manufactures and delivers what are often complex modules directly to the OEM. Tier 1 suppliers in turn purchase from tier 2 suppliers that purchase from tier 3 suppliers and so on.

TPE Thermoplastic elastomers are rubber-like materials that combine the properties of vulcanised rubber with the process benefits of thermoplastics.

TP A thermoplastic (TP) is a plastic material, typically a polymer, that becomes pliable or moldable above a specific temperature and solidifies upon cooling.

TPO Polyolefin blends.

TPS Styrenic block copolymers.

TPU Thermoplastic polyurethanes.

USP Reference Standards used in testing by pharmaceutical and related industries to help ensure the identity, strength, quality, and purity of medicines (drugs, biologics, and excipients), dietary supplements, and food ingredients.

VOC Volatile Organic Compounds A group of organic compounds that easily vaporize at room temperature. The content of the volatile hydrocarbons in the atmosphere has an adverse impact on health and the environment, including formation of ground-level ozone.

WEEE Waste Electrical and Electronic Equipment Directive. EU legislation regarding the management of electronic waste.

Group companies, addresses

Head office: HEXPOL AB Skeppsbron 3 SE-211 20 Malmö Sweden Tel: +46 40-25 46 60 Fax: +46 40-25 46 89 [email protected] www.hexpol.com

HEXPOL Compounding NC Inc. 280 Crawford Road Statesville, NC 28625 USA Tel: +1 704 872 1585 Fax: +1 704 872 7243 [email protected] www.hexpolcompounding.com

HEXPOL Compounding - Burton Rubber Processing 260 Old State Route 34 P.O. Box 377 Jonesborough, TN 37659 USA Tel: +1 423 753 2196 Fax: +1 423 753 3379 [email protected] www.hexpolcompounding.com

HEXPOL Compounding (UK) Ltd. Unit 3, Fifth Avenue Tameside Park, Dukinfield Cheshire, SK16 4PP United Kingdom Tel: +44 161 343 4433 Fax: +44 161 343 4422 [email protected] www.hexpolcompounding.com

HEXPOL Silicone Compounding 3939A Mogadore Industrial Parkway Mogadore, OH 44260 USA Tel: +1 440 682 4039 Fax: +1 440 682 4076 [email protected] www.hexpolcompounding.com

HEXPOL Compounding HQ sa Gewerbestrasse 8 BE-4700 Eupen Belgium Tel: +32 87 59 61 50 Fax: + 32 87 59 61 69 [email protected] www.hexpolcompounding.com

HEXPOL Compounding (Qingdao) Co., Ltd 899 Qingdao Middle Road CN-266431 Jiaonan, Qingdao China Tel: +86 532 8173 1118 Fax: +86 532 8173 1119 [email protected] www.hexpolcompounding.com

HEXPOL Compounding - Colonial Rubber Works 150 S. Connell Ave. Dyersburg, TN 38024 USA Tel: +1 731 285 4353 Fax: +1 731 287 3098 [email protected] www.hexpolcompounding.com

China

Chase Elastomer 635 Tower Dr. Kennedale, TX 76060

Tel: +1 817 483 9797 Fax: +1 817 483 1978 [email protected] www.hexpolcompounding.com

USA

HEXPOL Compounding (Foshan) Co. Ltd. No. 3 Xinhui Road Wusha, Daliang, Shunde District Foshan Guangdong CN-528333 Tel: +86 757 2291 5100 Fax: +86 757 2291 5149 [email protected] www.hexpolcompounding.com HEXPOL TPE Compounding Foshan Co. Ltd. No. 3 Xinhui Road Wusha, Daliang, Shunde District Foshan Guangdong CN-528333 China Tel: +86 757 2291 5100 Fax: +86 757 2291 5149 [email protected] www.hexpolcompounding.com

HEXPOL Compounding GmbH

HEXPOL Compounding Mexico Avenida Japon 302

Parque Industrial San Fransisco San Francisco de Los Romo, Ags. CP 20304, Mexico Tel: +52 449 139 3270 Fax: +52 449 139 3289 [email protected] www.hexpolcompounding.com

HEXPOL Compounding Queretaro S.A. de C.V.

Parque Industrial Queretaro C.P. 76220, Santa Rosa Jauregui,

Tel: +52 442 211 3500 [email protected] www.hexpolcompounding.com

La Noria 115

Queretaro Mexico

Tel: +49 2433 9755 0 Fax: +49 2433 9755 99 [email protected] www.hexpolcompounding.com

Ottostrasse 34 DE-41836 Hückelhoven

Germany

GoldKey Processing, Inc. 14910 Madison Rd. Middlefield, OH 44062 USA

Tel: +1 440 632 0901 Fax: +1 440 632 0929 [email protected] www.hexpolcompounding.com

HEXPOL Compounding Sprl Industriestrasse 36 BE-4700 Eupen Belgium Tel: +32 87 59 54 30 Fax: +32 87 74 44 73 [email protected] www.hexpolcompounding.com

HEXPOL Compounding s.r.o Sumperska 1344 CZ-78391 Unicov Czech Republic Tel: +42 585 004 011 Fax: +42 585 053 568 [email protected] www.hexpolcompounding.com

HEXPOL Compounding - Burton Rubber Processing 14330 Kinsman Rd. Burton, OH 44021 USA Tel: +1 440 834 4644 Fax: +1 440 834 5524 [email protected] www.hexpolcompounding.com

HEXPOL Compounding - California 8227 Sorensen Ave. Santa Fe Springs, CA 90670 USA

Tel: +1 562 945 1241 Fax: ++1 562 698 7818 [email protected] www.hexpolcompounding.com

Elastomeric Engineering Co Ltd 51-54, IDB Industrial Estate Horana Sri Lanka Tel: +94 11 421 2722 Fax: +94 34 226 2045 [email protected] www.elastomericgroup.com

Robbins LLC 3415 Thompson St Muscle Shoals, AL 35661 USA Tel: +1 256 383 5441 Fax: +1 800 821 7918 [email protected] www.robbinsllc.com

RheTech Compounding 1500 E. North Territorial Rd. Whitmore Lake, MI 48189 USA Tel: +1 734 769 0585 Fax: +1 734 769 3565 [email protected] www.rhetech.com

HEXPOL Compounding S.L.U. Polígono Industrial La Bastida Ctra. Molins de Rei a Caldes, Km. 13,2 08191 Rubi, Barcelona Spain Tel: +34 93 699 86 11 Fax: +34 93 6999251 [email protected] www.hexpolcompounding.com

Stellana AB Box 54 SE-695 22 Laxå Sweden Tel: +46 584 44 48 00 Fax: +46 584 44 48 90 [email protected] www.stellana.se

Gislaved Gummi AB Box 522 SE-332 28 Gislaved Sweden Tel: +46 371 848 00 Fax: +46 371 848 88 [email protected] www.gislavedgummi.com

Kardoes Rubber 1061 Industrial Blvd LaFayette, AL 36862 USA

Tel: +1 334 864 0777 Fax: +1 334 864 0776 [email protected] www.kardoesrubber.com

RheTech Compounding 9201 West Grand River Fowlerville, MI 48836 USA

Tel: +1 734 769 0585 Fax: +1 734 769 3565 [email protected] www.rhetech.com

HEXPOL Compounding Viersen GmbH Greefsallee 60 DE-41747 Viersen Germany Tel: +49 2162 26656-52 Fax: +49 2162 26656-7852 [email protected] www.hexpolcompounding.com

Stellana (Qingdao) Co., Ltd 899 Qingdao Middle Road CN-266431 Jiaonan, Qingdao China Tel: +86 532 8173 1167

Fax: +86 532 8173 1128 www.stellana-cn.com

Gislaved Gummi (Qingdao) Co., Ltd 899 Qingdao Middle Road CN-266431 Jiaonan, Qingdao China Tel: +86 532 8173 1167 Fax: +86 532 8173 1006 [email protected] www.gislavedgummi.com

Müller Kunststoffe GmbH Plant 1 Grünewaldstr. 13 DE-96215 Lichtenfels Germany Tel: +49 9571 94894 0 Fax: +49 9571 94894 90 [email protected]

RheTech Colors 2901 W. Monroe Street Sandusky, OH 44870 USA Tel: +1 419 626 5677 Fax: +1 419 626 1140 [email protected] www.rhetech.com

ELASTO Sweden AB Box 51, Gamla Örnäsgatan 15 SE-662 22 Åmål Sweden Tel: +46 532 607 500 Fax: +46 532 607 599 [email protected] www.elastotpe.com

Stellana U.S. Inc. 999 Wells Street Lake Geneva, WI 53147 USA Tel: +1 262 348 5575 Fax: +1 262 348 5570 [email protected] www.stellana.us

Gislaved Gummi Lanka (Private) Ltd. 371 Colombo Road Piliyandala Sri Lanka Tel: +94 11 421 2722 Fax: +94 11 421 2758 [email protected] www.gislavedgummi.com

Müller Kunststoffe GmbH Plant 2 Max-Planck-Str. 3 DE-96215 Lichtenfels Germany Tel: +49 95 71 94 89 4-0 Fax: +49 95 71 94 89 4-90 [email protected]

RheTech Engineered Plastics 221-A York Road Blacksburg, SC 29702 USA Tel: +1 864 839 6070 [email protected] www.rhetech.com

ELASTO UK Ltd. Don Street, Middleton Manchester, M24 2GG United Kingdom Tel: +44 161 654 6616 Fax: +44 161 654 2333 [email protected] www.elastotpe.com

Sales offices:

United Kingdom: David Mottershead Tel: +44 7540 698877 [email protected]

France: Pascal Gruyer Tel: +33 160 431717 [email protected]

Belgium: Guido Heinen Tel: +32 87 595 448 [email protected]

HEXPOL AB (publ), Skeppsbron 3, SE-211 20 Malmö, Sweden Phone +46 (0)40-25 46 60 · Fax +46 (0) 40-25 46 89 www.hexpol.com AB +46 46 60 · +46 46 89

AI Terminal

HEXPOL

2923_10-k_2015-04-10_af85a34d-ab7b-4d6f-afb0-6d6c3d4072ee.pdf

Annual Report |

2014 in brief

3IGNIFICANTEVENTSPERQUARTER

Q1

Q3

ONTINUEDSTRONGVOLUMEDEVELOPMENT THEBESTRESULT SOFAR!CQUISITIONOFTHEBUSINESSIN+ARDOES2UBBER A WELLKNOWNMANUFACTUREROFRUBBERCOMPOUNDSONTHE 53MARKET

Q2

Q4

ONTINUEDSTRONGDEVELOPMENT!CQUISITIONOF6IGAR 2UBBER#OMPOUNDING AWELL

+EYFIGURES

Content

HEXPOL in brief

Business area HEXPOL Compounding

Business area HEXPOL Engineered Products

THE GROUP IN BRIEF

OPERATIONS AND MARKET

FINANCIAL OBJECTIVES

DIVIDEND POLICY

BUSINESS CONCEPT

VISION

STRATEGY

VALUE ENHANCING AND SUCCESS FACTORS

DEAR SHAREHOLDERS,

CONTINUED GROWTH

SKILLS DEVELOPMENT AND INTERNAL RECRUITMENT – THE BASE FOR OUR DEVELOPMENT

LONG-TERM GROWTH IN OUR CUSTOMER SEGMENTS – CONTINUED CAPACITY EXPAN-SION IN MEXICO AND IN TPE COMPOUNDING

STRONG FINANCIAL POSITION

PRIORITIES FOR 2015

About the HEXPOL Group

Sales for 2014 distributed by business area and geographically

BUSINESS CONCEPT

VISION

OPERATIONAL STRATEGY

1. Focus on product development

2. Most cost-effective company in the industry

3. Efficient supply management

4. Superior management expertise

5. Speed Management

GROWTH STRATEGY

Organic growth

Acquisition strategy

BRANDS

FINANCIAL TARGETS

TARGET FULFILMENT

HISTORY

STRONG GROWTH

The share and shareholders

THE HEXPOL SHARE

SHARE PRICE TREND AND TRADING VOLUME

OWNERSHIP STRUCTURE

DIVIDEND POLICY

SHAREHOLDER VALUE AND ANALYSTS

MAJOR SHAREHOLDERS, DECEMBER 31 2014

KEY FIGURES PER SHARE

OWNER STRUCTURE, DECEMBER 31 2014

NUMBER OF SHARES PER SHAREHOLDER, DECEMBER 31 2014

SHAREHOLDER CATEGORIES, DECEMBER 31 2014

Capital Markets Day with focus on HEXPOL Compounding

Business area HEXPOL Compounding Continued growth and high acquisition activity

HEXPOL Compounding in brief

Operations

Market

Customers

Operating units HEXPOL Compounding Number of

Acquired units 2015

ORGANISATION

MARKET

Senior Managers at HEXPOL Compounding's operating units

COMPETITORS

BUSINESS MODEL

STRATEGY

Close relations with customers

Focus on innovation and cost efficiency

Further growth in existing and new markets

High-quality products for demanding applications

Continuous improvements

BRANDS

ONTINUEDSTRONGVOLUMEDEVELOPMENTTHEBESTRESULT SOFAR!CQUISITIONOFTHEBUSINESSIN+ARDOES2UBBERA WELLKNOWNMANUFACTUREROFRUBBERCOMPOUNDSONTHE 53MARKET

ONTINUEDSTRONGDEVELOPMENT!CQUISITIONOF6IGAR 2UBBER#OMPOUNDINGAWELL