20 08 in b ri ef 3
H E X P O L in b ri ef 4
C E O he .6 ts t c om m en y ea r
Th H E X P O L G 8 e ro up
Th H E X P O L sh 1 4 e ar e
B in H E X P O L C di . 1 8 us es s ar ea om po un ng
B in H E X P O L E in d Pr od ts . 2 8 us es s ar ea ng ee re uc
C ib ili te ty . 4 2 or po ra r es po ns
C te rt 5 0 or po ra g ov er na nc e re po
B rd f D ir ' r to t 5 8 oa o ec rs ep or
O ti d st ct 5 9 pe ra on s an ru ur e
Pe l . 6 0 rs on ne
R is k fa ct . 6 1 or s
Su ai bi lit ef fo st rt 6 6 na y s
Fi ia l r ts 7 2 na nc ep or
C lid ed in at st at ts . 7 3 on so co m e em en
C lid ed b al he at et 7 4 on so an ce s s
C ha in he G 's sh eh ol de ' e it t 7 5 ng es ro up ar rs qu y

C lid ed h fl at ta te ts on so c as ow s m en	7 6
A in lic ie nt g cc ou po s	7 7
N ot es	8 2
Pa C in nt st at ts re om pa ny co m e em en	9 4
Pa C b al he nt et re om pa ny an ce s s	9 5
C ha in he P C 's t t ng es ar en om pa ny
sh eh ol de ' e it ar rs qu y	9 6
Pa C 's sh fl nt ta te ts re om pa ny ca ow s m en	9 7
Pa C 's nt te re om pa ny no s	9 8
Pr ed llo ti f e ni ng op os a ca on o ar s	1 01
A ud it s' R t or ep or	1 02
B rd f D ir , A ud it d to oa o ec rs or s an
G M t. ag ro up an em en	1 04
Sh eh ol de in fo io at ar r rm n	1 08
Fo vi , k fi gu ur -y ea r re ew ey re s	. 1 10
D ef in it io ns	1 12
A dd G ni t re ss es o ro up c om pa es	1 13

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.

2008 in brief

Net sales increased by 17 percent to 3,190 MSEK (2,730)
Operating profit increased to SEK 310 MSEK (305)
The operating margin was 9.7 percent (11.2)
Profit after tax totalled 183 MSEK (186)
Earnings per share were SEK 6.89 (7.01)
Operating cash flow was strong, amounting to 288 MSEK (92)

Key figures	2008	2007	Change
Net sales, MSEK	3 190	2 730	+17 %
Operating profit, EBIT, MSEK	310	305	+ 2 %
Operating margin, %	9,7	11,2
Profit before tax, MSEK	258	255
Profit after tax, MSEK	183	186
Earnings per share, SEK	6,89	7,01
Operating cash flow, MSEK	288	92
Equity/assets ratio, %	36,1	36,7
Return on capital employed, %	13,2	15,1

HEXPOL in brief

Solid growth with healthy margins
Strong global market positions
Innovative solutions in advanced rubber compounding, gaskets for plate heat exchangers and wheels for forklifts and castor wheel applications
Organised on the basis of two business areas HEXPOL Compounding and HEXPOL Engineered Products
Well invested with strong cash flow

Business area HEXPOL Compounding

The business area's share of the HEXPOL Group (2008):

Operations: HEXPOL Compounding is one of the world's leading suppliers in the development and manufacture of advanced, high-quality rubber compounds.

Market: The market is global, with the automotive industry as the largest end user. Other key segments are construction and infrastructure, cable, water management, pharmaceutical and the energy and oil industries.

Customers: Manufactures of rubber products who impose stringent demands in terms of performance and global delivery capabilities.

Sales: 2 425 MSEK (1 955)

Operating profit: 224 MSEK (195)

Average number of employees: 801 (579)

Business area HEXPOL Engineered Products

The business area's share of the HEXPOL Group (2008):

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 truck industry. The business area is also a major player in rubber profiles in the Scandinavian market.

Market: The market for gaskets and wheels is global. HEXPOL has production units in Europe and Asia (as well as in North America for wheels). The market for profiles is Scandinavian.

Customers: Manufacturers of plate heat exchangers, forklift trucks and castor wheels, as well as the construction and engineering industries for profiles.

Sales: 765 MSEK (775)

Operating profit: 86 MSEK (110)

Average number of employees: 1 508 (1 536)

The Group in brief

HEXPOL is a leading global polymers group with strong market positions that enable it to offer innovative solutions and products based on advanced rubber compounds (Compounding), gaskets for plate heat exchangers (PHE Gaskets) and wheels made of polyurethane, plastic and rubber materials for forklifts and castor wheel applications (Wheels).

The Group is organised in two business areas: HEXPOL Compounding and HEXPOL Engineered Products, and has production units in nine countries. Customers outside Sweden account for about 90 percent of invoiced sales, and seven of the Group's 15 production units are situated in expansive regions of Asia, Mexico and Eastern Europe.

Operations and market

To develop 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 industry. The customers comprise international companies that subject suppliers to 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 growing interest in energy efficiency, the market for plate heat exchangers is characterised by high growth and, in turn, strong demand for the products offered by the HEXPOL Gaskets product area. The largest customers of the HEXPOL Wheels product area consist of companies in the segment comprising manufacturers of materials-handling equipment. As a result of the increased volume of materials handling worldwide, these customers are reporting robust growth. HEXPOL Profiles is one of the leading manufacturers of extruded profiles in the Scandinavian market. A feature that the business areas have in common is the importance of cutting-edge expertise relating to polymer materials, applications know-how in the Group's business areas and cost-effective production operations.

Financial objectives

HEXPOL 5 The Board of Directors has established the following financial objectives over a business cycle: The aim is that organic sales growth will average 7-10 percent

annually and that the operating margin will average at least 8-10 percent annually.

Business concept

The 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 shall be the most attractive partner for customers in key industries, such as automotive, construction, energy and other industries, based on its offering of innovative and specialised polymer products and solutions.

Vision

The 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 achieve sustainable profitability and competitiveness, five operating strategies are applied:

Product development through in-depth and broad polymer and applications expertise
The most cost-effective company in the industry
Efficient supply management that generates volume and technological benefits
Considerable management skills through skilled and experienced teams
Speed management through short and fast decision-making procedures

In addition to the operating strategies outlined above, the Group also pursues a strategy to achieve continued growth, both organically and through acquisitions.

Success factors

Since 2000, Group operations have expanded from annual sales of 482 MSEK to nearly 3,200 MSEK, with operating margins that – in most cases – are much better than those of comparable companies. The operating margin in 2008 was almost 10 percent. Cash flow has been strong despite rapid growth and, when combined with approved credit lines, provides the Group with a strong financial base for continued growth and expansion. This favourable trend is the result of deep and comprehensive product development skills, cost-effective production plants and successful 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.

CEO comments the year A good first year for HEXPOL despite an increasingly difficult market

Georg Brunstam President and CEO, HEXPOL AB

Dear shareholders,

For the HEXPOL Group, 2008 was a good year. We continued our growth with favourable margins in what later became an increasingly difficult market. Sales rose by 17 percent to SEK 3,190 MSEK (2,730), with operating profit increasing 2 percent to 310 MSEK (305). This corresponds to an operating margin of 9.7 % (11.2%). Operating cash flow was strong and advanced to 288 MSEK (92).

The year was also highly eventful for HEXPOL. We were listed on NASDAQ OMX Nordic Stockholm, on the Mid Cap list, on 9 June 2008 following the spinoff of the company in the form of a dividend from Hexagon AB to its shareholders.

Immediately prior to the listing we changed our name from Hexagon Polymers AB to HEXPOL AB and a new corporate identity and graphic profile were created. A new Board was established and, just before the close of 2007, I was appointed President and CEO. During the year, we also integrated a major US acquisition –

GoldKey Processing. More-over, we had a year of gradually sharp deterioration in market conditions, mainly due to the global finance and automotive crises.

The year was also turbulent with a solid first half characterised by favourable growth but with steeply rising raw materials prices. The second half of the year gradually displayed deteriorating demand and the close of 2008 was very negatively affected by the international financial and automotive crises. However, HEXPOL reported favourable results in all quarters, albeit with gradually lower growth.

Strong market positions and advanced expertise

HEXPOL is a world-leading international polymers group with strong global market positions in advanced rubber compounding, high-quality gaskets for plate heat exchangers (PHE Gaskets) and wheels made of polyurethane, plastic and rubber materials for forklifts and castor wheel applications (Wheels). We have strong positions in all these areas worldwide. Our customers

are primarily the global automotive industry's systems suppliers and OEM manufacturers of plate heat exchangers and forklifts. Operations are organised on the basis of two business areas – HEXPOL Compounding and HEXPOL Engineered Products.

Thanks to our high technology content, advanced inhouse skills and consolidated market positions in our product areas, we managed to cope with the turbulent and difficult market conditions and achieved good results in both our business areas, HEXPOL Compounding and HEXPOL Engineered Products.

Well invested and global

Our group is very well invested, with relatively new plants and factories in all major markets. During 2008, we also expanded in our entirely new rubber facilities in Mexico and China. We were particularly successful in Mexico, where we are seeing increasingly strong local demand from international groups who are relocating production to Mexico. In rubber compounding, we are the largest supplier and really the only one that can offer worldwide deliveries. Our competitors are frequently small local companies. We also accompanied the automotive industry to Eastern Europe, where we had substantial deliveries from our Czech unit.

We have more than 90 percent of our sales outside Sweden and are producing in nine countries with an increasingly large share in high-growth, low-cost countries such as China, Sri Lanka, Czech Republic and Mexico.

New product development – the key to success

Our strategy is based on deep and broad-based polymers and application expertise. One example is that our unique proprietary formulas that we offer customers through our technical cooperation programmes now accounts for 80 percent of our rubber compounding sales in Europe.

Other examples are in innovative forklift wheel designs that are perfectly balanced, and which we have been successfully launched on the market in cooperation with customers. Also, as a result of our acquisition of the USbased GoldKey Processing, we have increased our presence and skills in new application areas such as energy, medical technology, pharmaceuticals and aerospace.

Challenging situations in certain customer segments

Towards the close of the year, the international financial and automotive crises adversely affected our volumes to the international systems suppliers of the automotive industry. We believe that this situation will continue during 2009, as vehicle output is expected to decline. Long term, however, we view the automotive industry as a growth market.

We have a favourable market position with a presence in all major markets, as well as good positioning vis-àvis the OEM manufacturers that are experiencing a more favourable volume trend. We expect an improved trend in our other market segments, such as in the energy and materials handling sectors, which also have substantial after-markets.

Priorities for 2009

For 2009, we are focusing keenly on increasing our shares in a market that will not be easy, especially in the early part of the year. The automotive industry includes players who are facing financial problems. Our technology status and market position help us to generate new customer projects and to continue expanding in growth markets. Our cash flow and margins are also high-priority areas. At the moment, meaning in early 2009, the raw materials situation has improved, with greater availability and lower prices.

Advanced expertise, motivated employees

After my first year as CEO of HEXPOL, I am impressed by the skills and the commitment we have in our organisation and in our employees. This factor, combined with successful customers and the fact that we are well invested, prompts me to look confidently toward 2009, which initially will be challenging and marked by the global financial and industrial crises.

Malmö March 2009

Georg Brunstam President and CEO

About the HEXPOL Group

The Group is organised in two business areas: HEXPOL Compounding and HEXPOL Engineered Products, with four product areas: Compounding, Gaskets, Wheels and Profiles. The organisation is streamlined in an effort to provide short and prompt decision-making processes, with clear, decentralised responsibility. The operating structure is presented in the diagram below.

HEXPOL is a world-leading polymers group with solid global market positions in advanced rubber compounds (Compounding), gaskets for plate heat exchangers (PHE Gaskets) and wheels made of polyurethane, plastic and rubber materials for forklifts and castor wheel applications (Wheels). Customers are mainly systems suppliers to players in the global automotive industry and OEM manufacturers of plate heat exchangers and forklifts.

Most of the plants are relatively new and all of them are well invested. The high technology level, combined with far-ranging production and technological coordination, provides cost-effectiveness, high and uniform quality and the ability to smoothly relocate production among the units.

Business concept

The 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 shall be the most preferred partner for customers in key industries, such as automotive and construction, energy and other industries, based on its offering of innovative and specialised polymer products and solutions.

Vision

The 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.

Operating sales for 2008 are distributed among the

Operating output (sales value) for 2008 was distributed geographically as follows:

Other markets 71,4 %

Operational 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:

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 continuing development. Product development is conducted at each production unit and the HEXPOL Compounding business area has a corporate technology department in Belgium. Overall, approximately 5 percent of HEXPOL Compounding's employees are engaged in development work and many of them are highly qualified chemists and technicians.

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 that enable the exploitation of benefits resulting from high volume and advanced technologies. 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 enables 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.

Growth strategy

Over the years, HEXPOL has expanded sharply on the basis of healthy organic growth and strategic acquisitions. The same approach will be pursued in the future.

Organic growth

The Group's principal markets and customers are showing favourable growth. One example is the market for plate heat exchangers, which is undergoing very strong growth driven by the quest for energy savings and in which HEXPOL supplies key components to all major OEM manufacturers. Another example is the automotive industries longterm growth in Asia, Mexico and Eastern Europe. In these areas, HEXPOL has established state-ofthe-art facilities for satisfying the technological and demand requirements of customers. The strategy continues to be to capitalise on the opportunities that arise when manufacturers of rubber compounds have to decide whether to switch to outsourcing or continue with their in-house compounding operations, with the resulting investment and renovation requirements. The materials-handling industry is also growing globally, as a result of sharply increasing freight volumes, which entails higher demand for forklifts and thus increased demand for HEXPOL's products in the form of wheels.

HEXPOL's acquisition strategy

The Group's strategy is to continue to acquire companies in the polymer field, primarily in current business areas but also including a broadening of application areas and geography.

Potential acquisition targets are monitored continuously in accordance with a distinct acquisition model, whereby attractive targets are analysed on the basis of a series of strategic parameters. The Group has a strong cash flow and healthy financial position which, together with committed lines of credit, generate the financial preparedness required for acquisitions.

Brands

HEXPOL markets its products via a number of wellestablished brands. For example, the Gislaved Gummi brand is well-known and highly reputed far beyond the confines of Sweden, while GoldKey is a strong compounding brand in the US. In addition, Stellana and Elastomeric are recognised brands in the Wheels product area.

Financial objectives

The Board of Directors has established the following financial objectives over a business cycle: The aim is that organic sales growth will average 7-10 percent annually and that the operating margin will average at least 8-10 percent annually.

Target fulfilment

The charts above illustrate target fulfilment over the past four years.

HEXPOL has met its targets in terms of operating margin over the past four years. The operating margin in 2008 was 9.7 percent (target: 8-10). The target for organic sales growth was exceeded in all four years, except in 2008. In 2008, organic sales growth was 3.0 percent (target 7-10 percent). The sluggish trend during the latter half of 2008 was the reason for the lower growth. The financial objectives are designed to reflect development over a business cycle and the average for the past four years has exceeded the target, both in terms of organic growth and operating margin.

Dividend policy

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

HEXPOL:s Brands

History

HEXPOL has its origins in Svenska Gummifabriks AB, a Swedish industrial company established towards the end of the 19th century.

This segment of the once highly diversified Gislaved Group with operations focused on rubber composite materials and technical products was acquired by Hexagon in 1994. Operations have since been developed through investments in product development and acquisitions of complementary companies. By far the largest and principal single step in this development was the acquisition of the Thona group in 2004.

The strategy has also resulted in the Group reporting strong growth in recent years, both organically and via acquisitions, as shown in the diagram below.

Contribution to sales made by acquisitions in the past ten years

The acquired units are displayed in different colours representing the consolidated sales in the year of acquisition and subsequent years.

The principal phases in the development into

the current HEXPOL have been:

1893 The Gislow brothers form a rubber factory in Gislaved
1966 A new factory for the product known as Technical Rubber is built
1990 The Technical Rubber division becomes Gislaved Gummi AB
1991 Production of gaskets for plate heat exchangers is acquired
1994 Hexagon acquires the Company
1995 Stellana AB in Laxå is acquired
1998 Elastomeric Engineering Co in Sri Lanka is acquired
2002 GFD Technology GmbH in Germany is acquired
2004 Thona group of Belgium, with operations in Belgium, Czech Republic, Canada and the US, is acquired
2005 Trostel SEG of the US is acquired
2007 Establishment of three new plants for rubber compounds, wheels and gaskets in China and a new plant for rubber compounding in Mexico
2007 GoldKey Processing Ltd of the US is acquired
2008 Change in corporate identity from Hexagon Polymers to HEXPOL
2008 Distribution of HEXPOL to Hexagon's shareholders and listing of the share on the NASDAQ OMX Nordic Exchange Stockholm

Carl Gislow and his brother Wilhelm established Svenska Gummifabriks AB in 1895.

The share and shareholders

The HEXPOL share

HEXPOL AB was listed on NASDAQ OMX Nordic Stockholm on 9 June 2008 and the Class B share is quoted on the Mid Cap list in the industrial sector. The share capital in HEXPOL AB amounts to 53,103,954 SEK, represented by 26,551,977 shares. Of these, 1,181,250 are Class A shares and 25,370,727 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

Following the listing date, the price of the HEXPOL Class B share fell during the year by 76 percent and the closing price at the close of 2008 was 17.20 SEK. The highest and lowest closing price during 2008 were 72 SEK 8 (9 June) and 16.60 SEK (29 December). During 2008, 10.0 million HEXPOL shares were traded on the Stockholm Exchange. Average trading per day in the share was 70,065 shares. The number of shares traded represented 38 percent of the total number of shares.

Ownership structure

As of 31 December 2008, HEXPOL AB had 8,864 shareholders. The proportion of shares held by Swedish institutions and funds at 31 December 2008 corresponded to 35 percent of the capital. The number of shares held by non-Swedish shareholders totalled 18 percent of the capital. The ten largest shareholder groups accounted for 72 percent of the capital and 80 percent of the voting rights.

Dividend policy

Options programme

In August 2008, an extraordinary meeting of shareholders authorised HEXPOL AB to introduce a warrants programme for Group Management and other senior executives and key people in the Group by means of a limited share issue of 1,325,000 warrants. In total, 933,250 warrants have been granted to senior executives and key people, as identified by the Board, for payment of 8 SEK per warrant and 391,750 have been reserved for the future recruitment of senior executives and key people to the Group. Each warrant entitles the holder to subscribe for one Class B share in HEXPOL AB during the period from 1 March 2011 through 1 September 2011. The share price for new share subscriptions through the exercise of the warrants corresponds to that arising from a market-based valuation based on the set warrant payment in accordance with the Black & Scholes method. The warrants issue entails a total maximum dilution effect of approximately 4.99 percent in relation to the number of shares in the company.

Shareholder value and analysts

HEXPOL's executive management works consistently to develop the company's financial information as part of efforts to create favourable conditions for valuing the company in the most accurate manner possible. This includes working actively through meetings with analysts, share saver organisations and the media.

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

Kaupthing bank, Carl-Johan Blomqvist [email protected]
SEB Enskilda, Daniel Schmidt [email protected]
Swedbank, Johan Dahl [email protected]

Share price trend in 2008 SEK

The 20 largest shareholders, 31 Dec. 2008
Name	Number of	Number of	Holding (%)	Voting (%)

	Class A shares Class B shares
Melker Schörling AB	1 181 250	5 942 085	26,83	47,75
Swedbank Robur fonder	0	2 493 821	9,39	6,71
AB Landå	0	2 400 000	9,04	6,45
Didner & Gerge Aktiefond	0	1 644 495	6,19	4,42
Afa Försäkring	0	1 425 176	5,37	3,83
SSB CL Omnibus AC OM07 (15 PCT)	0	1 367 119	5,15	3,68
Prior & Nilsson Fond- och Kapitalförvaltning AB	0	1 135 386	4,28	3,05
Odin Sverige 1, Nordea Bank Norge ASA	0	708 427	2,67	1,91
Fjärde AP-fonden	0	501 424	1,89	1,35
SEB Private Bank S.A., NQI	0	445 906	1,68	1,20
Simon Bonnier	0	322 743	1,22	0,87
Norge Odin Sverige II, Nordea Bank Norge ASA	0	300 700	1,13	0,81
Handelsbanken fonder inkl XACT	0	293 693	1,11	0,79
SEB Investment Management	0	209 836	0,79	0,56
SIX SIS AG	0	195 402	0,74	0,53
Spyder Lending Account	0	190 405	0,72	0,51
Lannebo fonder	0	181 300	0,68	0,49
Andra AP-fonden	0	168 050	0,63	0,45
Länsförsäkringar fondförvaltning AB	0	147 105	0,55	0,40
Gamla Livförsäkringsaktiebolaget	0	146 627	0,55	0,39
Total for the 20 largest shareholders	1 181 250	20 219 700	80,61	86,15
Total for other shareholders	0	5 161 027	19,39	13,85
Total	1 181 250	25 370 727	100,00	100,00

Distribution of ownership, 31 Dec. 2008

Shareholder	Shareholders	Number of Shareholders (%)	Holding (%)	Voting (%)
Individuals	7 785	87,83%	11,26%	8,04%
Of whom, domiciled in Sweden	7 700	86,87%	9,63%	6,88%
Legal entities	1 079	12,17%	88,74%	91,96%
Of whom, domiciled in Sweden	740	8,35%	72,70%	80,51%
Total	8 864	100,00%	100,00%	100,00%
Of whom, domiciled in Sweden	8 440	95,22%	82,33%	87,38%

Total	8 864	100,00%	100,00%	100,00%
Rest of the world	48	0,54%	0,36%	0,26%
US	52	0,59%	6,20%	4,43%
Rest of Europe (exc. Sweden/Nordic region)	232	2,62%	7,10%	5,07%
Other Nordic countries	92	1,04%	4,01%	2,86%
Domiciled in Sweden	8 440	95,21%	82,33%	87,38%

Number of shares per shareholder, 31 Dec. 2008

	Number of	Number of Shareholders Class A shares Class B shares	Number of	Holding (%)	Voting (%)
1 - 500	7 713	0	726 251	2,74%	1,95%
501 - 1000	509	0	379 464	1,43%	1,02%
1001 - 5000	457	0	907 447	3,42%	2,44%
5001 - 10000	50	0	354 952	1,34%	0,95%
10001 - 15000	29	0	365 865	1,38%	0,98%
15001 - 20000	17	0	302 555	1,14%	0,81%
20001 -	89	1 181 250	22 334 193	88,55%	91,85%
Total	8 864	1 181 250	25 370 727	100,00%	100,00%

	Number of	Number of	Holding	Voting
Shareholder	Class A shares	Class B shares	(%)	(%)
Financial companies	0	8 376 604	31,55%	22,52%
Of whom, banks and funds	0	6 562 475	24,72%	17,64%
Of whom, insurance companies and pension institutions	0	1 814 129	6,83%	4,88%
Other finance companies	0	420	0,00%	0,00%
Social insurance funds	0	687 134	2,59%	1,85%
State	0	123 312	0,46%	0,33%
Municipal sector	0	8 072	0,03%	0,02%
Interest organisations	0	151 519	0,57%	0,41%
Other Swedish legal entities	1 181 250	8 754 524	37,42%	55,31%
Uncategorised legal entities	0	21 658	0,08%	0,06%
Foreign-domiciled individuals	0	4 690 781	17,67%	12,62%
Swedish individuals	0	2 556 703	9,63%	6,88%
Total	1 181 250	25 370 727	100,00%	100,00%

Shareholder categories, 31 Dec. 2008

Business area HEXPOL Compounding

Strong growth and healthy margins in a gradually more difficult market

HEXPOL Compounding in brief

Operations

HEXPOL Compounding is one of the world's leading suppliers in the development and production of advanced, high-quality rubber compounds.

Market

The market is global and the largest end-user is the automotive industry. Other key segments include the construction and infrastructure, cable, water treatment and pharmaceutical sectors as well as the energy and oil industries.

Customers

Manufacturers of rubber products that place stringent demands on performance and global delivery capabilities.

Sales: 2 425 MSEK (1 955)

Operating profit: 224 MSEK (195)

Average number of employees: 801 (579)

Operating units

HEXPOL Compounding Belgium, Eupen, Belgium MD: Nico Weber
HEXPOL Compounding Sweden, Gislaved, Sweden MD: Lars-Åke Bylander
HEXPOL Compounding Germany, Hückelhoven, Germany MD: Thomas Rong
HEXPOL Compounding China, Qingdao, China MD: Han Lee
HEXPOL Compounding Czech Republic, Unicov, Czech Republic MD: Milos Pitela
HEXPOL Compounding Mexico, Aguascalientes, Mexico MD: Saul Reyes
HEXPOL Compounding North Carolina, Statesville, North Carolina, USA MD: Shannon Smith
GoldKey, Middlefield, Ohio, USA MD: Randy Simpson
HEXPOL Compounding Canada, Magog, Canada MD: Daniel Low

HEXPOL Compounding is one of the world's leading suppliers in the development and production of advanced, high-quality rubber compounds, and one of only a few truly global companies in the industry.

HEXPOL Compounding offers customers advanced rubber compounds and world-class services. Longterm growth, which is an overall objective, is achieved through effective organisations in a safe environment characterised by continuous improvements. This is made possible by well-trained and highly skilled employees who are proud of their work and do their utmost to satisfy our customers.

Market

Customers of the HEXPOL Compounding business area comprise manufacturers of rubber products that place stringent demands on performance and global delivery capabilities. The largest market segment is the automotive industry. Other key segments include construction and infrastructure, the cable, water treatment and pharmaceutical sectors, as well as the energy and oil industries.

The automotive industry currently accounts for slightly more than 60 percent of HEXPOL Compounding's sales. A modern passenger car contains hundreds of rubber components and a luxury car, for example, contains more than 50 metres of sealing strips. For many car manufacturers, particularly in the premium segment, high-quality sealing strips represent a key component, since the strip often influences the endcustomer's quality impressions in the form of quiet performance. HEXPOL Compounding is a leading supplier of synthetic rubber compounds in this area,

in such areas as sealing strips for the automotive industry.

All major manufacturers in the automotive industry and their system suppliers are global companies. These factors favour HEXPOL Compounding, which focuses on global delivery capabilities for the market's best products, with identical quality regardless of the production unit.

The long-term trend in the global automotive market reflects increasing growth. The number of light vehicles manufactured in the next few years is expected to increase, mainly due to greater demand from emerging markets such as China and India. However, 2009 will be a challenging year based on forecasts of reduced vehicle production. According to statistics from CSM, approximately 65 million new light vehicles were manufactured during 2008. Production declined as early as during 2008 and, in North America, a weak production trend is expected in the next few years. This is being offset primarily by markets in southern Asia, China and South America, where strong growth is expected in the next few years.

According to forecasts by CSM, global production of light vehicles in 2012 is projected at about 75 million new units, equal to an average annual increase of almost 4 percent. At the same time, the industry is undergoing extensive changes.

Many manufacturers are gradually transferring parts of their production to low-cost countries and to new, more expansive markets such as Eastern Europe, China, India and Mexico. For suppliers, this trend is leading to demands from customers to follow suit and offer production in these new markets. As a result of these trends, HEXPOL Compounding has established units in Mexico and China. Operations were already established in the Czech Republic, where the business area has its largest production plant, which supplies the markets in Central and Eastern Europe.

In addition to the business expansion outlined above, Japanese and Korean automotive manufacturers are also increasing their global and regional production operations. HEXPOL Compounding has positioned itself favourably to meet these market changes.

North Carolina, USA

HEXPOL Compounding's operating units

Unit	Location	Average number of employees	Surface area m2	Production capacity
HEXPOL Compounding Belgium	Eupen, Belgium	81	3 400	16 000 ton
HEXPOL Compounding Sweden	Gislaved, Sweden	85	9 200	16 000 ton
HEXPOL Compounding Germany	Hückelhoven, Germany	87	5 420	35 000 ton
HEXPOL Compounding China	Qingdao, China	32	4 500	12 000 ton
HEXPOL Compounding Czech Republic	Unicov, Czech Republic	124	8 590	32 000 ton
HEXPOL Compounding Mexico	Aguascalientes, Mexico	73	6 500	18 000 ton
HEXPOL Compounding North Carolina	Statesville, North Carolina, USA	89	3 400	16 000 ton
GoldKey Processing	Middlefield, Ohio, USA	163	14 864	40 000 ton
HEXPOL Compounding Canada	Magog, Canada	67	4 617	16 000 ton
Total		801	60 491	201 000 tonnes

Organisation

HEXPOL Compounding's operations are divided geographically into three regions comprising Europe, NAFTA and Asia, and include nine production plants. Sales in Europe and Asia are managed from Belgium, while sales in NAFTA are managed from the US. A global unit in Belgium provides service to the production units and assumes global responsibility for:

research and development (coordination between production plants and development of new materials and products),
global customer agreements (global solutions in all parts of the world),
global delivery agreements (strategic supplier choices, price negotiations),
engineering (design equipment to meet requirements),
information and communications technology (critical software, information databases),
quality systems (best practices, continued improvement)
training.

Although all production units are structured as separate companies with complete organisational functions for sales, product development and production, they also cooperate closely with each other in all areas. Services to major customers are also coordinated globally with Key Account Managers.

Operating units

All HEXPOL Compounding plants maintain worldclass standards, and several units are completely new. The plants are also similar in terms of technological capabilities. Knowledge and experience of working with production equipment are excellent throughout the Group, which facilitates service and improvement efforts. Transfers of production operations are also facilitated by the uniform technical standards applied in various parts of the world.

The recently acquired company GoldKey Processing in Middlefield, Ohio, USA, specialises in advanced elastomeric applications outside the automotive industry, including applications for the aerospace, pharmaceutical packaging and textile industries. As a result, GoldKey complements the Group's other units.

The Group's rapidly growing unit in the Czech Republic is favourably positioned to meet market demand from Central and Eastern Europe.

HEXPOL started operations at a new plant in Mexico during the autumn of 2007. Some production equipment from the plant in Canada was transferred to the new unit and an additional compounding

Tracy Garrison, President HEXPOL Compounding NAFTA

Ralph Wolkener, President HEXPOL Compounding Europe/Asia

Carsten Rüter, President HEXPOL Compounding Technology

HEXPOL Compounding

Lars-Åke Bylander, MD HEXPOL Compounding Sweden

Han Lee, MD HEXPOL Compounding China

Milos Pitela, MD HEXPOL Compounding Czech Republic

Saul Reyes, MD HEXPOL Compounding Mexico

Belgium

Shannon Smith, MD HEXPOL Compounding N.C.

Randy Simpson, MD GoldKey Processing

Daniel Low, MD HEXPOL Compounding Canada

line was installed in the summer of 2008. The plant got off to a good start and production is increasing steadily.

HEXPOL's plant in China was placed in operation during the summer of 2007. The purpose of the investment was to offer deliveries to existing customers with operations in China. With these operations as a base, the Group also plans to start cultivating local customers. The establishment of the operations has proceeded as planned. Production capacity for all Group units totals about 201,000 tonnes of rubber compounds annually.

Competitors

Only a few large manufacturers of rubber compounds have global operations. These include Excel Polymers, which is owned by a private equity company and conducts operations in the US, Mexico and China. AirBoss, a listed Canadian company with operations in North America, and the family-owned German company Kraiburg, with operations mainly in Europe and China, are other competitors.

There are also many, smaller manufacturers that

operate locally. The competition also consists partly of customers with in-house rubber compound operations. However, due to cost and process-technology considerations, there is a general trend whereby small and midsize rubber companies are facing grow- ing difficulties in maintaining in-house production of rubber compounds, opting instead to outsource a growing percentage of their operations to HEXPOL Compounding's production plants.

HEXPOL Compounding's potential to offer a global concept and cost-effective production of rubber compounds is highly competitive, compared with local and regional competitors, or the customers' in-house production operations.

Technology and products

The rubber compounds that leave HEXPOL Compounding's production plants are processed further by customers through extrusion or injection moulding that provides the components with their final shape. Continuous or discontinuous vulcanisation provides the end-products with their elasticity properties.

HEXPOL Compounding's production plants have an

Local deliveries in Mexico

WocoTech de Mexico is situated in Queretaro, Mexico, and is part of Wocogroup, founded by Franz Joseph Wolf in 1956. The company serves the automotive industry, delivering products designed and industrialised in accordance with globally standardised processes and the latest advances in materials and process technology.

impressive quality assurance system. The entire production process is completely computerised to ensure efficiency and quality. Mixing in a closed mixer is what is termed a batch process and, accordingly, all ingredients must be prepared in compliance with the weight specified in the recipe, or formula. All different weighing stages are monitored by an IT-system to ensure maximum weighing precision and enable the entire batch to be monitored.

Since the formula and the mixing process are both critically important to product quality, the research and development personnel of HEXPOL Compounding are responsible for compositions of the formulas and the mixing process based on the intended application, ingredients and quality requirements.

HEXPOL Compounding does its utmost to support the technological development of the straining methods that are built into the process flow to produce extremely homogenous rubber compounds. With advanced technologies, the plants can easily adapt their processes to meet specific customer requirements. Capitalising on this advanced technology, HEXPOL Compounding is able to offer a number of different

rubber compounds with various product forms, such as strips and rubber granulate.

Modern IT systems and state-of-the-art test instruments are used in quality inspections. After final approval, the products are prepared for further transport together with quality assurance certification and transport documents.

Business model

Production is primarily order-based and focused on a limited number of raw materials. The important rubber compound formulas are often developed in close cooperation with customers and unique expertise is required to achieve optimal production results. For example, about 80 percent of the compounds used in Europe today are based on HEXPOL's own recipes. In most cases, the recipes are HEXPOL's property. Since the raw materials are largely oilbased and exposed to sharp price fluctuation, pricing is renegotiated several times every year. Sales are invoiced mainly through HEXPOL's own sales force.

The concept "Think global, act local" accurately describes how HEXPOL Compounding functions.

Wocogroup is a company with its headquarters in Bad Soden-Salmünster (Germany), production and sales locations in more than 20 countries and 3,000 employees. It has conducted operations in Mexico since 1994 and as WocoTech de Mexico since 2008. The company's main customers are OEMs and Tier 1 manufacturers, both in the country and abroad. Woco manufactures motor acoustic products, polymer systems and actuators.

In 2007, when HEXPOL Compounding Mexico started operations, contact was initiated between companies in Mexico and Germany with the aim of developing compounds and using as many local ingredients as possible. This decision is in line with the policies of both Wocogroup and HEXPOL to operate locally. Cost reductions are achieved through

the use of local raw materials, a decrease in freight costs and inventories and increased flexibility for the planning of material consumption.

As requested in the automotive industry, all compounds underwent a qualification stage based on start-up plans, which were managed by cross-functional teams from both companies. The various features included an initial technical analysis, testing, a second technical review and thereafter production approval. Acting as a combined team and using the expertise of both our companies' technical departments, we managed to hasten the approval of all recipes.

We believe the key to the success of this business relationship has been teamwork and

the focus on customer service. The communication between our companies is constant at all levels and we both know we have a win/win arrangement that makes us stronger in the face of the increasing challenges of today's market.

Success story

2008 Parker Supplier Award

Parker Hannifin's Hose Products Division awarded the 2008 Parker Supplier Award for "Excellence in Supporting HPD Development and Technology" to GoldKey Processing, Inc. at the division's annual supplier meeting. Parker is the market leader in all aspects of motion and control, with revenues exceeding 10 USD billion, 57,000 employees, 900,000 products and 300 production plants serving more than 1,200 markets.

Lonnie Gallup - Vice President Parker Global Hose Products; Steve Harsch - Sr. Chemist, GoldKey accepting the award, Anne Lane - HPD Supply Chain Mgr., Beth Byrd – HPD Operations Manager.

Strategy

production costs.

Focus on innovation and cost effectiveness The operations of HEXPOL Compounding are focused on production and sales of high-quality products developed in close cooperation with demanding customers. The business area consciously aims to

Further growth in existing and new markets

develop products that lower its customers' total

HEXPOL Compounding is well-positioned to increase its market shares in existing markets and use its strong global presence to increase volumes in new markets.

High-quality products for demanding applications

HEXPOL Compounding's primary customer segments are the automotive and construction sectors. Customers in the automotive industry are not the automotive manufacturers themselves, but rather large system suppliers to vehicle manufacturers

(Tier 1). However, it is essential that these system suppliers meet the automotive industry's meticulous demands.

Close relations with strong customers

Growth is further boosted by cooperation with customers operating in expansive markets such as the automotive market, which is growing when viewed overall. However, it is also important to serve as a supplier to automotive manufacturers that are increasing their market shares. HEXPOL Compounding has a well-balanced customer structure that includes substantial deliveries to expansive Japanese and Korean manufacturers.

Continuous improvements

HEXPOL Compounding works continuously to improve the processes used within the organisation. One example is the internal benchmarking of production data, which creates a strong drive for operating units to pursue best practice.

This award is the culmination of years of building a strong relationship between customer and supplier. GoldKey started supplying Parker's Green Camp facility in Ohio in 1998, when the decision was made to shut down Parker's mixer. Over a period of several months, GoldKey was quickly approved to supply more than 60 different formulations. By the end of 1998, GoldKey was supplying the Green Camp location with close to 200 tones of compound monthly.

In 2004, Parker announced the closure of its Green Camp facility. Production was moved to other plants in North America and Gold-Key continued to serve as a supplier.

GoldKey's technical team works closely with the Hose Product Division's engineers and chemists to enhance current product performance, such as improving low temperature brittleness and abrasion resistance. In addition, our teams work together to identify

lower cost alternatives, replacements for obsolete materials and material design for new applications.

GoldKey has four full-time chemists. Technical support is structured with a lead chemist for each customer. Steve Harsch is development chemist assigned as the main contact for all Parker divisions. Kevin Dominic, GoldKey's process engineer, is responsible for the development of mixing procedures for production compounds.

Over the past two years, GoldKey's development team has worked on more than 40 different compounds with Parker's Hose Product Division. This work has encompassed nearly 200 laboratory projects and 800 individual kilogram laboratory batches.

Parker and GoldKey technical staff have worked on developing coloured hoses for use by fire and rescue personnel in connecting

the hydraulic lines for the "Jaws of Life". Having red, blue and yellow coloured compounds provides easy identification and reduces the possibility of making incorrect connections when time is critical.

Other projects include improving low temperature flexibility for hydraulic hoses used in arctic conditions, increasing abrasion resistance and maintaining and lowering costs.

GoldKey currently supplies 18 Parker plants representing the following: Hose Products Division, Industrial Hose Products Division, Engineered Seals Division, Tech Seals Division, O-Ring Division, Engineered Polymer Division, Stratoflex Division and Mobile Climate Systems Divisions.

Brands

HEXPOL Compounding serves customers under two brands: HEXPOL and GoldKey. The HEXPOL brand is used globally in all markets. GoldKey is a wellestablished brand in its niches of the North American market.

Operations in 2008

HEXPOL Compounding had a strong year in 2008. Sales increased 24 percent to 2,425 MSEK (1 955) and operating profit rose 15 percent to 224 MSEK (195). The operating margin amounted to 9.2 percent (10.0).

HEXPOL is one of the few truly global players in the segment for advanced rubber compounds and its leading position was strengthened during the year through robust growth, including growth in emerging markets. Strong growth was noted in Mexico as a result of new volumes to the international automotive industry, which has sharply increased its presence in Mexico. The new unit in China continued to grow, although not as rapidly as hoped. Significant successes were achieved in Eastern Europe through new volumes, primarily to the expansive automotive industry. In the US, GoldKey Processing, which was acquired in late 2007, was successfully integrated. GoldKey,

Business area brands:

which has most of its customers companies outside the automotive sector, including substantial volumes in the medical, aerospace, oil and energy sectors, developed well in 2008.

In Europe, strong demand was noted for all Compounding companies until the close of the third quarter, but the year ended with weak volumes, particularly from the automotive industry, as most manufacturers dramatically reduced their volumes during the fourth quarter.

Very substantial increases in raw material prices were also noted during 2008. After difficult price negotiations, supplier replacements and changes in product formulas, we were able to offset the increases in raw material prices and, as a result, the impact on our operating margins was only slight. At yearend, however, changes took place in the raw material situation, and prices started to decline.

The technology and process departments, which are critical aspects of operations, were strengthened during the year in numerical terms and in terms of level.

Future outlook and priorities

HEXPOL Compounding aims to strengthen its position as a global market leader in the development and supply

of high-quality rubber compounds to customers with meticulous demands, such as the automotive industry. The strategy also focuses on increasing sales in other demanding application areas, such as cable, water management, pharmaceuticals, and the energy and oil industries. One of the challenges facing the business area today is the need to manage the volatile raw material environment through continued efforts to develop more cost-effective solutions, or through price adjustments in the market.

HEXPOL Compounding is well positioned for continued growth, both from a geographic and applications perspective.

However, 2009 will be a challenging year and priorities will focus on increasing market shares through technological and process development. Continued efforts to grow geographically in emerging markets, such as Mexico, China and Eastern Europe, will also be assigned priority. HEXPOL Compounding's market shares outside the automotive sector continue to increase as a result of many new applications, mainly deriving from the acquisition of GoldKey.

HEXPOL Compounding four year summary

Operating profit, quarterly (MSEK)

Investments (MSEK)

Percentage of consolidated net sales (%)

Business area HEXPOL Engineered Products Lower growth and pressure on prices

HEXPOL Engineered Products in brief

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 truck industry. Moreover, the business area is a major player in rubber profiles in the Scandinavian market.

Market: The market for gaskets and wheels is global. HEXPOL has production units in Europe and Asia (as well as in North America for wheels). The market for profiles is Scandinavian.

Customers: Manufacturers of plate heat exchangers, forklift trucks and castor wheels, as well as the construction and engineering industries for profiles.

Sales: 765 MSEK (775)

Operating profit: 86 MSEK (110)

Average number of employees: 1 508 (1 536)

Operating units

Gislaved Gummi Gaskets, Gislaved, Sweden MD: Lars-Åke Bylander
Elastomeric Gaskets, Bokundura, Sri Lanka MD: Roger Jonsson
Gislaved Gummi China, Qingdao, China MD: Jeff Liu
Stellana Sweden, Laxå, Sweden MD: Peter Kruk
Stellana US, Lake Geneva, Wisconsin, USA MD: Peter Kruk
Elastomeric Wheels, Horana, Sri Lanka MD: Roger Jonsson
Stellana China, Qingdao, China MD: Kalle Liu
Gislaved Gummi Profiles, Gislaved, Sweden MD: Lars-Åke Bylander

Supported by comprehensive expertise in polymers and the production of rubber, plastic and polyurethane products, HEXPOL Engineered Products has captured a position of global leadership as a supplier of sophisticated products such as gaskets for plate heat exchangers and wheels for the forklift truck industry.

HEXPOL Engineered Products has a long history as a manufacturer of rubber components. Based on compounds produced in-house, the Group manufactures finished rubber components through various production methods such as extrusion and form pressing.

Market

The market for HEXPOL Gaskets consists mainly of manufacturers of plate heat exchangers. The market is highly expansive, since the widespread interest in energy savings and environmental issues is driving demand for products manufactured by the product area's customers.

Particularly strong growth has been noted in gaskets for plate heat exchangers for the market segment comprising biofuels, oil and gas. In recent years, HEXPOL Gaskets has benefited from the continued expansion of ethanol production in the US and Brazil. Since the industry is relatively new and energyintensive, the need for new plate heat exchangers is considerable. Strong growth also characterises the segments comprising air conditioning and district heating, driven in part by higher living standards in developing nations. HEXPOL Gaskets is currently a supplier to all major OEM manufacturers of plate heat exchangers. Overall, the global market is dominated by about ten major manufacturers. In addition, rapid progress is now being made in China, where a number of manufacturers are established. The aftermarket is believed to account for about one-fourth of today's total market.

In the HEXPOL Wheels product area, customers are mainly manufacturers of forklift trucks and castor wheels. A consolidation process is now in progress in the expansive forklift truck market, which is dominated by a handful of major players. Global annual sales of new trucks totals about 825,000 units divided between counterbalanced trucks and electric warehouse trucks. The aftermarket for spare parts and new wheels is critical in terms of size.

The market for warehouse trucks is dominated mainly by Western European and North American manufacturers, although several of these companies are owned by Japanese business interests. The market for castor wheels is not characterised by the same degree of consolidation and, in addition to a limited number of major players, includes a large number of

locally active companies in all parts of the world. For HEXPOL Profiles, the market consists mainly of Scandinavian manufacturers of products for the construction industry and other engineering sectors.

Organisation

The business area is divided into three product areas: Gaskets, Wheels and Profiles. It is managed from the Group's head office in Malmö, Sweden, with the Gaskets and Profiles products areas managed from Gislaved, Sweden and the Wheels product area from Laxå, Sweden.

Strategy

The business strategy of HEXPOL Engineered Products focuses strictly on niche sectors that offer potential for the business area to become one of the leading players. The strategy is also formulated specifically to refrain from product segments where HEXPOL Engineered Products could run the risk of competing with its customers in rubber compounds.

GASKETS

Horana, Sri Lanka WHEELS

Qingdao, China WHEELS

Qingdao, China GASKETS

Operating units, HEXPOL Engineered Products

Unit	Location	Average number of employees	Area m2
HEXPOL GASKETS
Gislaved Gummi Gaskets	Gislaved, Sweden	180	8 000
Elastomeric Gaskets	Bokundara, Sri Lanka	552	7 000
Gislaved Gummi China	Qingdao, China	15	8 000
Total		747	23 000
HEXPOL WHEELS
Stellana Sweden	Laxå, Sweden	96	8 000
Stellana US	Lake Geneva, Wisconsin, USA	49	6 660
Elastomeric Wheels	Horana, Sri Lanka	568	16 590
Stellana China	Qingdao, China	12	1 080
Total		725	32 330
HEXPOL PROFILES
Gislaved Gummi Profiles	Gislaved, Sweden	36	5 700
Total		36	5 700

Brands

HEXPOL Engineered Products' customer interface is via a number of well-established brands. HEXPOL Gaskets uses the Gislaved Gummi brand, which is well-known and highly reputed throughout the global market. HEXPOL Wheels uses the Stellana and Elastomeric brands internationally. HEXPOL Profiles uses the Gislaved Gummi brand.

Operating units

HEXPOL Gaskets currently has two gasket production units in operation: one in Gislaved, Sweden, and the other in Sri Lanka. Due to the need for additional production capacity and closer proximity to major customers, a third production plant has been built in China. This new unit will be commissioned in stages during 2009. All production units are equipped with modern production machinery that meets the requirements for rational and cost-effective production.

HEXPOL Wheels has four operating units: Laxå in Sweden, Lake Geneva in the US, Horana in Sri Lanka and Qingdao in China.

HEXPOL Profiles' operations are conducted in close association with compounding operations in Gislaved, Sweden.

Competitors

In addition to HEXPOL Gaskets, the product segment includes only a few major suppliers, the most prominent of which is the British company TRP, with operations in the UK, Dubai and Romania. Some OEM manufacturers of plate heat exchangers also have proprietary gasket production operations. In this context, the HEXPOL Group's collective compounding and polymers expertise is a critical competitive advantage.

HEXPOL is one of the world's largest players in the Wheels product segment. There are about 10 major manufacturers of polyurethane wheels worldwide, including HEXPOL Wheels. The company's main competitors are the German family-owned companies Räder-Vogel and Wicke in Europe, with the latter also owning a castor wheel plant in China; and the family-owned Thombert in North America. Other competitors consist mainly of locally active, familyowned companies. The relatively fragmented market offers opportunities for continued growth through acquisitions.

The Scandinavian market served by the Profiles product area is dominated by Trelleborg. HEXPOL Profiles is positioned as Number 2 in the Scandinavian market.

Operations in 2008

Relatively stable sales were noted in 2008 but thinner margins due to pressure on prices. Sales totalled 765 MSEK (775) and operating profit declined to 86 MSEK (110). The operating margin dipped to 11.2 percent (14.2).

The decline in earnings was due primarily to the inability to offset higher materials prices, lower volumes and exchange-rate losses in Sri Lanka.

Volumes in gasket operations gradually declined during the year, with a decline in the number of major project-related orders. Castor wheel volumes from Sri Lanka showed a rising trend, while demand for polyurethane wheels for the forklift truck industry declined towards the close of the year, leading to low capacity utilisation in Stellana's plants in the US and Sweden. During the year, we also launched a number of new products, including perfectly balanced wheels.

Business area brands:

Demand for our profiles from construction-related customers in Scandinavia also declined. This decline in volume was partly offset by the emergence of new customers in this segment. The workforce was reduced during the year in all of the business area's units.

Outlook and priorities

Demand for energy-effective solutions is rising sharply. The market for heat exchangers shows continuing growth, with new applications and geographic markets. This favours demand for gaskets for heat exchangers. During 2009, we will assign priority to increasing our market shares and broadening our sales geographically. An intensive and focused sales programme will be conducted in the Chinese market ahead of the start-up of our gasket plant in China, which will open during the first six month of 2009. Our focus is on global international companies with an advanced and high level of technology.

Demand for materials handling is rising in pace with ever-larger volumes of goods. This favours the demand for our wheels. In wheel operations, we plan to continue our expansion in China, where we commissioned a plant in 2008. Other priorities include higher market shares for polyurethane wheels for OEM manufacturers, a further focus on the aftermarket and continuing product development.

HEXPOL Engineered Products four year summary

Q1

Q2 Q3 Q4

Operating margin, quarterly (%)

Q1 Q2 Q3 Q4

Percentage of consolidated net sales (%)

HEXPOL Gaskets

Technology and products

Gaskets for plate heat exchangers comprise the largest segment of the product area. The gaskets are manufactured through form moulding.

Stringent demands on product quality present a challenge for manufacturers of gaskets for plate heat exchangers. Accordingly, HEXPOL Gaskets makes determined efforts to continuously improve the quality control systems in production. The product area is ISO 9001/14001 certified. All process parameters that are critical for product quality and performance are also controlled through technical coordination, and the gaskets are identical regardless of production site. Throughput times from order booking to series deliveries are minimised through proprietary production of gasket tools/moulds in Sri Lanka.

Business model and strategy

The constituent rubber compounds needed for the product area's manufacturing operations are purchased internally in the Group and refined to create

Success story

Gaskets from HEXPOL heat and cool the Petronas Twin Towers

Business area HEXPOL Engineered Products is one of the world's leading manufacturers of gaskets for plate heat exchangers. Marketing is conducted under the "Gislaved Gummi" brand.

products that are sold to OEM manufacturers. Lowvolume products – characterised by a high level of customer adaptation – account for a small percentage of total sales. Such short series items are produced directly to customer order. Production planning for volume products is based on customer forecasts, thus minimising inventory costs, and deliveries are made directly from warehouses. Through Internetbased solutions, customers are able to access inventory balance figures, which provide increased oppor tunities to plan their proprietary production. Gaskets are produced in large volumes in Sri Lanka, while gaskets in smaller volumes and advanced material qualities are produced in Sweden.

Organisation

The product area's management team is located in Gislaved, Sweden, which serves as the base for global sales management activities. Sales personnel have been recruited to work at the Group unit in Qingdao, China, which develops sales in the Chinese market. Deliveries to other markets in Asia are managed directly from the plant in Gislaved, or the plant in Bokundara, Sri Lanka. All other gaskets manufactured in Sri Lanka are shipped first to the central warehouse in Gislaved before distribution to customers, along with gaskets produced in Gislaved.

Operating units

HEXPOL Gaskets currently has two gasket production units in operation, one in Gislaved, Sweden, and the other in Bokundara, Sri Lanka. Due to the need for additional production capacity and closer proximity to major customers, a third production plant has been built in Qingdao, China. The new unit will be placed in operation gradually during 2009. All production units are equipped with modern production machinery, which provides the conditions for rational and cost-effective production.

China has been the fastest growing market for plate heat exchangers for the past several years. Today, many of the product area's customers are already established there and receive their gasket supplies from HEXPOL Gaskets in Gislaved, Sweden. The current trend indicates that even more customers will establish proprietary production in China. Domestic production of plate heat exchangers in

Gaskets from Gislaved Gummi are used in all areas in which gasketequipped plate heat exchangers are deployed. Examples of application areas are ships, the chemical industry, nuclear power plants, thermal power plants, food processing, breweries, biofuel, oil and gas, and heating and air conditioning (HVAC). Over a number of decades, Gislaved Gummi and Alfa Laval have pursued close cooperation in the development and manufacture of gaskets for demanding applications.

High, large and spectacular buildings are changing the urban landscape worldwide. Heating, cooling and water supply are major challenges in these towering, spectacular buildings. Each of these systems must maintain constant pressure and temperature at all heights – despite the power of gravity. In close cooperation with customers and suppliers, Alfa Laval develops and markets heat exchangers across a broad spectrum of heating/cooling and industrial applications. Alfa Laval has more than 60 years of experience in this area, with more than 50,000 heating and cooling installations throughout all climate zones worldwide.

One of these installations is in the Petronas Twin Towers in Kuala Lumpur, Malaysia. With its height of 451 metres, 88 floors and 78 lifts, these two towers are the world's largest building complex of the type. Halfway up, visitors can wander between the towers on the world's highest double-decked bridge. It is no easy task to supply 395,000 square metres of office facilities with continual and pleasant air conditioning. Four very large gasket-equipped plate heat exchangers from Alfa Laval function as district cooling plants, while six others function as distributors on intermediate levels.

Gislaved Gummi has manufactured gaskets for plate heat exchangers since the 1960s and, over the years, it has developed its position to the extent that it is now a global market-leading company. This has been achieved by means of a sharp focus on materials development, logistics and the technological development of production. Today, the company conducts manufacturing in Sweden, China and Sri Lanka.

China is growing rapidly, but the gaskets are often low-performance products. Through the establish ment of proprietary operations in China, HEXPOL Gaskets will narrow the gap to existing customers with their own production in the country, but also gain much better access to the domestic market. For customers that place high demands on product quality, the establishment of operations by HEXPOL Gaskets will provide a welcome alternative to the present domestic production. From a geographical perspective, the plant in China is situated in a central location that provides access to most domestic manufacturers of plate heat exchangers.

During 2008, HEXPOL Gaskets will also establish a functional laboratory in China to provide on-site examples of the quality differences between different gasket producers. An initial contract was signed in the spring of 2008 for deliveries of gaskets to one of the largest domestic manufacturers of plate heat exchangers in China.

Lars-Åke Bylander, President HEXPOL Gaskets, MD Gislaved Gummi

Roger Jonsson, MD Elastomeric Gaskets

Jeff Liu, MD Gislaved Gummi China

HEXPOL Wheels

Technology and products

HEXPOL Wheels offers customers a broad product palette of wheels in several different materials with various properties, such as polyurethane, natural rubber, thermoplastic and thermosets.

By combining first-class raw materials with continuous supervision of the entire production process, extremely high-quality products are produced. Modern injection moulds and a high degree of automation provide efficient production that result in cost-effective products.

Five types of products produced by HEXPOL Wheels:

Polyurethane wheels
Thermoplastic wheels
Rubber wheels and tyres
Solid rubber tyres
Various special products comprising the materials presented above.

Depending on the intended purpose of the wheel, widely varying demands can be imposed. For warehouse trucks, Vulkollan is the market-leading polyurethane material in Europe. The material is highly wear resistant and can cope with heavy loads without being deformed. The Vulkollan brand is owned by Bayer Material Science. Today, HEXPOL Wheels is one of the leading producers of Vulkollan wheels for industrial truck manufacturers.

HEXPOL Wheels' laboratory is equipped with a testing device that simulates how a forklift truck is driven. The equipment enables HEXPOL Wheels to actively support the development of wheels for new forklift truck models.

Business model and strategy

In its capacity as a product specialist, HEXPOL Wheels' business concept is to develop, manufacture and market wheels for transport and materialshandling applications. The business model includes the goal of being a natural choice mainly for large

manufacturers of forklift trucks and offering competitive products for replacing used wheels on existing trucks.

HEXPOL Wheels has many years of experience in the industry and of cooperating with key customers. As opposed to most of its competitors, HEXPOL Wheels has a global presence that enhances the Company's value as a business partner in the expansion plans of its customers. One of the reasons for the establishment of a production plant in China was to support a multi-year agreement with a customer who also wanted HEXPOL to serve as its supplier in the Chinese market. With these operations as the base, the domestic Chinese market can now be developed locally.

Organisation

HEXPOL Wheels consists of four units and is managed from Laxå, Sweden. Most marketing operations are conducted regionally, with Stellana in Sweden assuming responsibility for Europe while the NAFTA market is managed by the unit in the US and Elastomeric Wheels in Sri Lanka manages marketing operations in Asia excluding China. The Chinese market is developed from the unit in China.

Success story

Perfectly balanced wheels

Food distribution centres are one of the toughest and most demanding environments for forklifts. The ability to successfully sell wheels, tyres and service to large distribution centres in the North American market commands respect in the industry.

Forklift speeds can exceed 15 km/h, and each run averages 400 meters. Large loads are the rule, rather than the exception. The flooring is uneven and wears heavily on the forklift's wheels.

Stellana was invited to visit Jewel Osco's distribution centre in Chicago to study the problems that they had with load wheels. The centre was using a competitor's Vulkollan wheels on Raymond's 7400 reach truck, and the wheels were well worn after just one working day.

We replaced the competitor's wheels with Raymond 632-052/008 Smoothy load wheels. After four days of testing, Stellana received confirmation that Jewel Osco wanted to switch to Stellana's wheels and tyres. Prior to Stellana providing a solution for Jewel Osco, Raymond risked losing Jewel Osco as a customer, since Jewel Osco had also made inquiries about possible solutions from several other companies. This was a threefold success for Stellana. Firstly, it increases Stellana's annual sales. Secondly, it contributes to strengthening the Stellana brand

within Raymond's reseller network. Finally, it shows that Stellana is a problem solver.

Smoothy tires

Press on tires is a favoured concept in the North American truck market. By press fitting polyurethane treaded steel bands onto a hubs a cost effective solution is achieved as less material is used cf. using solid bolted on iron hubs.

Until recently however one draw back with the press on tires has been the difficulty in securing perfectly round welded steel bands at a reasonable cost. Having non round tires results in vibrations with adverse effect on both operator comforts as well as reduced lifetime of the equipments including the tires. This has become generally accepted as a fact of life and within agreed limits has become something the market has learned to live with.

This no longer needs to be the case. Stellana has through its development efforts and applied knowhow reinvented the wheel, or in this case the press on tire. Through a proprietary production process Stellana is able to produce press on tires with zero TIR (<0.005 cf to the market standard of 0.060) . The Smoothy range of products from Stellana was introduced in 2007 and is exclusively available through the Raymond Corporation (part of Toyota Material Handling North America).

Operating units

HEXPOL Wheels has four operating units: Laxå in Sweden, Lake Geneva in Wisconsin, USA, Horana in Sri Lanka and Qingdao in China.

Stellana Sweden situated in Laxå, Sweden, is a major player in the global market for wheels for electric trucks and forklift trucks. A comprehensive test data bank has been developed through many years of experience in designing wheels, and the company also has a sophisticated wheels laboratory. Supported by the laboratory, HEXPOL Wheels is a leader in the development of new truck models and is able to optimise all properties of truck wheels. Cast polyurethane (including Vulkollan) and polyamide wheels are produced in Laxå, as well as limited volumes of rubber and thermoplastic wheels.

Stellana US in Lake Geneva, Wisconsin, USA, is a major supplier of tyres and cast polyurethane wheels for electric trucks and general industrial applications. During recent years, Stellana US has attracted attention in the US through several new product launches, including Smoothy™.

Elastomeric Wheels situated in Horana, Sri Lanka, manufactures and delivers rubber wheels for castor wheels and solid rubber tyres throughout the world. The plant encompasses the entire spectrum of machinery for the production of cast rubber products, including internal mixers and formmoulding machines for the production of complete wheels with thermoplastic hubs.

Construction of Stellana China, which is located in Qinqdao, China, started towards the end of 2006, and

HEXPOL Wheels, MD Stellana Sweden

Roger Jonsson, MD Elastomeric Wheels

Kalle Liu, MD Stellana China

Peter Kruk, MD Stellana US

production started during the third quarter of 2007. The plant engages in series production of thermoplastic polyamide wheels. In the future, the plant will also be equipped to produce polyurethane wheels. Currently, the unit has not been assigned any global product responsibility, operating instead within Stellana Sweden's area of business.

HEXPOL Profiles

Technology and products

The niche market segment for HEXPOL Profiles comprises thin-walled, rubber and silicone profiles manufactured through a modern extrusion process to meet customer-specific requirements. Production also includes spliced gasket rings/washers for ventilating tubes. Products manufactured by HEXPOL Profiles are characterised by high quality standards that are verified continuously in the production process. HEXPOL Profiles concentrates mainly on customers requiring larger volumes.

Business model and strategy

The rubber compounds used in the extrusion process are purchased within the HEXPOL Group. HEXPOL Profiles seeks to be perceived by the market as a cost-effective manufacturer that creates added value through quality, expertise and delivery reliability.

Competitive advantages are also created through HEXPOL's unique materials expertise, which provides cost and performance advantages. HEXPOL Profiles offers its customers individually customised logistics solutions ranging from traditional customer order-controlled production to solutions whereby HEXPOL Profiles replenishes customer inventories.

Organisation

Operations are concentrated in Gislaved, Sweden where the business area has a proprietary organisational structure for the entire production flow and sales. Overall business management is shared with other operations in Gislaved, however.

Operating units

The operations are conducted in close affiliation with compounding operations in Gislaved, Sweden.

Lars-Åke Bylander, President HEXPOL Profiles, MD Gislaved Gummi

Corporate responsibility

Respect and responsibility in business relations

Corporate responibity is part of the tradition at HEXPOL and is a key component in the long-term creation of value and profitability for shareholders.

For HEXPOL, corporate responsibility entails responsibility and respect in relation to the Group's stakeholders – employees and their families, society in general, customers, suppliers and investors. For HEXPOL, responsible enterprise also entails health, the environment and consideration of the future.

Legislation and guidelines

With operations on three continents and in nine countries, HEXPOL faces a number of legislated requirements. HEXPOL assumes responsibility for complying with legislation and regulations, and also seeks to act as role model in each industry.

The Group shall comply with all applicable ordinances and legislation in all of its business activities. Compliance with export and import ordinances governing international transactions is essential, as is compliance with trade embargoes and economic sanctions as regards particular countries. Representatives of HEXPOL may not give, offer, accept or demand bribes or other inappropriate or unethical benefits. The business guidelines cover all employees of the HEXPOL Group and encourage the reporting of deviations from the guidelines.

Employees

The skills and experience of our workforce represent a key factor for successfully being able to set and achieve goals in day-to-day operations.

Corporate culture plays a major role in efforts to conduct successful research and development. This involves the right approach and attitude. Individuals must dare to risk failure in order to be successful. It is the task of executive management to create a favourable working climate in a true entrepreneurial spirit that promotes creativity and innovation. HEXPOL encourages participation and endeavours to involve all employees in efforts to improve efficiency. Considerable emphasis is placed on creating a

non-bureaucratic culture with prompt decisionmaking channels

Global Group with a local presence

HEXPOL' management philosophy is based on professionalism and confidence. Attaining higher profitability and meeting financial targets requires excellent leadership and motivated employees.

HEXPOL represents a dynamic workplace with employees drawn from all over the world. The executives of HEXPOL's business and product areas represent more than ten nationalities. For a global company like HEXPOL, local expertise is both necessary and crucial for success in a specific geographic market.

For HEXPOL, diversity involves mutual respect. Moreover, the corporate culture encompasses professionalism, competencies, ambition, loyalty and creativity. It is the task of executive management to create a favourable working climate in a true entrepreneurial spirit that encourages innovation.

The average number of employees in HEXPOL in 2008 was 2,315, including six employees in the Parent Company. The number of Group employees at yearend 2008 was 2,230, of whom women accounted for 15 percent. Employees outside Sweden constituted 85 percent of the workforce.

Recruitment and skills development

HEXPOL's employees work in research and development, marketing, sales administration and production. The company's advanced technological level requires qualified and well-educated employees.

As a result of HEXPOL's conviction of the importance of a true local presence in any geographic market, recruitment is mainly conducted at the local level. HEXPOL's employees are entitled to form and affiliate to trade unions and are entitled to collective negotiations. Employees also have complete insight into corporate operations, as well as the right of codetermination in line with the provisions in national legislation.

HEXPOL links occupational skills development to the individual's situation. Senior executives undergo individual management development programmes.

In an effort to take greater advantage of the Group's combined skills, HEXPOL focuses on systematic interaction among its companies and across business area boundaries. Employees from operations worldwide are regularly brought together to discuss Groupwide development projects. Another example is the annual executive conference at which the Group's senior executives gather in order to gain a better

understanding of each other's particular operation and geographical markets.

Equality and work environment

HEXPOL's work environment shall be stimulating and promote individual development. Naturally, it must also meet applicable legislative requirements. No employee should be treated differently on the basis of gender, religion, age, functional disability, sexual orientation, nationality political opinions or origin.

Measures to ensure employees' health and safety is driven by local conditions and rules. HEXPOL's efforts to improve the working environment is run in cooperation between employers, employees and trade unions.

Remuneration

Since the right person can be of crucial importance to HEXPOL's success in a business segment or in a geographic market, it is vital that remuneration at HEXPOL is market-based and competitive. Variable remuneration linked to the earnings trend that a person can influence is paid in certain areas of the Group. Personnel expenses totalled 468 MSEK in 2008.

Customers and competitors

HEXPOL works continuously to develop its products through proprietary research and development and in collaboration with customers in a bid to satisfy market requirements and demands. Professionalism and a high level of service are hallmarks of customer relations. Business decisions are made on the basis of HEXPOL's interest and not on the basis of personal considerations or relations. HEXPOL shall maintain a high level of business ethics and compete honestly in its business operations, as well as in marketing and advertising.

Naturally, the Group complies with local competition rules in each geographic market.

Suppliers

Competitiveness is the main factor determining the selection of suppliers. HEXPOL also pursues the objective of cooperating with suppliers and subsuppliers whose business ethics and work routines comply with HEXPOL's guidelines. In accordance with HEXPOL's supplier policy, preference is also given to suppliers who are environmentally conscious. Among other criteria, one requirement is that Group suppliers comply with HEXPOL's environmental policy.

Shareholders and investors

HEXPOL's aim is to supply the capital market, shareholders and other stakeholders with relevant information that offers a basis for an accurate assessment of the company. The objective is to apply a candid and factual approach and provide a high level of service in financial reporting. This is aimed at strengthening confidence in the company and encouraging interest in HEXPOL among existing and potential shareholders.

HEXPOL complies with customary accounting principles, applies internal controls and drives processes to ensure that accounting and reporting comply with legislation, ordinance and listing agreements. HEXPOL applies a policy of transparency in its reporting and – in line with the Group's information policy – provides the market with well-based, comprehensive information.

HEXPOL's corporate governance is described in the Corporate Governance Report on page 50 and is also available on the Group's website. HEXPOL's website also includes all published financial information such as presentations, press releases, financial reports and annual reports.

Society

HEXPOL endeavours to use its market position in a responsible manner and thus supports and participates in local projects to improve the communities in which the Group is active. These projects are decided on and organised at the local level and by the particular local company.

Environmental awareness offer business opportunities

Over the years, HEXPOL has worked on improvements in areas that affect the environment, work environment and social responsibility. For example, these efforts have involved the recovery of energy from the manufacture of rubber compounds, replacing hazardous chemicals with less hazardous substances and introducing preventive work-environment programmes. Insight into the negative effect that human activities have on the environment is rising rapidly and one can only conclude that we – like many other players – must raise the bar as regards action programmes that contribute to sustainable development. Thus, we believe that it is important to have a long-term strategy for issues that affect the environment, work environment, business ethics and social responsibility. We also see favourable opportunities to create business value through activities in these areas.

Ethical guidelines and environmental policy

During 2008, HEXPOL's Board adopted ethical guidelines and an environmental policy. All senior executives have studied the documents and we are now working

on realising the implied undertakings. The ethical guidelines provide guidance for executives and employees as regards legal issues, reporting, conflicts of interest, and work environment questions, equality, discrimination, and relations with suppliers and issues involving business ethics.

The environmental policy states that it is important for us to work with the following long-term objectives.

Work systematically by introducing environmental management systems at all production facilities.
Work to achieve consistent improvements and identify clear environmental goals.
Utilise the potential to achieve improvements through which we enhance processes, facilities and products.
Comply with environmental and work environment legislation and adopt a favourable approach to changes in legislation.
Provide safe workplaces for our employees
Utilise energy, water and raw materials in an efficient manner.
Reduce emissions and waste volumes and avoid risks in connection with the use of hazardous chemicals.

New chemicals legislation impacts on HEXPOL

The new EU chemicals legislation, referred to as REACH, became effective in 2008. The basic idea is that environmental and health risks associated with chemicals are to be identified as early as possible and that particularly hazardous substances may be subject to restrictions or prohibition. This legislation entails greater responsibility for industry to provide information on the risks involved.

Chemicals

In particular, REACH affects HEXPOL's operations in the HEXPOL Compounding business area. As an initial step, we ensured in 2008

that chemicals included in our rubber compounds were registered in line with the new requirements. Consequently, we contacted all suppliers of chemicals to obtain assurances that the particular substances were registered for use in rubber products in line with REACH.

In a longer perspective, REACH will sharpen the focus on measures to reduce societal risks from the use of chemicals – an area in which HEXPOL has already conducted various measures, although a good deal remains to be done.

Manufacture products that minimise the environmental impact.
Cooperate with suppliers and other business partners to reduce the environmental impact.
Regularly assess performance in the sustainability area and offer candid information to various stakeholders.

HEXPOL's website presents the complete versions of the ethical guidelines and environmental policy

Continuous improvement

Naturally, legislation and social requirements are key driving forces in the environmental and work environment areas. Another significant driving force for us is the potential for cost cutting through more efficient deployment of resources and energy, brand

value, the goals of executives and employees, as well as ever-increasing environmental demands imposed by customers. In the last mentioned case, the environmental demands of the automotive industry are of major significance. The presentation below shows a number of examples of what we have achieved in the environmental area in recent years:

Many of the plants in the HEXPOL Compounding business area were built in recent years. Regardless of where in the world this has occurred, the very best technology available has been deployed for energy recovery, filtration of outlet process air, reduction of water consumption, and efficient waste management.
HEXPOL Compounding is focusing on reducing

Energy and climate

Climate – a key issue for HEXPOL

In recent years, climate issues have attracted considerable attention in the mass media. In particular, ongoing climate change has influenced researchers, decision-makers and the general public. Even if we do not understand the detailed reasons and repercussions of climate change, most people agree that it is time for action.

HEXPOL's operations give rise to emissions of carbon dioxide, a climate-impacting gas. This occurs particularly through energy consumption at plants and in the transport of raw materials, products and people. During the year, we conducted our first survey to quantify emissions. A key finding was that the actions by HEXPOL to cut energy consumption also reduced climate impact. During the year, we conducted activities at a number of manufacturing facilities to decrease energy consumption – activities in which the environment and business economics go hand in hand.

the use of substances hazardous to the environmental and health. Examples include a reduction in the use of zinc oxide; the almost total elimination of lead as an input; introduction of nitrosamine-free vulcanisation systems; replacement of high-aromatic oils (HA oils) by paraffin oils; and the phase-out of certain phthalates (DOP).

• Many activities have been conducted in an effort to utilise waste products in an environmentally compatible manner. One example of this is the recycling of rubber waste in certain product groups.

The environment and business

We expect to see continuing high social interest in

questions related to the environment and sustainable development. By being resource-efficient and proactive, we can reduce our environmental impact and strengthen the company's financial position and brand. We also note that increasing environmental demands favour a number of our product areas; for example:

• We have long complied with demands from the automotive industry to the effect that rubber and other polymers must be free from certain specified substances that are hazardous to the environment and health. Thus, we are prepared for similar demands from other customers, such as the construction industry.

There is considerable interest in energy conservation and climate issues, which is benefiting the market for plate heat exchangers in the Gaskets product area, a market that is expanding.
In recent years, we have been favoured by the expansion of ethanol production as an environmental compatible engine fuel in the US and Brazil. In addition, growth is favourable in the district heating area. Gaskets for heat exchangers are a key component in this context and a good example of where environmental considerations and business go hand in hand.
The manufacture of porous rubber material that offers lower weight for end products. The environmental gain in this case is the reduction in vehicle fuel consumption.

Issues affecting the environment are of interest to many of HEXPOL's customers. In addition to insisting on us having an environmental management system, customers also impose requirements in terms of the environmental performance of our products.

Detailed information on HEXPOL's environmental performance is presented on page 66 of the Annual Report.

Corporate Governance Report

HEXPOL applies a transparent approach to the dissemination of information to shareholders and capital markets. The company is governed in accordance with HEXPOL's Articles of Association, the Swedish Companies Act, the listing agreement and other applicable Swedish and international legislation and regulations.

Group governance and the Swedish Code of Corporate Governance.

HEXPOL's Corporate Governance proceeds processed on the basis of HEXPOL's Articles of Association, the Swedish Companies Act, the listing agreement with NASDAQ OMX Nordic and the Swedish Code of Corporate Governance (the Code) in accordance with the listing agreements with NASDAQ OMX Nordic, HEXPOL applies the Code as of the listing date of 9 June 2008. Deviation from the code is noted in the table below.

This Corporate Governance Report has not been reviewed specifically by the company's auditors.

Articles of Association

HEXPOL's current Articles of Association were adopted on 21 April 2008. The Articles of Association state that the objective of the company's operations is to acquire, own and actively manage shares in industrial, trading and service companies. The company shall also own and manage securities, sell services in the administrative area and pursue other operations compatible therewith.

The Articles of Association formalise issues such as shareholders' rights, the number of Board Members and auditors, the fact that the Annual General Meeting (AGM) is to be held within six months of the end of the financial year; how the notice convening the AGM is to be undertaken; and that the company's Board has its registered office in Malmö, Sweden. The current Articles of Association are available on the company's website.

Annual General Meeting

The Annual General Meeting is HEXPOL's supreme executive body, which all shareholders may attend. Shareholders unable to attend personally may participate by proxy.

The Annual General Meeting (AGM) addresses such matters as the company's development. Resolutions are made on a number of key issues such as the adoption of the income statement and balance sheet, the dividend to be paid, changes in the company's Articles of Association, discharge from liability for the Board and President, election of the Board for the period until the next AGM and the setting of remuneration for the Board and auditors. The company's auditor attends the meeting. The AGM appoints auditors every fourth year.

HEXPOL's 2008 AGM was held on 2 May 2008, at which point the company was a wholly owned subsidiary of Hexagon AB.

An extraordinary meeting of shareholders was held on 18 August 2008, which approved the Board's motion to introduce a warrants programme for senior executives and key people by means of a limited issue of 1,325,000 warrants. The minutes of the meeting and complete information underlying the resolutions and accompanying documents are available on the company's website.

Deviation from the Swedish Code for Corporate Governance

Rule	Rule in the Code	Comments
10.1	The Board shall set up an Audit Committee consisting of three members	To create a vigorous and effective Board, HEXPOL has elected to choose a limited number of Board members. As a result of this, the Audit Committee comprises fewer than three members.

Nomination Committee

HEXPOL's AGM in 2008 approved the establishment of a Nomination Committee consisting of four members representing the largest shareholders in terms of voting rights at the beginning of October. Ahead of the 2009 AGM, the Nomination Committee consisted of the following people:

Mikael Ekdahl, Melker Schörling AB (Chairman)
Anders Algotsson, AFA Försäkring
Henrik Didner, Didner & Gerge Fonder
Åsa Nisell, Swedbank Robur

In the event that a shareholder who is represented by one of the members of the Remuneration Committee ceases being one of the largest shareholders in HEXPOL, or if a member of the committee is no longer employed by such a shareholder or for any other reason leaves the committee prior to the 2009 AGM, the committee is entitled to appoint another representative from among the major shareholders to replace such a member. During the year, the committee held one minuted meeting during which the chairman presented an account of its evaluation work. The Nomination Committee discussed the desired changes and decided that proposals would be submitted ahead of the 2009 AGM in respect of the election of the chairman of the meeting, election of the Chairman and other Board members, director fees and remuneration for committee work.

Board members and organisation

The board members represent solid financial expertise and broad international experience of industrial operations. A detailed description of all of the Board members is presented on page 104 and they can be contacted via HEXPOL's head office.

According to the Articles of Association, HEXPOL's Board is to consist of at least five and no more than ten members. The Board is elected annually at the AGM for the period up until the next AGM. Extraordinary meetings of shareholders in HEXPOL on 28 December 2007 and 2 April 2008 resolved to elect a Board consisting of Melker Schörling (Chairman), Georg Brunstam, Alf Göransson, Malin Persson, Ulrik Svensson, Jan-Anders E. Månson and Maths-Olov Sundqvist. The Board was re-elected at the 2008 AGM for the period up to the end of the 2009 AGM.

At his own request, Maths-Olov Sundqvist resigned from HEXPOL's Board on 7 October 2008.

Board of Directors of HEXPOL AB
---------------------------------	--

	Year of birth	Nationality Elected		Audit Commit- tee	Commit- tee	Independent Renumeration in relation to the company and management holders	Independent in relation to share-	Number of A shares	Number of B shares	Number of warrants
Melker Schörling Chairman	1947	Swedish	2007		Chair	Yes	No	1 181 2501 5 942 0851
Georg Brunstam President and CEO	1957	Swedish	2007			No	No	–	–	225 000
Alf Göransson	1957	Swedish	2007			Yes	No	–	–
Malin Persson	1968	Swedish	2007			Yes	Yes	–	–
Ulrik Svensson	1961	Swedish	2007	Chair	Member	Yes	No	–	–
Jan-Anders E. Månson	1952	Swedish	2008			Yes	Yes	–	–

¹ Through companies.

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 for the Group's organisation and management pursuant to the Swedish Companies Act. The Board also appoints the President and CEO as well as the Audit Committee and Remuneration Committee, and also decides 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

Audit Committee

The Board has appointed an 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 Board assigns the committee to prepare.

The Audit Committee is to meet regularly with HEXPOL's auditors and report back to the Board. The committee has no authority to make decisions but instead presents its findings and proposals to the Board for decisions. The Board appoints the members of HEXPOL's Audit Committee annually. According to the Swedish Code of Corporate Governance, the Board must establish an Audit Committee consisting of at least three board members. Currently, the committee consists of just one member. As part of efforts to create a vigorous and effective

Board, HEXPOL has elected to have a limited number of Board members. As a result, the Audit Committee consists of fewer than three members. The Audit Committee for 2008/2009 comprises Ulrik Svensson (member and Chairman). In 2008, the Audit Committee held two minuted meetings.

Remuneration Committee

The Board established a Remuneration Committee to deal with all questions involving salaries, bonus payments, options, pensions and other forms of remuneration for Group executive management and for other executives, should the Board decide in this respect, as well as other similar issues that the Board assigns the committee to prepare. The committee has no authority to make decisions, but instead presents its findings and proposals to the Board for a decision. The Board appoints the members of HEXPOL's Remuneration Committee annually. For 2008/2009, the committee consists of Melker Schörling (Chairman) and Ulrik Svensson. As HEXPOL was listed in June 2008, the committee has not had any meetings; instead, the committee plans to convene a meeting in early 2009.

Board activities in 2008

In 2008, the Board held seven minuted meetings, in addition to two statutory Board meetings. At all meetings, the CEO provides the Board members with information concerning the Group's financial position and significant events concerning the company's operations.

During 2008, the Board dealt with important issues such as:

6 February	2007 year-end report and listing process
2 April	Statutory Board Meeting
2 May	Statutory Board Meeting
8 May	Interim report for Q1 and adoption of policies ahead of listing
9 June	Decision approving credit agreements
11 July	Proposals for the introduction of incentive programmes
7 August	Interim report, Q2
23 October	Interim report Q3, debriefing from auditors
	15 December Budget for 2009 and strategic plan for the period 2009-2011

During 2008, Board members elected by the AGM attended Board meetings as presented below:

					Feb May June July Aug Oct Dec
Melker Schörling	X	X	X	X	X	X	X
Georg Brunstam	X	X	X	X	X	X	X
Maths-Olov Sundqvist 1	X	X	X	X	X
Alf Göransson	X	X	X		X	X	X
Malin Persson		X	X	X	X	X	X
Ulrik Svensson	X	X	X	X	X	X	X
Jan-Anders E. Månson 2		X	X	X	X	X	X

1 On 7 October 2008, Maths O. Sundqvist resigned from the Board of HEXPOL AB at his own request.

2 Jan-Anders E. Månson was elected to the Board of HEXPOL AB with effect from 2 April 2008.

Auditors

On the behalf of the shareholders, the company's auditors are responsible for examining the annual report and accounting records, as well as the administration of the Board and President. At the extraordinary meetings of shareholders on 2 April 2008 and 21 April 2008, the registered auditing firm, Ernst & Young AB, was selected as the company's auditor through year-end 2011, with the authorised public accountant Ingvar Ganestam as auditor-incharge, with deputy auditors Stefan Engdahl, authorised public accountant, and Johan Thuresson, authorised public accountant, who are employed by Ernst & Young AB and are members of FAR SRS (Swedish accounting organisation). All auditors may be contacted at Ernst & Young AB, Box 7850, SE-103 99 Stockholm.

Group Management

The President and CEO, the CFO and the company's business and product area managers constitute HEXPOL's Group Management. Group Management has overriding responsibility for the Group's operations in line with the strategy and long-term objectives set by the HEXPOL's Board. Regular Group Management 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 company level. The organisation is designed to provide short and prompt decisionmaking processes, with a distinct, decentralised responsibility. Group Management is presented on page 106, with descriptions of their employment period at HEXPOL, educational background, year of birth and shareholding, etc.

Information on remuneration

Refer to Note 5 on page 84 for information on remuneration, pensions and other benefits for the Board, President and other senior executives.

Financial reporting

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

The Board of Directors' report on internal control pertaining to financial reporting for the 2008 financial year

The Code stipulates that the Board of Directors must submit a report on how internal control in respect of financial reporting is organised and how well it has functioned during the year. According to the Code, the company's auditors should also examine the report. However, the company's Board has decided to comply with the statement issued by the Swedish Corporate Governance Board on 5 September 2006, which states that for 2006 and thereafter, it is sufficient if the Board in the corporate governance report limits the report on internal control to a description of how internal control is organised in terms of financial control. Thus the report does not need to include any statement as to how well internal control has functioned. Nor does the report need to be examined by the company's auditors. Internal control in respect of financial reporting is a process that involves the Board, corporate executive management and personnel. The process has been designed so that it provides reasonable assurance of the reliability of external reporting. According to a generally accepted framework that has been established for this purpose, internal control is usually described from five perspectives. These five perspectives serve as subheadings below. As in the case of the corporate governance report in general, the company's auditors have not examined this section. Thus, the report does not constitute part of the formal annual report.

Control environment

HEXPOL's organisation is designed to facilitate rapid decision-making. Accordingly, operational decisions are taken at the business area or subsidiary level, while decisions concerning strategies, acquisitions and divestments and overall financial matters are taken by the company's Board and Group Management. The organisation is characterised by well-defined allocation of responsibility and wellfunctioning and well-established governance and control systems, which apply to all HEXPOL units. The basis for the internal controls pertaining to financial reporting comprises an overall control environment in which the organisation, decisionmaking routes, authorities and responsibilities have been documented and communicated in control documents, such as in HEXPOL's finance policy and financial reporting instructions and in accordance with the authorisation arrangements established by the CEO. HEXPOL's financial control functions are integrated by means of a Groupwide reporting system. The Group's financial control unit engages in close and well-functioning cooperation with the subsidiaries' controllers in terms of the financial statements and the reporting process. The Board's monitoring of the company's assessment of its internal control includes contacts with the company's auditor. HEXPOL has no internal audit function, since the functions described above satisfy this need. All of HEXPOL's subsidiaries report complete financial statements on a monthly basis. This reporting provides the basis for the Group's consolidated financial reporting. Each legal entity has a controller responsible for the business area's financial control and for ensuring that the financial reports are correct, complete and delivered in time for consolidated financial reporting.

Risk assessment

The significant risks affecting the internal control of financial reporting are identified and managed at

Group, business area, subsidiary and unit level. Within the Board, the Audit Committee is responsible for ensuring that significant financial risks and the risk of error in financial reporting are identified and managed in a manner that ensures correct financial reporting. Special priority has been assigned to identifying processes that, relatively speaking, give rise to a higher risk of significant error due to the complexity of the process or of the contexts in which major values are involved.

Control activities

The risks identified with respect to the financial reporting process are managed via the company's control activities, which are designed to prevent, uncover and rectify errors and non-conformities. Their management is conducted by means of manual controls in the form of, for example, reconciliations and audits, automatic controls using IT systems and general controls conducted in the underlying IT environment. Detailed analyses of financial results and follow-ups in relation to budget and forecasts supplement the business-specific controls and provide general confirmation of the quality of financial reporting.

Information and communication

To ensure the completeness and correctness of financial reporting, the Group has formulated information and communication guidelines designed to ensure that relevant and significant information is exchanged within the business, in the particular unit and to and from management and the Board. Guidelines, handbooks and job descriptions pertaining to the financial process are communicated between management and personnel and are accessible electronically and/or in a printed format. Via

the Audit Committee, the Board receives regular feedback in respect of the internal control process. To ensure that the external communication of information is correct and complete, HEXPOL complies with a Board-approved information policy that stipulates what may be communicated, by whom and in what manner.

Follow-up

The efficiency of the process for risk assessment and the implementation of control activities are followed up continuously. The follow-up pertains to both formal and informal procedures used by the officers responsible at each level. The procedures incorporate the follow-up of financial results in relation to budget and plans, analyses and key figures. The Board obtains ongoing reports on the Group's financial position and performance. At each Board meeting, the company's financial position is addressed and, on a monthly basis, management analyses the company's financial reporting at a detailed level. The Audit Committee follows up the financial reporting at its meetings and receives reports from the auditors describing their observations.

Board of Directors' report

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

The Board of Directors and President of HEXPOL AB (publ) registered in Malmö, Sweden, hereby present the annual report and consolidated financial statements for the 2008 financial year. The income statements and balance sheets, specification of shareholders' equity, cash flow statements and the presentation of the applied accounting principles and notes comprise HEXPOL's formal financial reporting.

OPERATIONS AND STRUCTURE

HEXPOL is a leading global polymers group with solid market positions in advanced rubber compounds (Compounding), gaskets for plate heat exchangers (Gaskets) and wheels made of polyurethane, plastic and rubber materials for forklifts and castor wheel applications (Wheels). Customers are mainly OEM manufacturers of plate heat exchangers and forklifts and systems suppliers to players in the global automotive industry. The Group is organised on the basis of two business areas: HEXPOL Compounding and HEXPOL Engineered Products, and has some 2,200 employees in nine countries. Additional information is available at www.hexpol.com.

Financial year 2008

Sales and operating profit

Consolidated sales in 2008 rose 17 percent to 3,190 MSEK (2,730). Exchange-rate effects had a positive impact of 38 MSEK, mainly because of a sharp strengthening of EUR and USD in the fourth quarter. Operating profit advanced to 310 MSEK (305), corresponding to an operating margin of 9.7 percent (11.2).

The HEXPOL Compounding business area increased its sales by 24 percent to 2,425 MSEK (1,955) and operating profit rose by 15 percent to 224 MSEK (195). This corresponds to an operating margin of 9.2 percent (10.0). Growth in the business area was robust during the first nine months of the year before falling back over the course of the last three months. Demand was favourable in Europe, notably during the first six months, and especially so in Eastern Europe where demand from customers active in the automotive industry was buoyant during the first half of the year. At the end of the third quarter – and particularly during the fourth quarter – the situation changed dramatically. Volumes in all units in Europe fell steeply as a result of cutbacks in the automotive industry. In NAFTA, volumes progressed favourably during the first three quarters. Despite the declining the economic trend in the US, resulting in lower volumes, overall volumes rose during this period, primarily due to sharply higher volumes at the newly established plant in Mexico. GoldKey – a company acquired in September 2007 – added to volumes outside the automotive and construction sectors and progress in these segments was stable. However, within NAFTA, we also witnessed steadily lower volumes during the final months of the year. In Asia, the newly established plant in Qingdao, China, gradually increased its volumes, but nevertheless growth was less than expected.

Sales of the HEXPOL Engineered Products business area totalled 765 MSEK (775). Operating profit amounted to 86 MSEK (110), corresponding to an operating margin of 11.2 percent (14.2). Rising volumes were noted for gaskets for plate heat exchangers during the first half of the year. However, lower market activity, fewer major projects and delayed orders resulted in lower volumes during the third and fourth quarters. In the Wheels product area, low volumes and greater pressure on prices – combined with negative exchange rate effects in Sri Lanka – entailed steadily lower profitability during the year.

Financial income and expenses

The Group's net financial expenses during the year totalled 52 MSEK (50).

Tax expense

The Group's tax expense during the year amounted to 75 MSEK (69), corresponding to a tax rate of 29.1 percent (27.1). Tax costs were impacted by the fact

that a substantial share of operating profit is generated in subsidiaries in countries in which the tax rate differs from that in Sweden.

Net profit for the year

Consolidated profit after tax totalled 183 MSEK (186), corresponding to earnings per share of 6.89 SEK (7.01).

Investments and depreciation

HEXPOL's net investments, excluding corporate acquisitions/divestments during the year totalled 105 MSEK (173). Investment for the year consisted primarily of investments in new plants for plate heat exchangers in Qingdao, China, as well as enhancement of production capacity at the rubber compounding facility in Mexico. Deprecation during the year amounted to 93 MSEK (70).

Cash flow

During the period, cash flow from current operations before changes in working capital, rose 5 percent to 280 MSEK (268). Cash flow from current operations totalled 393 MSEK (265). Operating cash flow amounted to 288 MSEK (92).

Profitability

The return on average capital employed was 13.2 percent (15.1). The decline in the return was due to higher capital employed as a result of currency effects during the fourth quarter as well as the effect of the acquisition of GoldKey. The return on average capital employed was 16.8 percent (19.5).

Financial position and liquidity

The equity/assets ratio was 36.1 percent (36.7). The Group's balance sheet total increased to 3,201 MSEK (2,795). The Group's net debt totalled 1,193 MSEK (1,158), with the net debt/equity ratio at a multiple of 1.0 (1.1). The interest coverage ratio was a multiple of 4.2 (5.3). In May 2008, the Group concluded a fiveyear credit agreement covering 1.7 billion SEK with a number of Nordic banks.

PERSONNEL

Principles underlying remuneration of senior executives

Remuneration of the President and Group Management in general shall comprise basic salary, variable remuneration, various benefits and pension. The overall remuneration shall be on market terms and competitive to ensure that the Group can attract and retain competent executives. The variable portion of salary shall be linked to the earnings trend that people can influence and be based on the outcome in relation to individually set goals. Variable remuneration shall be maximised in relation to fixed salary.

The Board's Remuneration Committee deals with matters related to remuneration of Group Management as well as that for other management levels if the Committee so wishes. The Committee reports its proposals to the Board, which makes all decisions on such matters.

Personnel information

The average number of employees during the year was 2,315 (2,120). The number of full-year employees increased during the year in Mexico, China and the US (GoldKey from 1 September, 2007) and declined in Sri Lanka.

Average number of employees

The Group has employees in Sweden, Germany, Belgium, the Czech Republic, Canada, the USA, Mexico, Sri Lanka and China. Of the total workforce, 85% is outside Sweden.

At year-end (31 December 2008), the HEXPOL Group has 2,230 (2,327) employees, of whom HEXPOL Compounding accounted for 762 (751), and HEXPOL Engineered Products for 1,462 (1,572), with 6 (4) employees in the Parent Company.

RISK FACTORS

Industry and market risks

The HEXPOL Group is involved in worldwide operations that depend on both the general economic trend and political situation in the world and conditions that are unique for a certain country or region.

Risk management in the Group is determined by established policies and procedures that are revised continuously by the Board of Directors. The Parent Company's Board has overall responsibility for identifying, monitoring and managing risk.

Impact of economic trends

As is the case for all business operations, the general economic climate affects the propensity to investment and investment capacity of HEXPOL's existing and potential customers. Accordingly, a weak economic trend in all or parts of the world could result in lower-than-expected market growth.

Developments in HEXPOL's customer segments constitute one of the principal risks related to the business environment. This results in stringent demands in terms of understanding of the current and future demands, requirements and wishes of both direct and end customers. To reduce the risk of economic impact, HEXPOL cooperates closely with customers, conducts comprehensive business intelligence work and continuously reviews its selected strategies. Although HEXPOL's operations have a wide geographic spread, and otherwise an extensive customer base, HEXPOL's sales and operations are exposed to a potential risk of being adversely affected by weak economic conditions.

Competition and price pressure

HEXPOL's operations are conducted in sectors subject to competition and are thus affected by, for example, severe price pressure, which in turn drives demand for cost-effective solutions. Competing companies with operations in Asia and other low-cost regions – through improvements of their technology and production expertise – may begin to produce at low

cost and compete with HEXPOL's products. HEXPOL's future competitive capacity is dependent on its ability to utilise the Company's leading-edge expertise in rubber compounds and rubber and plastic products and to transform this know-how into attractive products and customised solutions at competitive prices. To ensure the Company's competitiveness, investments will be required to maintain the Group's prominent position in the area of product development. While constantly striving to adapt to changes in the competitive situation, HEXPOL may also be forced to implement costly restructuring measures to be able to retain the Company's market position and profitability.

Strategic and operational risks

HEXPOL's business is dependent on a number of factors, each of which could significantly affect the Group's earnings either positively or negatively.

Technological progress and market development

Portions of HEXPOL's operations are conducted in industries subject to price pressure and rapid technological advances. To reduce these risks, HEXPOL's ability to compete in this market environment by developing new products that offer improved func tionality while reducing costs for new and existing products is of great importance. Being able to attract the right skills for research, product development, marketing and sales is critical for success.

Materials and energy costs

In recent years, trends in many raw materials markets have resulted in higher purchasing prices for raw materials that are crucial for HEXPOL. To offset continued increases in raw materials prices, HEXPOL devotes considerable effort to increasing production efficiency, developing more cost-effective processes and passing on price increases to customers. Given the competitive market situation, however, there is a risk that HEXPOL will not be able to increase prices sufficiently to fully offset higher costs, thus resulting in reduced margins.

Suppliers

HEXPOL's products consist of raw materials and goods from several different suppliers. To be able to manufacture, sell and deliver products, HEXPOL is dependent on external supplies meeting agreed requirements with respect to factors such as quantity, quality and delivery time. Incorrect, delayed or missing deliveries from a company supplier may in turn mean that HEXPOL's deliveries are delayed, deficient or incorrect, which could result in reduced sales and have a negative impact on the Group's earnings.

In HEXPOL's view, the Company is not dependent on any single supplier, meaning that interruption of deliveries would not result in any long-term consequences for HEXPOL's operations. No single supplier accounts for more than 9 percent of the Group's purchases and all major suppliers are also replaceable.

Customers

HEXPOL's operations are conducted in a large number of geographic markets with many customer categories. No single customer accounts for more than 7 percent of the Group's total sales. HEXPOL is thus not dependent on any single customer and has a favourable risk spread in this respect. The largest single group of customers are systems suppliers to the automotive industry. A decline or a weak trend in the automotive industry could have a negative effect on HEXPOL's business. In the Company's assessment, however, the division of the automotive industry into different segments – combined with the industry's geographic diversity – entails a more limited overall risk exposure than might be apparent from the aggregate volume sales to the automotive industry.

Political risks

HEXPOL's operations in Sri Lanka may be affected by the ongoing military conflict. HEXPOL monitors developments in Sri Lanka continuously and has developed an action plan to be able to counter the risks that unstable political development in Sri Lanka could entail for HEXPOL's operations in the country. In the company's assessment, it is possible to offset a reasonable amount of the effects that

interruption of deliveries could have on HEXPOL's overall operations there.

Key personnel

HEXPOL's future success is in large part dependent on its ability to recruit, retain and develop qualified managers and other key personnel. Being an attractive employer is thus an important success factor. If key persons leave the company and successors cannot be recruited, this could have a negative effect on the company's operations.

Legal risks

Through its global operations, HEXPOL is affected by laws, directives, regulations, agreements and guidelines, including many that relate to the environment, health, safety, trade restrictions, competition legislation and currency regulation.

Legislation and regulation

To counter the legal risks, HEXPOL closely monitors the rules and regulations applying in each market and works to quickly adapt its operations to identified future changes in this area. However, changes in legislation, customs regulations and other obstacles to trade, price and currency controls and other government guidelines in the countries in which HEXPOL operates could limit the Group's operations.

Tax risks

HEXPOL conducts its operations through companies in a number of countries. Its business, including transactions between Group companies, is conducted in accordance with the company's interpretation of prevailing tax legislation, tax agreements and regulations in the various countries and tax authorities in question. The company has obtained advice on these matters from independent tax advisors. However, it cannot be generally precluded that the company's interpretation of applicable laws, tax agreements and regulations or their interpretation or administrative application by the authorities will be deemed incorrect or that such rules may change, possibly with retroactive effect. HEXPOL's tax situation could thus change through decisions by the relevant authorities.

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. Neither can it be precluded that the result of such disputes could have a negative impact on HEXPOL's earnings and financial position.

Intellectual property rights

HEXPOL has entered into an agreement with Hexagon regarding continued time limited use of the name Hexagon in combination with the word Polymers in the names of certain subsidiaries within the HEXPOL Group. If certain events specified in the agreement occur, including changes in control over HEXPOL and changes in HEXPOL's area of operations, HEXPOL is obligated to ensure that the use of the Hexagon name is discontinued prematurely. This could result in a temporary negative effect on HEXPOL until new company names for the subsidiaries in question are established in the market.

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 oneyear periods, with a notice period of three months. Notice of termination of the agreement by Bayer would have a negative impact, since Vulkollan currently accounts for a large share of the sales of the subsidiary Stellana AB.

HEXPOL sells products under several well-known brands. It is of great importance for the company that these brands can be protected against unauthorised use by competitors and that the goodwill associated with the brands can be maintained.

To meet market requirements, HEXPOL must continuously develop new technical solutions and applications. To guarantee a return on the resources that HEXPOL invests in research and development, it is of the utmost importance that new technology can be protected against unauthorised use by competitors.

It is not certain that applications for protection of patents, brands and other intellectual property rights will be granted or, if they are granted, that they will provide satisfactory protection that cannot be circumvented by competitors. Nor is there any guarantee that HEXPOL will not be considered to infringe on other companies' intellectual property rights or that HEXPOL's rights will not be questioned or contested by others. In addition, HEXPOL's competitors could develop or acquire intellectual property rights that could prove to be essential for portions of HEXPOL's operations. Furthermore, HEXPOL depends on know-how that falls outside the realm of protectable intellectual property rights. It cannot be precluded that competitors could develop the corresponding know-how or that HEXPOL will not succeed in protecting its expertise 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 precluded that the resulting claims could have a negative effect on HEXPOL's earnings and financial position.

Financial risks

In its capacity as a net borrower and through its extensive operations outside Sweden, HEXPOL is exposed to various financial risks. The Group's financial policy provides guidelines for financial exposure and how these risks are to be managed in the Group. The financial policy is established each year by the Board of Directors.

HEXPOL's financial operations are centralised in the Group's internal bank, which is responsible for coordinating currency and interest exposure. The

internal bank is also responsible for the Group's internal and external financing. Centralisation results in significant economies of scale, lower financing costs and better control and management of the Group's financial risks. The internal bank does not have any mandate to conduct commercial trading with currency or interest instruments. Credit risk at the customer level is managed by the relevant subsidiary.

Currency risk

In its operations, HEXPOL is exposed to various financial risks, of which currency risk is the dominant one. Currency 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).

Contracted currency flows are hedged in their entirety. Expected flows in excess of contracted flows are hedged by between 40 and 75 percent with a horizon of maximum twelve months. The Group's translation exposure is managed through currency hedging via loans or forward contracts in the currency of the net asset.

Interest risk

HEXPOL is also affected by interest rate fluctuations. Changes in interest rates affect the Group's net interest income and/or cash flow negatively. Based on the average fixed interest period in the Group's total loan portfolio at year-end 2008, a simultaneous change of one percentage point in all of HEXPOL's loan currencies would have an effect on full-year earnings of 15 MSEK before tax. This is also viewed as reflecting the situation for the current year.

Credit risk

The financial risks to which HEXPOL is exposed also include credit risks, meaning the risk that a customer or other business party will not be able to settle its obligations to HEXPOL. There is no significant concentration of credit risks, either geographically or to any given customer segment.

Acquisitions and financing of acquisitions

HEXPOL has long worked with an active acquisition strategy, resulting in a number of successful acquisitions. Strategic acquisitions will also be a part of the growth strategy in the future. It cannot be guaranteed, however, that HEXPOL will be able to find suitable acquisition targets nor can it be guaranteed that the necessary financing for future acquisition targets can be obtained on terms that are acceptable for the company. This could result in reduced or declining growth for HEXPOL.

The completion of acquisitions also entails risks. In addition to the company-specific risks, the acquired company's relations with customers, suppliers and key persons may be affected negatively. There is also a risk that integration processes could prove more costly or take more time than estimated and that anticipated synergies in whole or in part fail to materialise.

Future capital requirements

In the assessment of HEXPOL's Board of Directors, the Group's future financial position is favourable, and its operations generate strong cash flow under normal market conditions. If the Group's development deviates from what is anticipated, however, it cannot be precluded that a situation could arise in the future in which new capital must be procured. There is no guarantee that HEXPOL will be able to acquire the necessary capital on terms that are favourable to the company. In this respect, the general market conditions for raising capital are of considerable importance.

Equity market risks

Share price performance

There are no guarantees that HEXPOL's share price will perform positively. Factors affecting the share price include 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 11. There are risks that could affect the Company's earnings negatively, and there are no guarantees that HEXPOL will be able to generate earnings that permit a dividend to be paid to shareholders for each financial year in the future.

SUSTAINABILITY PERFORMANCE

Environment

HEXPOL has 15 production facilities in nine countries and, thus, issues relating to environment and work environment are part of the company's responsibility. The immediate responsibility for these matters rests locally with the management of each unit. Coordination at the Group level rests with the CEO, who uses external expertise for strategic and operational environmental work.

The principal direct environmental aspects are energy consumption, the utilisation of fossil raw materials, management of environmentally hazardous chemicals, emissions of contaminants and climateimpacting gases to the atmosphere, as well as the creation of waste.

Suppliers' activities, the transport of raw materials and finished products, as well as the use of our products are examples of key indirect environmental aspects. In the work environment area, exposure to dust, hazardous chemicals, noise, heavy lifting, repetitive work and accidents are examples of factors that must be managed preventively.

The key areas for HEXPOL in terms of the environment, work environment and social responsibility are:

Introduction of environmental management systems.
Utilisation of energy and materials in a resource-efficient manner.
Management of climate issues in a successful manner.
Informing and training of employees.
Development of environmentally compatible processes and products.
Working with sustainability issues in the supplier chain.

During 2008, the focus was on establishing ethical guidelines and environmental policy, introducing environmental management systems, and the creation of a Group-wide accounting system for

Environmental parameters

Energy consumption by type of energy

Consumption of polymer raw materials

Synthetic rubber, 87%

Natural rubber, 7%
Plastics, 4%
Recovered rubber and plastics, 2%

Costs relating to the environment and work environment

Waste management, 81%
Administration, 9%
External costs, 5%
Environmental management system, 2% Operation of treatment equipment, 2%
Fees paid to authorities, 1%

Investments relating to the environment and work environment

sustainability issues. In the latter case, the demands set out in GRI (Global Reporting Initiative) acted as guidelines and a large amount of data relating to the environment, work environment and social responsibility have been compiled, processed and analysed. The accompanying diagrams show central parameters and the aim is that environmental performance reports will gradually become more comprehensive.

Environmental management system

Currently, the Swedish production units in Gislaved, Sweden and Laxå, Sweden are certified in accordance with the ISO 14001 environmental management system. The ultimate aim is to have all facilities certified and, thus, during 2008 initial environmental reviews were conducted at all plants that are not yet certified. The training of key personnel was completed and training materials and documentation were available for project leaders. We expect to complete certification of the remaining operations during 2009 and 2010. Twelve facilities have been certified in accordance with the ISO 9001 quality standard.

Risks and possibilities

HEXPOL pursues some of its operations in countries in which there are evident environmental risks, breaches of human rights and corruption. Moreover, HEXPOL's operations themselves entail risks to the environment and work environment. Of special interest from the Group perspective are the risks relating to requirements concerning environmental legislation, energy, climate change, historic environmental damage, customer requirements and conditions at suppliers.

Greater societal interest in sustainable development also gives rise to business opportunities for HEXPOL. We are already utilising some of these opportunities but there is attractive potential here that can be capitalised on by the Group's product developers. The presentation below is a description of how the Group manages risks and possibilities that concern the environment, work environment and social responsibility.

Environmental legislation

HEXPOL complies with applicable laws and provi-

sions concerning the environment and work environment areas in those countries in which the Group pursues operations. On top of this, stricter requirements are imposed whenever they are justified from an environmental viewpoint and if the measures are perceived as being technically possible and financially feasible. The facilities in Sweden are subject to official approval pursuant to the Swedish Environmental Code and compliance is monitored through measurements and inspections the results of which are regularly reported to the supervising authority. The plant in Gislaved is subject to a review condition pertaining to the environmental and health effects of the emission of fumes from vulcanising operations. Requirements could lead to the installation of a treatment facility. At Laxå, Sweden, the requirement included in the official approval regarding the emission of isocyanates to the atmosphere has not been met. However, these emissions are really minor, as verified through measurements and dissemination computations. The supervising authority has not demanded additional measures.

The plants in the Czech Republic, Belgium, Germany, Canada, the US, Mexico, Sri Lanka and China have an environmental approval that encompasses either the entire operations or that applies to specific environmental aspects.

None of the plants believe that current or future applications for environmental licences will require any special measures. Minor environmental surveys and measures will be conducted at the units in Statesville, in the US, and at Aquascalientes, in Mexico.

At the plant in the Czech Republic, there was a breach of environmental legislation, namely, that it did not have approval for the management of hazardous waste. This resulted in fines of some 15 KSEK.

Liability for damages and financial undertakings Demands in respect of preventive environmental programmes and the restoration of a contaminated environment could also lead to substantial costs for individual companies. The most well known cases

involve contaminated land and the decontamination of asbestos. HEXPOL has conducted a summary risk assessment as regards contaminated land and the presence of asbestos and PCB.

Most of HEXPOL's facilities are relatively newly built on land that was not previously used by contaminating operations. There are no underground storage tanks and no emissions, leakage or accidents involving oil or chemicals were identified or registered in 2008.

In connection with corporate acquisitions, an assessment was made of the risk of land contamination and other environmental damage.

Known contamination of land and groundwater has occured at a couple of the production plants. Some minor oil contamination was noted at the facility in Sri Lanka and remediation work is planned. Rented premises in Gislaved, Sweden, show signs of land contamination from petroleum hydrocarbons and other substances. There are no legal requirements for remediation of this land.

As regards asbestos, it is very unlikely that the material is present in the new installations. At the older facilities, an asbestos survey has been conducted in some cases, which has concluded that asbestos is present in the form of painted tiles in the ceiling of the laboratory in Gislaved, Sweden. PCB is present in the window joints in buildings at the Gislaved plant. Neither asbestos nor PCB represent any immediate risk and will be remedied in connection with future renovation.

Accidents and uncontrolled emissions to the atmosphere

During 2008, no significant accidents occurred at production plants. Two minor fires occurred at the US units in Lake Geneva and Middlefield. Meanwhile, in Gislaved, Sweden, a spillage of 3 tonnes of paraffin oil occurred, while oil spillage also occurred at the Mexican facility. The facility at Magog, Canada, experienced a spillage of 2 tonnes of carbon black. During the year, a few individual complaints were registered from neighbours in respect of wastewater and dust at Bokundara, Sri Lanka and noise at Bokundara, Sri Lanka, and Laxå, Sweden.

Energy consumption

Energy issues are significant from the environmental and financial viewpoints. Some 69 percent of energy consumption at HEXPOL consists of indirect energy, mainly in the form of purchased electric power, and 31 percent in the form of direct energy in the form of fuel oil, natural gas and district heating. The combined energy consumption is 139 GWh. The Group's total energy costs during 2008 totalled some 70 MSEK. A number of the plants are working on energyreduction projects with measures involving lighting, electric power system and ventilation and cooling. Energy consumption measured as GWh/MSEK of sales in 2008 was 0.04.

Water consumption

Water is used mainly for cleaning, sanitation and cooling. Most of the plants have sealed systems for cooling water, which reduces the consumption for process purposes. During 2008, the consumption of municipal water and water from own wells amounted to 110,000 m3. The facility at Gislaved, Sweden, uses about 360,000 m3 of water annually from the Nissan River for cooling. Costs for water and treatment of wastewater totalled some 1.1 MSEK.

Raw materials and chemical products

Rubber polymers, isocyanates, metal components, paints and various additives are the raw materials for HEXPOL's production. During 2008, 57,000 tonnes of rubber raw materials were used, plus 2,200 tonnes of plastic raw materials. About 1,300 tonnes of recovered rubber and 45 tonnes of recovered plastics were used in products. More than 85 percent of the rubber compounds consists of synthetic rubber. The major part (about 90 percent) of the process oils used contain less than 3 percent of hazardous polyaromatic hydrocarbons (PAH). Other materials of interest from the environmental viewpoint are metals (about 3,300 tonnes) and solvents and paints/ adhesives (about 60 tonnes). Activities are under way at a number of the plants to replace substances that are hazardous to health and the environment with less hazardous materials.

Emissions to air and water

Climate-changing gases and climate-related risks The emission of carbon dioxide – a climate-changing gas – occurs through the use of fuel oil, natural gas, district heating and electricity. The aggregate emission of carbon dioxide during 2008 was about 47,000 tonnes, with the indirect emission of carbon dioxide accounting for more than 75 percent. Measured as tonnes of CO2/MSEK of sales, emissions of carbon dioxide in 2008 totalled 14.6. Transportation of raw materials, products and people contribute to the emission of carbon dioxide but at this moment in time we have no data regarding these emissions. None of HEXPOL's plants are affected by the EU Emission Trading Directive.

Other emissions to the atmosphere

Other emissions to the atmosphere totalled some 60 tonnes of sulphur dioxide and nitrogen oxides.

The use of heavy fuel oil at the units in Sri Lanka is the main source of the emissions. Emissions of VOC (volatile organic compounds) from paints and solvents totalled some 5 tonnes. During the year, emissions of dust from carbon black led to complaints at one facility. Otherwise the dust emissions are low. No complaints regarding odorous substances were received.

Emissions to water

Emissions to wastewater consist mainly of organic materials and nutrients from sanitary facilities and from the cleaning of premises. Emissions of cooling water and rainwater from roofs and land areas also occur. Production plants are connected to the municipal wastewater treatment plants or equivalent.

Waste

Total waste during the year amounted to about 7,600 tonnes, of which 330 tonnes were hazardous waste. More than 50 percent of the waste was recycled as energy or materials at external waste processing plants. The cost of external waste management totalled 5.1 MSEK. Waste measured as total tonnage/ MSEK was 2.4.

Suppliers

Within the framework of the environmental management system used at HEXPOL, demands are imposed on suppliers' environmental programmes. The requirements and their monitoring consist, for example, of an assessment of the environmental status in connection with the conclusion of contracts, environmental surveys for suppliers and through on-site visits. In pace with the introduction of ISO 14001 at more plants, environmental programmes in the supplier chain will be developed.

Environmentally related costs and capital expenditure

During 2008, HEXPOL invested 3.1 MSEK in measures relating to the environment and work environment. The largest individual investments were in equipment for energy savings and measures designed to improve the work environment. Costs during the year totalled 6.3 MSEK and were dominated by waste management fees. The reported savings in the environmental area totalled some 1 MSEK.

Social responsibility

Occupational accidents and illness

HEXPOL's environmental policy states that the company shall offer safe workplaces. In practice, this is achieved through, for example, risk analyses, training and other preventive measures. Formal work safety committees are active at 11 of the 15 production plants. During 2008, 74 occupational accidents were registered that resulted in more than one day's absence from work. Total absenteeism attributable to occupational accidents amounted to 379 days. The most common causes underlying injuries were machinery and equipment, heavy lifting and repetitive work, falls and slipping, as well as bruising. One accident involving a tubing contractor occurred during 2008 and three-workrelated illnesses were also noted.

Training

The number of training hours per employee at the Group's production plants averaged about 7. Courses dealing with the environment, work environment and safety were conducted at most plants, usually covering 1-5 hours/employee. During the year, a number of seminars for managers and personnel were held in connection to the introduction of ISO 14001.

Trade union membership

HEXPOL's Code of conduct states that the company respects the right to be represented by trade unions, as well as the right to collective negotiations and agreements. The extent of the collective agreements varies from 0 to 100 percent, depending on local conditions in the countries in which we are active. All employees are covered by collective agreements at a third of the plants.

Human rights and social activities

HEXPOL supports and respects international human rights and our Code of Conduct encourages diversity. The company opposes all forms of discrimination. During the year, no indications emerged to suggest that we breached these principles.

The Group participates in various social activities in the countries in which we are active. About one third of the plants were visited by students from schools and universities during the year. At a number of plants, more in-depth projects have been developed in cooperation with universities and university colleges. These involve trainee positions, thesis work and other activities.

Financial reports

Consolidated income statements

MSEK	Note	2008	2007
Net sales	1	3 190	2 730
Cost of goods sold		-2 655	-2 238
Gross profit		535	492

Sales costs		-65	-48
Administration costs		-144	-106
Research and development costs		-28	-23
Other income and expenses	4	12	-10
Operating profit	1, 5, 6, 17	310	305

Financial income	7	28	9
Financial expenses	7	-80	-59
Profit before tax		258	255

Tax	8	-75	-69
Profit after tax		183	186

Parent Company shareholders account for the entire profit.

Earnings per share, SEK
Before dilution	6,89	7,01
After dilution	6,89	7,01
Average number of shares (after the listing), thousands
Before dilution	26 552	26 552
After dilution	26 552	26 552

Consolidated balance sheets

MSEK	Note	2008	2007
ASSETS
Fixed assets
Intangible fixed assets	9	1 279	1 134
Tangible fixed assets	10	843	735
Financial fixed assets		1	2

Deferred tax assets	8	44	0
Total fixed assets		2 167	1 871
Current assets
Inventories		340	308
Accounts receivable	11	310	344
Current tax receivables		5	0
Other receivables (non interest bearing)		16	26
Prepaid expenses and accrued income	12	21	18
Cash and cash equivalents		342	228
Total current assets		1 034	924
TOTAL ASSETS		3 201	2 795

SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
Share capital		53	0
Other reserves		215	83
Profit brought forward		706	756
Profit for the year		183	186
Total shareholders' equity	13	1 157	1 025

Non current liabilities
Interest bearing liabilities	14	1 372	1 294
Deferred tax liabilities	8	27	20
Pension provisions	15	11	10
Total non current liabilities		1 410	1 324

Current liabilities
Interest bearing current liabilities	14	163	92
Accounts payable		305	252
Current tax liabilities		10	3
Other current liabilities		23	10
Accrued expenses and deferred income	16	133	89
Total current liabilities		634	446
TOTAL EQUITY AND LIABILITIES		3 201	2 795

Pledged assets	18	5	None
Contingent liabilities	18	4	4

MSEK		Share capital	Other reserves Profit brought forward			Total equity
	2008	2007	2008	2007	2008	2007	2008	2007
Opening balance, January 1	0	0	83	34	942	849	1 025	883
Translation difference			151	49			151	49
Cash flow hedging, net after tax			-19				-19
Profit for the year					183	186	183	186
Total changes in net asset value, excluding	0	0	132	49	183	186	315	235
transactions involving company shareholders
Bonus issue	53				-53	-	0	-
Dividend					-181	-	-181	-
Premium for options programme					7	-	7	-
Expenses in connection with					-9	-	-9	-
introduction to the stock exchange
Group contributions after tax					0	-93	0	-93
Closing balance, December 31	53	0	215	83	889	942	1 157	1 025

Consolidated changes in shareholders' equity

Consolidated cash flow statements

MSEK	Note	2008	2007
Cash flow from operations	19
Operating profit		310	305
Adjustment for non-cash items		93	71
Net financial items		-54	-50
Tax paid		-69	-58
Cash flow from operations before
changes in working capital		280	268
Cash flow from changes in working capital
Changes in operating receivables		76	-12
Changes in operating liabilities		37	9
Cash flow from operations		393	265

Ordinary investing activities
Investments in tangible fixed assets		-105	-164
Sales of tangible fixed assets		5	0
Investments in intangible fixed assets		-5	-9
Cashflow from ordinary investing activities		-105	-173
Operating cash flow		288	92

Acquisitions of subsidiaries	3	0	-350
Cash flow from other investing activities		0	-350

Financing activities Loans raised		142	463
Amortisation of liabilities		-150	0
Dividend and Group contributions		-181	-93
Expenses in connection with the introduction to the stock exchange		-12	-
Premium for options		7	-
Cash flow from financing activities		-194	370

Cash flow for the year		94	112
Cash and cash equivalents at January 1		228	116
Exchange-rate differences in cash and cash equivalents		20
Cash and cash equivalents at December 31		342	228

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) and interpretation statements by the International Financial Reporting Interpretations Committee (IFRIC), which have been approved by the EC Commission for application within the EU.

Furthermore, recommendation RFR 1.1, 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 2.1, 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 below.

Changed accounting policies

IFRIC 16 Hedges of a Net Investment in a Foreign Operation, is applied by the Group.

As of 1 January 2009, the following new or revised accounting policies are complied with:

IFRS 8, Operating segments. The Group's current primary segments comply with the definition of operating segments in IFRS 8.
IAS 21 Borrowing costs
IAS 1 Presentation of Financial Statements

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.

Preparing the reports in accordance with IFRS requires that company management and the Board of Directors carry out accounting estimates and assumptions that affect the application of the accounting policies and the reported figures for assets, liabilities, revenues and expenses. The actual outcome could deviate from these accounting estimates. Certain accounting matters involve a larger degree of subjectivity or complexity, which results in a higher risk of deviation from the accounting estimates and assumptions applied. Such matters include: valuation of unutilised deductible loss carry-forwards, the outcome of complicated legal disputes, assessment of the present value of forecast cash flows during analyses of possible impairment requirements.

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 market valuation 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. In connection with the purchase of minority interests, the difference between the purchase consideration and the minority share of the acquired subsidiary's shareholders' equity is recognised as goodwill. In accordance with IFRS, goodwill amortisation on a straight-line basis has been discontinued. Reported goodwill values are

impairment tested at each reporting date.

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 directly in consolidated shareholders' equity. The value of the net assets of foreign subsidiaries, including goodwill and other intangible assets, is hedged, mainly through foreign-currency loans, or alternatively through currency forward contracts

In the consolidated financial statements, the aftertax effects of hedging are offset against those translation differences that were recognised directly in shareholders' equity regarding the foreign subsidiaries.

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 material influence. 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.

Segment reporting

Business areas represent the primary segments within the HEXPOL Group and geographical areas the secondary segments. Internal billings between business areas occur at market value.

Revenues

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 effective interest rate method.

Research 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 the Company may benefit from, and the costs are clearly distinguishable from ongoing product development expenditure.

Leasing

The HEXPOL 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 shorter of the asset's useful life period and the lease period. 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. The liability for future lease payments is interest bearing.

Other operating revenues/expenses

Other operating revenues/expenses primarily consist of capital gains/losses from sales of fixed assets and non-recurring items.

Financial instruments

Financial instruments are measured and recognised in accordance with the rules of IAS 39. Financial assets and liabilities are recognised in, and deducted from, the balance sheet applying settlement-date accounting.

With certain exceptions, financial assets and liabilities are entered at acquisition value. Financial derivative instruments are recognised at fair value, with changes in fair value recognised in profit and loss. Changes in fair value are recognised in profit and loss, apart from cases where the derivative fulfils the requirement for cash flow hedging, in which case the change in value is recognised directly in shareholders' equity until the hedged transaction has been recognised. When establishing fair value, official market listings on the balance-sheet date are used. If no such listings are available, a valuation is conducted based on the discounting of future cash flows to the listed market interest rate for the particular maturity. Currency swaps and currency forward contracts are valued at the listed market rate. Translation to SEK is based on the listed exchange rate on the balance-sheet date.

Receivables resulting from own lending and assets held to maturity are valued at the accrued acquisition value, applying the effective interest rate method. No financial instruments were classified in this category during the year.

Accounts receivable and accounts payable are recognised at acquisition value.

Financial liabilities are mainly measured at accrued acquisition value, applying the effective interest rate method.

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.

When hedging cash flow, the change in value of the hedging instrument is recognised directly in shareholders' equity until the hedged transaction has been recognised.

Borrowing costs are charged against earnings during the period to which they apply, and are normally not included in an asset's acquisition value. Costs for raising loans are accrued over the maturity of the loan.

Pension and similar commitments

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. Differences between expected and actual development of this liability are not expensed as long as the deviations remain within the so-called corridor. 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.

Provisions

The Group recognises provisions when the Group has a formal 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. Provisions are not recognised for future operating losses.

Income taxes

Income tax expenses for the year consist of current and deferred tax, and shares in associated companies' tax.

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 recognised value in the consolidated financial statements, deductible loss carry-forwards and other tax deductions. 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.

Receivables and liabilities

Provisions for loss risks are posted on a case-by-case basis.

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 exchangerate difference on financial receivables and liabilities is recognised in net financial items.

Inventories

Inventories are valued according to the lowest-value 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 first-out principle. For manufactured goods, the acquisition value comprises the cost of raw materials, direct payroll costs, other indirect 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 Group's share of the identified net assets of acquired subsidiaries on the date of acquisition.

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.

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

Impairment losses

At each reporting date, an analysis is performed to determine whether indications of an impairment requirement exist, meaning if the recognised value of an asset exceeds its recoverable value. If an impairment need is identified, the item is impaired to an amount corresponding to the recoverable value.

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 by relevant amounts insofar as impairment is no longer warranted, although goodwill impairments are never reversed.

The basic assumptions used to determine whether or not there is an impairment requirement are as follows: When calculating the present value of future cash flows, a cost of capital of 8.9% has been applied. This rate was determined in relation to an independent assessment of a reasonable cost of capital. The calculation is based on an internal assessment of the next five years, following which a growth rate of zero has been assumed. The definition of cashgenerating 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.

The Parent Company normally recognises Group contributions issued and received, and the corresponding tax effect, directly in unrestricted shareholders' equity. However, in those cases where Group contributions received can be considered as dividends, the Group contribution is recognised as financial income, and the tax effect is recognised in income tax for the year in the income statement.

In the Parent Company, shares in Group companies are recognised at acquisition value before any impairment losses.

The Parent Company applies hedge accounting for loans in foreign currencies that are effectively hedged by a counter-item in foreign currencies. Accordingly, changes in exchange rates are not reported for loans raised to finance acquisitions of foreign subsidiaries.

Notes

Note 1 Segment reporting

The Group's operations are reported in two business areas, HEXPOL Compounding and HEXPOL Engineered Products. HEXPOL Compounding manufactures advanced rubber compounds.

HEXPOL Engineered Products manufactures gaskets for plate heat exchangers, wheels for trucks and castor wheel applications.

Assets and liabilities included in each business area pertain to operating assets, such as accounts receivables, inventories, fixed assets and operating liabilities, such as accounts payable and accrued expenses. Cash and cash equivalents, taxes and loans are not reported by business areas.

		HEXPOL		HEXPOL
		Compounding		Engineered Products		Group
MSEK	2008	2007	2008	2007	2008	2007
Net sales	2 425	1 955	765	775	3 190	2 730
Operating profit	224	195	86	110	310	305
Operating margin, %	9,2	10,0	11,2	14,2	9,7	11,2
Net financial items					-52	-50
Tax					-75	-69
Profit for the year					183	186

Operating assets	2 247	2 124	563	448	2 810	2 572
Operating liabilities	345	301	127	58	472	359
Operating capital	1 902	1 823	436	390	2 338	2 213

Investments	58	102	52	71	110	173
Depreciation/Amortisation	64	43	29	27	93	70

Geographic	Net sales per			Operating capital
markets		recipient country
MSEK	2008	2007	2008	2007

Europe	1 864	1 830	969	1 005
NAFTA	1 187	808	1 040	970
Asia	139	92	329	238
TOTAL	3 190	2 730	2 338	2 213

Note 2 Transactions with related parties

Transactions between Group companies occur on market-based conditions. The Group purchased energy for 14 MSEK from one associated company. No other transactions were conducted with related parties.

Note 3 Net assets in acquired operations

2008

No operations were acquired during 2008.

2007

Acquisition of GoldKey Processing Inc.

In September 2007, HEXPOL AB acquired a compound company, GoldKey Processing Inc. in Ohio, USA.

GoldKey's net assets at the time of acquisition:

MSEK	Carrying amount before acquisition	Fair value adjustment	Fair value reported in the Group
Goodwill	0	260	260
Other intangible fixed assets	1	0	1
Tangible fixed assets	131	0	131
Current receivables, inventories, etc.	107	0	107
Cash and cash equivalents	11	0	11
Long-term interest-bearing liabilities	-91	0	-91
Current liabilities	-58	0	-58
Total purchase consideration including acquisition costs			361
Acquired cash and cash equivalents			-11
Net cash outflow			350

Note 4 Other income and expenses

Total	12	-10
Other	11	1
Non-recurring items	0	-5
Capital gain from the sale of equipment	1	0
Service fee paid to Hexagon	0	-6
MSEK	2008	2007

Note 5 Employees and personnel costs

Costs for remuneration to employees

MSEK	2008	2007
Salaries and remuneration, etc.	369	314
Total	369	314
To the Board and Presidents, of which bonus and similar	30 5	27 5

MSEK	2008	2007
Pension costs	17	16
Social security costs	82	80
Total	99	96

Average number of employees	2008	Of whom,	2007	Of whom,
		men		men

Sweden	403	55%	364	53%
Belgium	81	89%	83	89%
Czech Republic	124	92%	118	92%
Germany	87	92%	92	93%
Mexico	73	58%	19	84%
Canada	67	84%	56	84%
USA	301	88%	198	88%
China	59	76%	29	85%
Sri Lanka	1 120	98%	1 161	98%
Total	2 315	85%	2 120	87%

Personnel costs per country

MSEK	2008	2007

Sweden	177	190
Belgium	40	36
Czech Republic	24	17
Germany	41	39
Mexico	10	1
Canada	23	27
USA	122	74
China	6	3
Sri Lanka	25	23
Total	468	410

	Board	Committee	Total
KSEK	fee	fee
Melker Schörling, Chairman	400		400
Alf Göransson	200		200
Jan-Anders E. Månson	200		200
Malin Persson	200		200
Ulrik Svensson	200	150	350
Total	1 200	150	1 350

Remuneration of the Board of Directors 2008

No Board fees were paid in 2007. Board fees are not payable to employees of the Group.

Remuneration to
Senior Executives	Basic salary Variable salary				Pension costs	Total
KSEK	2008	2007	2008*	2007	2008	2007	2008	2007
Georg Brunstam, President and CEO	4 000	333	2 900	0	1 763	0	8 663	333
Other members of Group management, 6 persons	10 531	9 360	2 148	2 615	1 208	1 225	13 887 13 200
Total	14 531	9 693	5 048	2 615	2 971	1 225	22 550 13 533

* The variable remuneration paid to the President and CEO includes a fixed bonus of 1,700 KSEK that was disbursed in connection with the stock-exchange listing of the company and for which a provision was posted in 2007. Other variable remuneration pertains to 2008 and was disbursed in 2009.

Gender distribution in company management	31 Dec, 2008	31 Dec, 2007
Distribution between men and women
on the Company's Board:
Women	1	1
Men	5	6
Total	6	7

Gender distribution in executive management	31 Dec, 2008	31 Dec, 2007
Distribution between men and women
and Senior Executives:
Women	0	0
Men	7	7
Total	7	7

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 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.

Warrants

On 18 August, 2008, an Extraordinary General Meeting resolved to introduce an incentive programme, 2008/2011, and a designated issue of warrants. The option premium is market-valued and paid by the people receiving the options.

Number of warrants	1 325 000
Options paid for during the year	933 250
Number of shares per option	1
Option premium, SEK	8,00
Exercise period	1 March 2011 to 1 September 2011
Issue price, SEK	65,70

Note 6 Fees and cost remuneration to auditors

MSEK	2008	2007
Ernst & Young
Audit assignment	3	2
Other assignments	0	1
Other auditors
Audit assignment	0	0
Other assignments	0	0
Total	3	3

Audit assignment refers to the review of the Annual Report and the accounting records as well as the management by the Board of Directors and President, other assignments that fall upon the Company's auditors to perform and advice or other assistance resulting from observations at such review or implementation of such other assignments. Other items pertain to other assignments.

Note 7 Financial income and expenses

MSEK	2008	2007
Interest income	9	8
Other financial income	19	1
Financial income	28	9

Interest expense	-74	-50
Other financial expense	-6	-9
Financial expense	-80	-59

Net financial expense	-52	-50

Note 8 Tax

MSEK	2008	2007
Current tax expense
Tax expense on profit for the year	-68	-87
Adjustment for tax attributable to prior years	0	3
Total	-68	-84

Deferred tax expense
Deferred tax pertaining to temporary differences	-7	10
Utilised/revaluation of loss carryforwards	0	5
Total	-7	15

Total reported tax expense	-75	-69

Reconciliation of effective tax

MSEK	2008	%	2007	%
Profit before tax Tax according to applicable tax rate for the Parent Company Effect of other tax rates for foreign subsidiaries Non-deductible expenses Non-taxable income	258 -72 -7 -1 0	-28 -3 0 0	255 -71 9 -10 0	-28 4 -4 0
Revaluation of loss carryforwards/temporary differences Tax attributable to prior years Foreign tax	0 5 0	0 2 0	0 3 0	0 1 0
Total reported tax expense	-75	-29	-69	-27

Deferred tax receivable/tax liabilities Recognised

		Opening balance		Profit/loss	directly against			Translation		Closing balance
							shareholders' equity	difference
MSEK	2008	2007	2008	2007	2008		2007	2008	2007	2008	2007

Tangible assets	-22	-20	-3	-2			0	1		-24	-22
Current assets	2	2	-2	0			0			0	2
Provisions	0	1	0	-1			0			0	0
Loss carryforwards	6	5	-6	2			0	1	-1	1	6
Liabilities						39	0			39	0
Others	-6	-22	4	16		3	0			1	-6
Total	-20	-34	-7	15		42	0	2	-1	17	-20

Note 9 Intangible fixed assets

Accumulated acquisition value

	Goodwill		Capitalised development expenditure		Other intangible assets		Total
MSEK	2008	2007	2008	2007	2008	2007	2008	2007
Opening balance on 1 January	1 132	835	16	9	10	6	1 158	850
Acquisition	-	260	0	2	-	0	0	262
Investments	-	-	1	5	4	4	5	9
Reclassification			0		-3		-3	0
Translation difference	144	37	2	0	2	0	148	37
Closing balance on 31 December	1 276 1 132		19	16	13	10	1 308 1 158

Accumulated amortisation

	Goodwill		Capitalised development expenditure		Other intangible assets		Total
MSEK	2008	2007	2008	2007	2008	2007	2008	2007
Opening balance on 1 January	-10	-12	-10	-8	-4	-3	-24	-23
Amortisation according to plan for the year	0	-	-2	-1	-1	-1	-3	-2
Acquisition		-	0	-1	0		0	-1
Translation difference	0	2	-1	0	-1	0	-2	2
Closing balance on 31 December	-10	-10	-13	-10	-6	-4	-29	-24

Carrying amount on 31 December	1 266 1 122		6	6	7	6	1 279 1 134

Goodwill distributed by operating segment

	Goodwill
MSEK	2008	2007
HEXPOL Compounding	1 237 1 099
HEXPOL Enginereed Products	29	23
Closing balance on 31 December	1 266 1 122

Note 10 Tangible fixed assets

Accumulated acquisition value	Land and buildings		Machinery and equipment		Total
MSEK	2008	2007	2008	2007	2008	2007
Opening balance on 1 January	329	224	1 136	906	1 465	1 130
Acquisition	0	62		107	0	169
Investments	10	41	95	123	105	164
Divestments and disposals	-4	0	-6	-4	-10	-4
Reclassification	9	0	-6	-12	3	-12
Translation difference	42	2	118	16	160	18
Closing balance on 31 December	386	329	1 337	1 136	1 723	1 465

Accumulated depreciation		Land and buildings	Machinery and equipment		Total
MSEK	2008	2007	2008	2007	2008	2007
Opening balance on 1 January	-100	-81	-630	-538	-730	-619
Acquisitions	0	-8		-36	0	-44
Depreciation according to plan for the year	-13	-9	-77	-59	-90	-68
Divestments and disposals	0	0	6	4	6	4
Reclassification	0	0		10	0	10
Translation difference	-11	-2	-55	-11	-66	-13
Closing balance on 31 December	-124	-100	-756	-630	-880	-730

Carrying amount on 31 December	262	229	581	506	843	735

Distribution of depreciation of tangible and intangible assets for the year

MSEK	2008	2007
Cost of goods sold	84	64
Sales costs	0	0
Administration costs	7	4
Product development costs	1	1
Others	1	1
Total	93	70

Note 11 Accounts receivables

Age distribution of accounts receivables

MSEK	2008	2007
Not due	191	232
Past due, 1-60 days	111	109
Past due, more than 60 days	8	3
Accounts receivables	310	344

Provisions for bad debt losses

Closing balance	-23	-8
Actual losses	6	6
Provision for the year	-21	-7
Acquired operations	0	-4
Opening balance	-8	-3
MSEK	2008	2007

Note 12 Prepaid expenses and accrued income

MSEK	2008	2007
Prepaid leasing costs	1	2
Accrued income	2	2
Accrual expenses	7	3
Others	11	11
Total	21	18

Note 13 Shareholders' equity

Changes in the number of shares

(after the listing)		Class A shares		Class B shares	Total
	2008	2007	2008	2007	2008	2007
Opening balance on 1 January	0	0	100	100	100	100
Split 500:1		-	49 900	-	49 900	0
Bonus issue	1 181 250	-	25 320 727	-	26 501 977	0
Closing balance on 31 December	1 181 250	0	25 370 727	100	26 551 977	100

Average number of shares (after the listing) before and after dilution

Thousands	2008	2007
Average number of shares before dilution	26 552	26 552
Estimated average number of potential shares pertaining to the options programme	-	-
Average number of shares after dilution	26 552	26 552

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

	Class A shares	Class B shares	Total
Number of votes	11 812 500	25 370 727	37 183 227

Note 14 Interest-bearing liabilities

Non current liabilities	1 372	1 294

Others	3
Hexagon AB	0	1 294
Liabilities to credit institutions	1 369	0
MSEK	2008	2007
Non current liabilities

Current liabilities
MSEK	2008	2007

SEB, Mexico	155	83
Other loans	8	9
Current liabilities	163	92

The total credit framework on the syndicated loan is 1,700 MSEK, of which 331 MSEK is unutilised. The syndicated loan is raised in USD, EUR and SEK and bears floating interest rates.

The syndicated loan falls due in May 2013.

The SEB Mexico loan falls due in March 2009 and bears floating interest rates.

No interest or currency derivatives existed on 31 December 2008 pertaining to external loans.

Note 15 Pension provisions

MSEK	2008	2007
Provisions for pensions (interest-bearing)	8	7
Provisions for pensions (non-interest-bearing)	3	3
Provisions	11	10
Changes in provisions MSEK	2008	2007
Opening balance on 1 January	10	9
Provisions for the year	1	1
Closing balance on 31 December	11	10

Note 16 Accrued expenses and prepaid revenues

MSEK	2008	2007
Personnel-related expenses	73	64
Prepaid expenses	2	12
Bonus to customers	1	6
Others	18	7
Interest	13	0
Derivative instruments	26	-
Total	133	89

Note 17 Operational leasing

Non-cancellable leasing payments amount to

MSEK	2008	2007
Within one year	8	9
Between one and five years	6	9
Longer than five years	0	0
Total	14	18

Leasing expenses
MSEK	2008	2007
Minimum leasing fees	10	2
Total	10	2

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

Note 18 Pledged assets and contingent liabilities

Pledged assets
MSEK	2008	2007
Fixed assets	1	0
Current assets	4	0
Total	5	0

Contingent liabilities

MSEK	2008	2007
Guarantee to the benefit of associated companies	4	4
Total	4	4

Note 19 Cash flow statements

Financial items
MSEK	2008	2007
Financial income received	28	9
Financial expenses paid	-82	-59
Adjustments for non-cash items
MSEK	2008	2007
Depreciation	93	70
Provisions	0	1
Total	93	71
Acquisition of operations
MSEK	2008	2007
Net cash outflow
GoldKey Processing Inc.	-	350
Total	0	350

Note 20 Events after closing day

No significant events have occurred during the period starting from the balance sheet date up to the date that the Annual Report was signed..

Note 21 Financial instruments and risk management

To manage the Group's transaction exposure, future payment flows are currency hedged using currency forward contracts. All forward contracts fall due within one year.

	2008
MSEK	Nominal value	Actual value
Forward contracts	186	208
		Average hedging
Currency distribution	Nominal value	price
EUR/SEK	140	9,58
USD/CAD	5	1,21
EUR/CZK	41	25,13

Note 22 Quarterly data

	2008					2007
MSEK	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Net sales Operating profit Profit after tax	697 54 31	795 85 48	846 88 54	852 83 50	744 68 45	680 86 49	650 82 48	656 69 44

Income statements for the Parent Company

MSEK	Note	2008	2007
Net sales	23	30	22
Administrative costs Other expenses		-30 -3	-22 -4
Operating loss	24, 25	-3	-4
Financial income	26	19	1
Financial expense Loss before tax	26	-73 -57	-15 -18
Tax	27	8	5
Loss after tax		-49	-13

Balance sheets for the Parent Company

MSEK Note	2008	2007
ASSETS
Fixed assets
Tangible fixed assets 28	1	5
Financial fixed assets 30	1 476	1 337
Deferred tax assets	3	0
Total fixed assets	1 480	1 342

Current assets
Receivables from Group companies	524	151
Other receivables (non interest-bearing)	0	1
Prepaid expenses and accrued income	5	0
Cash and cash equivalents	146	0
Total current assets	675	152

TOTAL ASSETS	2 155	1 494
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
Share capital	53	0
Accumulated earnings	359	594
Net loss for the year	-49	-13
Total shareholders' equity	363	581

Non current liabilities
Interest-bearing liabilities to credit institutions	1 254	0
Non current liabilities	1 254	0

Current liabilities
Accounts payable	3	1
Interest-bearing intra-Group liabilities	508	904
Other current liabilities	12	1
Accrued expenses and prepaid revenues 29	15	7
Total current liabilities	538	913

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES	2 155	1 494

	none	none
Pledged assets

Change in shareholders' equity for Parent Company

				Total shareholders'
		Share capital	Non-restricted equity		equity
MSEK	2008	2007	2008	2007	2008	2007
Opening balance, 1 January	0	0	581	581	581	581
Dividend			-181		-181	0
Expenses in connection with introduction to the stock exchange			-9		-9	0
Bonus issue	53		-53		0
Group contribution after tax			21	13	21	13
Net loss for the year			-49	-13	-49	-13
Closing balance, 31 December	53	0	310	581	363	581

MSEK	2008	2007

Cash flow from operations
Operating profit	-3	-4
Financial income received	19	1
Financial expenses paid	-73	-15
Cash flow from operations before
changes in working capital	-57	-18
Cash flow from changes in working capital
Changes in current receivables	-377	-48
Changes in current liabilities	21	608
Cash flow from operations	-413	542

Investing activities
Gross investments in tangible fixed assets	-1	0
Sales of tangible fixed assets	5	0
Gross investments in financial fixed assets	-7	-560
Intra-Group acquisition of subsidiaries	-132	0
Cash flow from investing activities	-135	-560

Financing operations
Expenses in connection with introduction to the stock exchange	-12	0
Changes in liabilities	858	0
Group contributions received	29	144
Group contributions paid	0	-126
Dividend	-181	0
Cash flow from financing operations	694	18

Cash flow for the year	146	0

Cash and cash equivalents on 1 January	0	0
Cash and cash equivalents on 31 December	146	0

Cash flow statements for the Parent Company

Note 23

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 24 Employees and personnel expenses

Average number of employees	2008	2007
Women	3	2
Men	3	3
	6	5
Wages, salaries, other remuneration and social security costs
MSEK	2008	2007
Board of Directors	1	0
CEO	7	6
Other employees	4	4
Social security costs, pension costs and payroll tax	7	5
Total	19	15

For pension commitments that are not secured through pension insurance policies, endowment policies have been arranged.

Total sickness absence in the Parent Company corresponded to 0 percent (0) of the employees' ordinary work time. Connected periods of 60 days or more accounted for no part of sickness absence.

Note 25 Fees and expense reimbursement to auditors

KSEK	2008	2007
Ernst & Young
Audit	300	200
Other assignments	55	146
	355	346

Note 26 Financial income and expenses

MSEK	2008	2007
Interest income	2	0
Interest income from Group receivables	16	1
Other financial income	1	0
Financial income	19	1

Interest expense	-61	0
Interest expense for Group liabilities	-9	-15
Exchange-rate loss	-2	0
Other financial expense	-1	0
Financial expenses	-73	-15

Note 27 Taxes

MSEK	2008	2007
Current tax expense
Tax expense for the period	8	5
Tax adjustment attributable to prior years	0	0
Total	8	5

Deferred tax expense
Deferred tax pertaining to temporary differences	0	0
Utilisation/revaluation of losses carried forward	0	0
Total	0	0

Total recognised tax expense	8	5

Note 28 Tangible fixed assets

Accumulated acquisition value		Buildings	Land			Equipment		Total
MSEK	2008	2007	2008	2007	2008	2007	2008	2007
Opening balance, 1 January	4	4	1	1	1	1	6	6
Investments		0		-	1	0	1	0
Divestments and disposals	-4	-	-1	-	0	0	-5	0
Closing balance, 31 December	0	4	0	1	2	1	2	6

Accumulated depreciation MSEK	2008	Buildings 2007	Land 2008	2007	2008	Equipment 2007	2008	Total 2007
Opening balance, 1 January	0	0	0	0	-1	-1	-1	-1
Depreciation for the year		0		-	0	0	0	0
Divestments and disposals		0		-	0	0	0	0
Closing balance, 31 December	0	0	0	0	-1	-1	-1	-1

Carrying amount, 31 December	0	4	0	1	1	0	1	5

MSEK	2008	2007
Taxable value, buildings	-	1
Taxable value, land	-	1
Total	-	2

Note 29 Accrued expenses and prepaid revenues

MSEK	2008	2007
Personnel-related expenses	10	6
Unrealised exchange-rate differences	4	0
Other	1	1
Total	15	7

Note 30 Group companies

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

MSEK		Registered	Proportion
Subsidiaries	Corp. Reg. No.	office	of equity	2008	2007
Gislaved Gummi AB	556112-2382	Gislaved, Sweden 100,0%		101	101
Megufo AB	556421-2453	Gislaved, Sweden	50,0%
Stellana AB	556084-8870	Laxå, Sweden	100,0%	29	29
Elastomeric Engineering Co., Ltd		Sri Lanka	99,6%1)	58	58
Elastomeric Technologies (Pvt) Ltd		Sri Lanka	100,0%
Elastomeric Tools & Dies (Pvt) Ltd		Sri Lanka	100,0%2)
HEXPOL Compounding HQ Sprl		Belgium	100,0%	469	469
HEXPOL Compounding Sprl		Belgium	100,0%
HEXPOL Compounding s.r.o		Czech Republic	100,0%
HEXPOL Compounding NC Inc		USA	100,0%	75	75
Stellana U.S. Inc.		USA	100,0%	4	4
HEXPOL Compounding (Qingdao) Co., Ltd		China	100,0%	41	41
HEXPOL Compounding S.A de C.V		Mexico	100,0%
GoldKey Processing Inc.		USA	100,0%	361	361
Gislaved Gummi (Qingdao) Co., Ltd		China	100,0%	33	28
Stellana (Qingdao) Co., Ltd		China	100,0%	7	5
Thona Canada BV		Netherlands	100,0%	166	166
HEXPOL Compounding ULC		Canada	100,0%
HEXPOL Compounding GmbH		Germany	100,0%	132
Total carrying amount in the Parent Company				1 476	1 337

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

2) Elastomeric Technologies Ltd owns 69.6 percent and Elastomeric Engineering Company Ltd 30.4 percent of the shares.

Proposed allocation of earnings

The following unrestricted funds in the Parent Company are at the disposal of the Annual General Meeting: (KSEK)

From profit brought forward from the preceding year	358 600
Net profit for the year	-48 988
Total	309 612

The Board proposes that the unappropriated funds be carried forward.

The undersigned give their assurances that the Consolidated and Annual Report was prepared in accordance with international accounting standards, IFRS, as adopted by the EU, and generally accepted accounting principles and provides a fair view of the Group's and the Parent Company's position and earnings, and that the Board of Directors' Report gives a fair impression of the development of the Group's and the Parent Company's operations, position and earnings, while also describing the significant risks and uncertainties facing the companies included in the Group.

Malmö, 9 March, 2009

Melker Schörling Alf Göransson Malin Persson Chairman of the Board Board Member Board Member

Ulrik Svensson Jan-Anders E. Månson Georg Brunstam Board Member Board Member President and CEO

As shown above, the Annual Report and the consolidated financial statements were approved for issue by the Board of Directors on 9 March 2009. The consolidated income statement and balance sheet and the Parent Company's income statement and balance sheet will be presented to the Annual General Meeting on 5 May 2009 for adoption.

Our audit report was submitted on 9 March, 2009.

ERNST & YOUNG AB

Ingvar Ganestam Stefan Engdahl

Authorised Public Accountant Authorised Public Accountant

Auditors' Report

To the Annual General Meeting of Hexpol AB (publ) Corp. Reg. No: 556108-9631

We have audited the Annual Report, the consolidated financial statements, the accounts and the administration of the Board of Directors and the President of Hexpol AB (publ) for the 2008 financial year. The Board of Directors and the President are responsible for these accounts and the administration of the Company, and for ensuring that the Annual Accounts Act is applied when the Annual Report is compiled, and that the International Financial Reporting Standards (IFRS) adopted by the EU and the Annual Accounts Act are applied for compiling the consolidated accounts. Our responsibility is to express an opinion on the Annual Report, consolidated financial statements and the administration based on our audit.

We conducted our audit in accordance with Generally Accepted Auditing Standards in Sweden. Those standards require that we plan and perform the audit to obtain reason¬able assurance that the Annual Report and the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and their application by the Board of Directors and the President, evaluating the material estimations made by the Board of Directors and President when compiling the Annual Report and the consolidated financial statements, and evaluating the overall presentation of information in the Annual Report and consolidated financial statements. We examined significant decisions, actions taken and circumstances of the Company in order to be able to determine the possible liability to the Company of any Board member or the President or whether they have in some other way acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below.

The Annual Report has been prepared in accordance with the Annual Accounts Act and provides a true and fair picture of the Company's and the Group's earnings and financial position in accordance with Generally Accepted Accounting Standards in Sweden. The consolidated accounts have been compiled in compliance with the International Financial Reporting Standards (IFRS) adopted by the EU and the Annual Accounts Act and provide an accurate impression of the Group's earnings and financial position. The Board of Directors' Report is compatible with the other parts of the Annual Report and consolidated financial statements.

We recommend that the Annual General Meeting adopt the income statements and balance sheets of the Parent Company and the Group, that the profit in the Parent Company be dealt with in accordance with the proposal in the Board of Directors' Report and that the members of the Board and the President be discharged from liability for the financial year.

Our audit report was submitted on 9 March, 2009.

ERNST & YOUNG AB

Ingvar Ganestam Stefan Engdahl Authorised Public Accountant Authorised Public Accountant

Board of Directors, auditors and Group management

Board of Directors of HEXPOL AB

	Year of birth	Nationality Elected Committee	Committee	and mgt.	Independent Independent in relation to in relation to Number of Remuneration the Company the Company's shareholders	Class A shares	Number of Class B shares	Number of warrants
Melker Schörling Chairman of the Board	1947	Swedish 2007	Chairman	Yes	No		1 181 2501 5 942 0851
Georg Brunstam President and CEO	1957	Swedish 2007		No	No	–	–	225 000
Alf Göransson	1957	Swedish 2007		Yes	No	–	–
Malin Persson	1968	Swedish 2007		Yes	Yes	–	–
Ulrik Svensson	1961		Swedish 2007 Chairman Member	Yes	No	–	–
Jan-Anders E. Månson	1952	Swedish 2008		Yes	Yes	–	–

¹ Through companies.

Melker Schörling Born in 1947, B.Sc. (Econ.) Chairman and Member of the Board since 2007

1,181,250 Class A shares and 5,942,085 Class B shares, through Melker Schörling AB.

Georg Brunstam Born in 1957, B.Sc. (Eng.) President and Chief Executive Officer, employed in 2007

Other assignments/positions: Various Board assignments within the HEXPOL Group. Member of the Board of Nibe Industrier AB, DIAB Group AB and AB Wilh Becker. HEXPOL shareholding: - Warrants in HEXPOL: 225,000 Class B shares.

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

Other assignments/positions: Member of the Board, President and CEO of Securitas AB. Member of the Board of Loomis AB and Axel Johnson Inc., USA. HEXPOL shareholding: -

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

Other assignments/positions: President and Chief Executive Officer of Volvo Technology. Member of the Board of Volvo Technology AB, Volvo Lastvagnar AB, Volvo Technology Transfer AB, KCI Konecranes Plc., Universeum AB.

HEXPOL shareholding: -

Ulrik Svensson Born in 1961, B.Sc. (Econ.) Member of the Board since 2007

Other assignments/positions: President of Melker Schörling AB. Member of the Board of ASSA ABLOY AB, Loomis, AAK AB, Niscayah group AB and Flughafen Zürich AG. HEXPOL shareholding: -

Jan-Anders E. Månson Born in 1952, B.Sc. (Eng.) and Doctor of Technology Member of the Board since 2008

Other assignments/positions: Vice President of Ecole Polytechnique Fedérale de Lusanne. Chairman of the Board of AISTS. Member of the Board of Konstruktions-Bakelit AB, CSEM SA, DECISION SA, EELCEE SA and FIT. HEXPOL shareholding: -

Auditors

At the Extraordinary General Meetings held on 2 April 2008 and 21 April 2008, the registered accounting firm Ernst&Young AB, with Authorised Public Accountant Ingvar Ganestam as auditor-in-charge and Authorised Public Accountant Stefan Engdahl, with Authorised Public Accountant Johan Thuresson as deputy auditor, active at Ernst & Young AB and members of FAR SRS, were elected for the current year up to the end of 2011. All auditors can be reached at Ernst & Young AB, Box 7850, SE-103 99 Stockholm, Sweden.

Ingvar Ganestam Born in 1949. Authorised Public Accountant and member of FAR SRS.

Other audit assignments: Lindab International AB, IKEA Group, the Bergendahl Group and AB Tetra Pak.

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

Other audit assignments: ITAB Shop Concept AB, KABE AB, XANO Industri AB and Liljendahlsbolagen.

Senior executives

Georg Brunstam Born in 1957, B.Sc. (Eng.) President and Chief Executive Officer, employed in 2007

Other assignments/positions: Various Board assignments within the HEXPOL Group. Member of the Board of Nibe Industrier AB, DIAB Group AB and AB Wilh Becker. Previous positions: Chief Executive Officer of Nolato AB 2003-2007. President of Trelleborg Engineered Systems within Trelleborg AB and member of Trelleborg's Group Management 1997-2003. President of Trioplast AB 1992-1997 and senior positions within Perstorp AB 1983-1992.

HEXPOL shareholding: - Warrants in HEXPOL: 225,000 Class B shares.

Anders Lyrheden Born in 1965, B.Sc. (Econ.) Chief Financial Officer up to 1 March, 2009, employed in 2006

Other assignments/positions: Various Board assignments within the HEXPOL Group. Previous positions: Chief Financial Officer at Mölnlycke Healthcare 2004-2005, Business Area Controller Mölnlycke Healthcare AB 2001-2004, Financial Manager at Nolato Plastteknik AB 1995-2001.

HEXPOL shareholding: 75 Class B shares. Warrants in HEXPOL: -

Urban Ottosson Born 1961, B.Sc. (Econ.) Chief Financial Officer from 2 March, 2009, employed in 2009.

Other assignments/positions: Member of the Board of Öresundskraft Energy Trading AB. Previous positions: CFO, Beijer Electronics 2006-2009, CFO Öresundskraft 1999-2006, Group Accounting Manager, Business Controller, Treasury Controller, Scancem and Financial Manager Scancem Treasury SA 1991-1999. Financial controller, group accounting, Trelleborg 1987-1991. HEXPOL shareholding: - Warrants in HEXPOL: -

Lars-Åke Bylander Born in 1965, Technician President of the Gaskets and Profiles product areas, employed in 2000 Other assignments/positions: Member of the Board and President of Gislaved Gummi AB. Member of the Board of Anicho Invest AB, Cue Dee Produkter AB and MEGUFO AB. Previous positions: Marketing Manager, Gislaved Gummi B 2000-2004, Business Area Manager Forsheda AB (TI Group) 1997-2000, Sales Manager Forsheda AB 1994-1997, Sales Engineer Forsheda AB 1990-1994. HEXPOL shareholding: 155 Class B shares. Warrants in HEXPOL: 75,000 Class B shares.

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

Previous positions: Vice President of Thona North America 2002-2004. Sales Director at North America, Rhein Chemie Corporation 1999-2002. Management assignments, including Regional Accounts and Senior Sales, Technical and Quality Insurance Management at: Elastochem Inc., MA Hanna Rubber Compounding and Colonial Rubber Works Inc. 1990-1999. Cooperative Education, Research and Development, Colonial Rubber Works Inc. 1985-1990.

HEXPOL shareholding: -

Warrants in HEXPOL: 95,000 Class B shares.

Peter Kruk Born in 1968, B.Sc. (Eng.) President of the Wheels product area, employed in 2007

Other assignments/positions: Member of the Board and President of Stellana AB. Previous positions: General Manager at Large AC Motors, ABB Automation Technologies AB, Machines 2006-2007. Vice President Marketing & Sales, ABB Automation Technologies AB, Robotics 2003-2006. Senior positions at ABB Group 1996-2001.

HEXPOL shareholding: 40 Class B shares. Warrants in HEXPOL: 10,000 Class B shares.

Carsten Rüter Born in 1971, B.Sc. (Eng.) President of Compounding Technology, employed in 1997 Previous positions: Vice President Technology at Hexagon Polymers Compounding 2004-2005. Technical Director at Thona

Belgium 1997-2004.

HEXPOL shareholding: -

Warrants in HEXPOL: 60,000 Class B shares.

Ralph Wolkener Born in 1971, B.Sc. (Econ.) President of Compounding Europe & Asia, employed in 1997 Previous positions: Vice President Marketing at Hexagon Polymers Compounding 2004-2005. Marketing Director at Thona Belgium 1997-2004. HEXPOL shareholding: -

Warrants in HEXPOL: 35,000 Class B shares.

Shareholder information

Annual General Meeting

The Annual General Meeting will be held on 5 May 2009 at 3:00 p.m. in Malmö (Börshuset, Skeppsbron 2). The 2008 Annual Report will be distributed to shareholders not later than during week 16 and will then also be available on HEXPOL's website and at the head office. Shareholders who wish to participate at the Annual General Meeting must be registered in the shareholders' register maintained by Euroclear Sweden AB (formerly VPC AB) no later than 28 April 2009 and notify their intention to participate to HEXPOL's head office no later than 28 April at 12:00 noon. Shareholders whose shares are registered with a trustee must temporarily register the shares in their own name to be entitled to participate in the General Meeting. This re-registration process must be completed no later than 28 April.

Dividend proposal

The Board of Directors will propose to the Annual General Meeting on 5 May that no dividend be paid for 2008.

Calendar for financial information:

HEXPOL AB will submit financial information on the following dates:

Activity	Date
2008 Annual Report, published	April 2009
Interim report first quarter 2009	5 May 2009
Annual General Meeting	5 May 2009
Six-month report 2009	23 July 2009
Interim report, third quarter 2009	23 Oct. 2009
Year-end report 2009	Feb. 2010

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

For more information, please contact:

Georg Brunstam, President and CEO Tel: +46 708 55 12 51
Urban Ottosson, CFO/IR Tel: +46 767 85 51 44

Four-year summary

Net sales (MSEK) Operating profit (MSEK) Operating margin (%)

Operating cash flow (MSEK) Investments (MSEK) Average number of employees

MSEK	2008	2007	2006	2005

Condensed INCOME STATEMENTS
Net sales	3 190	2 730	2 488	2 205
Operating expenses	-2 880	-2 425	-2 283	-1 950
Operating profit	310	305	205	255

Net financial items	-52	-50	-39	-23
Profit before tax	258	255	166	232

Tax	-75	-69	-48	-70
Profit after tax	183	186	118	162


Condensed BALANCE SHEETS
Assets
Fixed assets	2 167	1 871	1 340	1 377
Current assets	692	696	571	547
Cash and cash equivalents	342	228	116	79
Total assets	3 201	2 795	2 027	2 003

Shareholders' equity and liabilities
Shareholders' equity	1 157	1 025	883	881
Interest-bearing liabilities	1 535	1 386	828	810
Other liabilities and provisions	509	384	316	312
Total shareholders' equity and liabilities	3 201	2 795	2 027	2 003

CASH FLOW STATEMENT
Cash flow from operating activities	393	265	179	135
Net investments in tangible and intangible fixed assets	-105	-173	-124	-67
Acquisitions of operations	0	-350	-	-25
Cash flow from financing activities	-194	370	-18	-52
Cash flow for the year	94	112	37	-9
Cash and cash equivalents, January 1	228	116	79	88
Exchange rate difference in cash flow	20
Cash and cash equivalents, December 31	342	228	116	79


Key figures
Average shareholders' equity, MSEK	1 091	953	882	830
Average capital employed, MSEK	2 562	2 136	1 757	1 571
Profit margin before tax, %	8,1	9,3	6,7	10,5
Return on shareholders' equity, %	16,8	19,5	13,4	19,6
Return on capital employed,%	13,2	15,1	12,1	16,8
Net sales growth, %	16,8	9,7	12,8	36,6
Operating margin, %	9,7	11,2	8,2	11,6
Earnings per share, SEK	6,89	7,01	4,44	6,10
Net debt/equity ratio, times	1,0	1,1	0,8	0,8
Equity/assets ratio, %	36,1	36,7	43,6	44,0
Average number of employees	2 315	2 120	1 933	1 691
Number of employees at year end	2 230	2 327	2 016	1 760
Sales per employee, MSEK	1,38	1,29	1,29	1,30

Definitions

Financial definitions

Capital employed Total assets less non-interest-bearing liabilities.

Cash flow Cash flow from operating activities after change in working capital.

Cash flow per share Cash flow from operating activities after change in working capital, divided by average number of shares.

Earnings per share Net profit after tax divided by average number of shares.

Equity ratio Shareholders' equity as a percentage of total assets.

Interest cover ratio Profit before tax plus financial expenses divided by financial expenses.

Investments Purchases less sales of tangible and intangible fixed assets, excluding those included in acquisitions and divestitures of subsidiaries.

Net debt/equity ratio Interest-bearing liabilities less liquid assets divided by shareholders' equity.

Operating margin Operating profit as a percentage of net sales for the year.

Profit margin before tax Profit before tax as a percentage of net sales for the year.

Return on capital employed Profit before tax plus financial expenses as a percentage of average capital employed.

Return on equity Net earnings as a percentage of average shareholders' equity.

Shareholders' equity per share Shareholders' equity divided by the number of shares at year-end.

Business definitions

CSM CSM Worldwide is the company that provides forecasts and market information to suppliers to the automotive industry.

HA oils High Aromatic oils contain several chemical substances (polycyclic aromatic hydrocarbons, PAHs) that are carcinogenic and often resistant to decomposition in the environment.

NAFTA North American Free Trade Agreement is a freetrade 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 sub-suppliers that are assembled by the OEM company for the end product.

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

PCAs Polycyclic aromatic hydrocarbons or polyaromatics, often abbreviated as PAHs, are a group of substances found in black coal and petroleum. Different refining methods contribute to increasing PAHs. There are thus many PAHs in heavy fuel oil, for example.

PCBs 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.

PHE Plate Heat Exchanger

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.

TIR Total Indicated Runout, which is the absolute measurement for a wheels roundness.

VOC Volatile Organic Compounds are a group of organic compounds that easily vaporize at room temperature. Level of the volatile hydrocarbons in the atmosphere have health and environmental effects, including a significant role in the formation of ground-level ozone.

Addresses to Group companies

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

HEXPOL Compounding ULC 1635 Industrial Boulevard Magog, Quebec J1X 5B3, Canada Tel: +1 819 843 7802 Fax: +1 819 843 3501 [email protected] www.hpc-ca.com

GoldKey Processing, Inc 14910 Madison Rd. Middlefield, Ohio 44062 USA Tel: +1 440 632 0901 Fax: +1 440 632 0929 www.goldkey-us.com

Elastomeric Engineering Co Ltd 51-54, IDB Industrial Estate Horana Sri Lanka Tel: +94 34 226 1050 Fax: +94 34 226 2045 [email protected] www.elastomericgroup.com

HEXPOL Compounding GmbH Ottostrasse 34 DE-41836 Hückelhoven Germany Tel: +49 24 33 9755 0 Fax: +49 24 33 97 55 99 [email protected] www.hpc-de.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.hpc-us.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.ggab.se

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

HEXPOL Compounding (Qingdao) Co., Ltd 899 Qingdao Middle Road CN-266431 Jiaonan, Qingdao China Tel: +86 532 81731118 Fax: +86 532 81731119 [email protected] www.hpc-cn.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 (Qingdao) Co., Ltd 899 Qingdao Middle Road CN-266431 Jiaonan, Qingdao China Tel: +86 532 81731166 Fax: +86 532 81731006 [email protected] www.hpg-cn.com

Head office:: HEXPOL AB Skeppsbron 3 SE-211 20 Malmö Sweden Tel: +46 (0)40-25 46 60 Fax: +46 (0)40-25 46 89 [email protected] www.hexpol.com

HEXPOL Compounding s.r.o Sumperska 1344 CZ-78391 Unicov Czech Republic Tel: +420 585 004 011 Fax: +420 585 053 568 [email protected] www.hpc-cz.com

HEXPOL Compounding SA de CV AV. 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.hpc-mx.com

Stellana (Qingdao) Co., Ltd 899 Qingdao Middle Road CN-266431 Jiaonan, Qingdao, China Tel: +86 532 81731167 Fax: +86 532 81731128 [email protected] www.stellana-cn.com

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

Production: G-byrån AB, Anderstorp, Sweden. www.g-byran.se Photography: HEXPOL:s subsidiaries, Pelle Wahlgren/Studio Wahlgren, Anders Ohrgren and Larz G Johansson/G-byrån.

Texts: HEXPOL AB Translation: The Bugli Company

Paper: cover Ensocoat, inside pages G-print. Printed in Sweden by Lindströms Tryckeri AB, 2009.

AI assistant

HEXPOL — Annual Report 2008

2923_10-k_2009-04-16_6670c435-1b6a-4783-97a8-3995320b926b.pdf

Contents

2008 in brief

HEXPOL in brief

Business area HEXPOL Compounding

Business area HEXPOL Engineered Products

The Group in brief

Operations and market

Financial objectives

Business concept

Vision

Strategy

Success factors

CEO comments the year A good first year for HEXPOL despite an increasingly difficult market

Dear shareholders,

Strong market positions and advanced expertise

Well invested and global

New product development – the key to success

Challenging situations in certain customer segments

Priorities for 2009

Advanced expertise, motivated employees

About the HEXPOL Group

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

HEXPOL's acquisition strategy

Brands

Financial objectives

Target fulfilment

Dividend policy

HEXPOL:s Brands

History

The principal phases in the development into

the current HEXPOL have been:

The share and shareholders

The HEXPOL share

Share price trend and trading volume

Ownership structure

Dividend policy

Options programme

Shareholder value and analysts

Share price trend in 2008 SEK

Distribution of ownership, 31 Dec. 2008

Number of shares per shareholder, 31 Dec. 2008

Shareholder categories, 31 Dec. 2008

Business area HEXPOL Compounding

Strong growth and healthy margins in a gradually more difficult market

HEXPOL Compounding in brief

Operations

Market

Customers

Average number of employees: 801 (579)

Operating units

Market

HEXPOL Compounding's operating units

Organisation

Operating units

Competitors

Technology and products

Local deliveries in Mexico

Business model

Success story

2008 Parker Supplier Award

Strategy

High-quality products for demanding applications

Close relations with strong customers

Continuous improvements

Brands

Operations in 2008

Future outlook and priorities

HEXPOL Compounding four year summary

HEXPOL Annual Report 2008