2005

2005

Contents

Outline of Lundbergs 2

The year in brief 3

The President’s review 4

Lundbergs as an investment company 6

Net asset value 10

The Lundberg share 12

Financial report 14

Fastighets AB L E Lundberg 16

Hufvudstaden 20

Holmen 22

Cardo 24

NCC 26

Industrivärden 27

Indutrade 28

29

Report of the Board of Directors 30

Definitions 33

Group

Income statements 34

Balance sheets 35

Changes in shareholders’ equity 36

Cash flow statements 37

Notes 38

Parent Company

Income statements 61

Balance sheets 62

Changes in shareholders’ equity 63

Cash flow statements 63

Notes 64

Proposed distribution of profits 68

Auditors’ report 69

Corporate Governance Report 70

Internal control 73

Board of Directors 74

Senior executives 76

Addresses 78

Subsidiaries and other major shareholdings

Annual Report

Corporate governance

This is a translation of the original Swedish Annual Report. In the event of differences between the English translation and the Swedish original, the Swedish Annual Report shall prevail.

Outline of Lundbergs

Lundbergs is an investment company that manages and de-velops a number of companies by being an active, long-term owner.

The portfolio includes the wholly owned unlisted real estate company, Fastighets AB L E Lundberg, the publicly traded subsidiaries Holmen and Hufvudstaden and the associated companies Cardo and NCC. Lundbergs also has a major shareholding in Industrivärden. During the autumn,

Lundbergs acquired 10% of the shares in Indutrade and holdings in Handelsbanken and Sandvik.

Lundbergs’ objective is to generate a return on invested capital over time that substantially exceeds the yield on a risk-free interest-bearing investment.

Fastighets AB L E Lundberg 19%

Cardo 8%

Holmen 25%

Hufvudstaden 18%

Indutrade 1%

Industrivärden15%

NCC 7%

Other 7%

Percentage share of Lundbergs’ total assets, approx. SEK 30 billion, on February 21, 2006

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SIX General indexLundbergs Series B

SEK

The Lundberg share

Principal shareholder Other major shareholdings The figures denote the percentage of share capital (voting rights) held on February 21, 2006.

Lundbergs

NCC10 (19)

Industrivärden10 (14)

Indutrade 10 (10)

Other

100

45 (88)Hufvudstaden

28 (52) Holmen

36 (36) Cardo

Fastighets AB L E Lundberg

2

• On December 31, 2005, net asset value after deferred tax amounted to SEK 26.1 billion (SEK 421 per share), compared with SEK 21.5 billion (SEK 347 per share) at the end of 2004. On February 21, 2006, Lundbergs’ estimated net asset value was SEK 28.6 billion (SEK 462 per share).

• The Group’s net sales1 totaled SEK 19,388 m. (18,835).

• The Group’s profit after tax rose to SEK 3,897 m. (2,803), of which the minority share amounted to SEK 1,637 m. (1,343).

• Earnings per share (excluding minority interest) amounted to SEK 36.46 (23.55).

• An increase in the dividend to SEK 7.75 (7.00) per share is proposed.

EARNINGS AND KEY DATA 2005 2004

Net asset value after deferred tax, SEK billion 26.1 21.5Net asset value per share after deferred tax, SEK 421 347

Shareholders’ equity per share, SEK 340 271

Net sales1, SEK m. 19,388 18,835

Profit after tax, SEK m. 3,897 2,803 of which, minority share, SEK m. 1,637 1,343

Earnings per share, excluding minority share, SEK 36.46 23.55Dividend per share, SEK 7.75 2 7.00

Debt/equity ratio 0.33 0.32Equity/assets ratio,% 57 57 1) The term net sales has been redefined. Also see Note 1, page 38.2) The Board of Directors’ proposal.

The year in brief 3

The President’s review

Fiscal 2005 was a year characterized by high economic growth in large parts of the world, particularly in the US and major parts of Asia, while develop-ment in Europe varied. Countries such

as France, Germany and Italy showed weak development, while Spain, several countries in Eastern Europe and the Nordic countries noted strong growth.Inflation and interest rates remained

low, which stimulated investments and consumption. The Stockholm Stock Ex-change performed strongly, rising 33% during the year.

Favorable trend for LundbergsOur business concept is to conduct real estate operations and, as an active and long-term owner, to manage and develop a limited number of invest-ments primarily in publicly listed Swed-ish companies. Our earnings goal is to achieve an absolute return in the form of value appreciation and direct return on invested capital that, over time, exceeds risk-free interest.

For 2005, Lundbergs reported a consolidated after-tax profit of SEK 3,897 m. (2004: 2,803). Less minority interests, our after-tax profit amounted to SEK 2,261 m. (1,460). The earnings improvement was attributable mainly to value changes in properties and sales of shares.

Net asset value per share after de-ferred tax rose 21% during the year to SEK 421 (347). The price of the Lund-berg share increased by 18%, generat-ing a total return to shareholders of 20% in 2005. Over the past five years, Lundbergs’ shareholders have received an average total return of 22% per year, compared with the return index of 4%. The corresponding return over the past 10 years is 20%, compared with the return index of 14%.

Our financial position remains strong. The Parent Company’s net debt at year-end 2005 amounted to SEK 1.1 billion (1.2). The market value of our total assets, including shares in the wholly owned subsidiary Fastighets AB L E Lundberg, was approximately SEK 27 billion at year-end 2005. According-ly, in relation to the market value of our assets, net debt amounted to about 4%.

Fastighets AB L E Lundbergs’ net debt at year-end 2005 was about SEK 1.1 billion (1.4), and the fair value of the property portfolio was SEK 7.7 billion (7.4).

4

Lundbergs’ Board of Directors pro-poses that the Annual General Meeting approve a dividend of SEK 7.75 per share, compared with SEK 7.00 per share for the preceding year.

Fastighets AB L E LundbergLundbergs’ consolidated accounts include operating profit of SEK 950 m. (735) reported by Fastighets AB L E Lundberg. The increase was attributable mainly to value changes in the property portfolio. After adjustment for divest-ments and investments, value growth during the year amounted to 6%. Sales of investment properties generated SEK 362 m., of which SEK 234 m. was attrib-utable to all of the properties in Motala.

The rental market for office premises continued to stabilize during 2005. Demand for retail premises remained strong. Rental conditions for hous-ing are favorable, but some increase was noted in volatility, as reflected in higher relocations. The vacancy rate for residential properties rose during the year in most of the municipalities in which we have operations. At February 1, 2006, the total vacancy rate in our property portfolio was 3.6%, divided as 1.6% for residential properties and 5.6% for commercial premises.

Portfolio companiesIn the first quarter of 2005, our 20% ownership interest in Stadium was sold for SEK 400 m. We also sold our 6% shareholding in the Finnish machinery rental company Ramirent for SEK 175 m. and our Series B shares in NCC for SEK 362 m. Total capital of ap-proximately SEK 935 m. was freed up, and the Parent Company’s capital gain amounted to about SEK 310 m. In the fourth quarter, we acquired 10% of the shares in Indutrade, a company that sells engineering products, for about SEK 290 m. In addition, approximately SEK 1.1 billion was invested in shares in Handelsbanken and about SEK 250 m. in Sandvik shares.

Indutrade was formerly a wholly owned subsidiary of Industrivärden, but was listed on the stock exchange as an independent company in the autumn of 2005. The company has shown strong growth for many years and is expected to sustain its robust growth rate in the years ahead.

Handelsbanken and Sandvik are ranked among the best companies in Sweden, with historically strong growth and strong positions in their respective markets. All of these new investments are expected to contribute over time to a favorable value appreciation and risk spread in our portfolio.

Holmen reported earnings in 2005 that were largely unchanged from the preceding year. This means that Holmen is still showing the best margins in the industry.

The earnings of Holmen Paper (print-ing paper) increased, mainly as a result of higher prices and volumes, while negative currency effects and higher costs for energy and other intermediates were charged against earnings.

The earnings of Iggesund Paperboard (cartonboard) declined due to lower production and substantial increases in costs for timber, energy and chemicals.

The investment in the new recycled- fiber-based newsprint machine at Holmen Paper Madrid was largely completed during 2005. The investment totaled about SEK 3 billion. The first paper was produced according to plan toward year-end.

Hufvudstaden’s earnings increased sharply in 2005 as a result of unreal-ized value changes in the real estate portfolio. Hufvudstaden’s properties in Stockholm and Gothenburg are among the most centrally located and com-mercially interesting properties in both cities. The overall portfolio is unique and offers good, long-term potential for continued value growth.

The rental market for retail premises remained strong. The market for office premises stabilized, and increased demand was noted.

Cardo’s earnings for 2005 declined compared with the preceding year, due to weak trends for Cardo Door Garage, while Cardo Pump showed favora-ble development. Earnings were also charged with substantial nonrecurring costs for the group’s restructuring.

A new president was appointed in the spring of 2005, and several changes were made among the group’s manage-ment team during the year. Structural changes included a new division into business areas. Cardo’s financial posi-tion remains solid.

NCC has undergone comprehen-sive changes during recent years and achieved a remarkable improvement in profitability and financial position. NCC reported continued improvement in earnings during 2005. The Nordic con-struction market was strong and order bookings increased sharply. The hous-ing market showed particularly strong growth, which created opportunities for higher construction volumes in this sector. Favorable development was also noted in the civil engineering market.

Lundbergs’ investment in Industri-värden developed well during the year. With a few exceptions, the shares in Industrivärden’s portfolio companies performed favorably. Most of the com-panies have first-class global market positions and are ranked among the leaders in their respective industrial sec-tors. Our involvement in Industrivärden contributes strongly to diversifying Lundbergs’ investments in different industries and, in turn, our desired risk spread.

Stockholm, February 23, 2006

Fredrik Lundberg

5

Lundbergs as an investment company

Danske Bank acquires Lund-bergs’ holding in Östgöta Enskilda Bank. Lundbergs be-comes a major shareholder in NCC through NCC’s acquisition of Siab. Lundbergs acquires major holding in Cardo.

1997

Structural transaction whereby Lundbergs’ construction operations are merged with Siab.

1994

Become principal shareholder in MoDo, currently Holmen.

1993

Additional capital contri-bution to Östgöta Enskilda Bank.

1992

Tetra Pak’s public offer to acquire Alfa Laval was accepted. Major new issue of shares in Östgöta Enskilda Bank.

1991

Incentive holding is sold.

1990

Major purchases of shares in MoDo, currently Holmen. The holding in Skaraborgs-banken was divested.

1988

6

Holmen’s investments in a new paper machine at Holmen Paper Madrid totaled about SEK 3 billion.

Lundbergs become the prin-cipal owner of Cardo. Wholly owned property portfolio is concentrated through divest-ment to Realia.

Divests holdings in Stadium and Ramirent. Acquires shares in Indutrade, Handelsbanken and Sandvik.

Lundbergs is an investment company that manages and develops a number of companies based on active, long-term ownership. The asset portfolio includes Fastighets AB L E Lundberg, a wholly owned unlisted real estate company, and the wholly owned pub-licly traded subsidiaries and associated companies Cardo, Holmen, Hufvud-staden NCC. Lundbergs also has a substantial holding in Industrivärden. During 2005, Lundbergs acquired 10% of Indutrade and shares in Handels-banken and Sandvik.

Lundbergs’ objective is to generate a return on invested capital over time that substantially exceeds the yield on a risk-free interest-bearing investment. Lundbergs’ strategy is to generate such a return and value appreciation while maintaining a low risk. Investments fo-cus mainly on companies characterized by solid market positions, strong and stable cash flow and that have their own products and brands. The financial risk is minimized by combin-ing low indebtedness with good access to funds.

The time perspective of Lundbergs’ ownership enables the companies and

their management to adopt a long-term approach in their efforts to develop market positions and competitive strengths. Dedicated involvement in boards of directors is important in ef-forts to contribute expertise and stability at the ownership level. Lundbergs is represented, through one or more mem-bers, on the boards of Cardo, Holmen, Hufvudstaden, Industrivärden and NCC.

AssetsLundbergs’ assets are concentrated to a few major holdings. The real estate holdings, which comprise shares in Fastighets AB L E Lundberg and Hufvud-staden, represented a value of SEK 10.7 billion at the end of 2005, or 39% of the Group’s total assets. The sharehold-ings in Cardo, Handelsbanken Holmen, Industrivärden, Indutrade, NCC and Sandvik amounted to SEK 16.2 billion and accounted for 59% of total assets.

OrganizationLundbergs long-term investment work is conducted in a small organization that represents a wealth of collective experi-ence. The organization that focuses on investment activities and active owner-ship has about ten employees, includ-

ing the personnel of the subsidiary L E Lundberg Kapitalförvaltning. The wholly owned real estate holdings are separated in organizational terms from the Parent Company and are assigned the same status as the Group’s other major investments.

L E Lundberg KapitalförvaltningL E Lundberg Kapitalförvaltning is a subsidiary that engages in securities trading. The objective of operations is to utilize macroeconomic and corporate analyses in order to generate a favorable return on capital employed. In addi-tion to securities trading, the company accounts for the analysis and follow-up of other investments within the Group. The securities traded include equities and bonds, as well as their derivatives. Although shares listed on the Stockholm Stock Exchange account for most of the investments, investments may also be made in other stock markets in West-ern Europe, North America and Japan. Gross exposure, calculated as the sum total of the market value of long-term and short-term holdings, as well as ex-posure via derivatives, amounted to SEK 460 m. at year-end. The organization consists of five employees.

2005

Continued acquisition of

Industrivärden shares.

Participates in structural

transaction when Ramirent

acquires Altima.

2003

Acquisition of Industrivärden shares.

2002

Lundbergs launches its share buyback program.

2000

Acquires 20% of Stadium through a private placement.

20011998

7

Investment activitiesDuring 2005, Lundbergs divested its holdings of Stadium and Ramirent shares with a combined value of SEK 575 m. These divestments generated combined capital gains of SEK 232 m.

In addition, slightly more than 3.2 million Series B NCC shares were divested, at the same time as just over 100,000 Series A NCC shares were acquired. This transaction released SEK 348 m. Following these changes, Lund-bergs holds 10.85 million NCC Series A shares.

In connection with the stock-ex-change listing of Indutrade in October,

4.0 million shares were acquired with a value of SEK 288 m.

During the third quarter, 700,000 Sandvik shares were acquired for SEK 252 m.

During the fourth quarter, 6.0 million Handelsbanken shares were acquired for a total cost of SEK 1,075 m.

Sandvik is one of Sweden’s lead-ing global engineering companies and Handelsbanken is one of the leading universal banks in the Nordic region.

The investments in these two major companies helped to further diversify Lundbergs’ and to increase portfolio liquidity.

ReturnLundbergs’ mission is to generate a healthy absolute return for its share-holders. This is to be achieved through growth in both net asset value and divi-dends. During 2005, net asset value per share rose by 21% after deferred tax. Since 1996, net asset value per share after deferred tax has grown by an an-nual average of 15%. The average total annual return1 has been 20.3% during the past ten years and 22.3% over the past five years. The total return in 2005 was 20.4%.

1) The total return is defined as the sum total of the change in the share price and reinvested dividends.

Lundbergs as an investment company8

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Total value, SEK billion, left-hand scale

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DISTRIBUTION OF TOTAL ASSETS AS A PERCENTAGE OF TOTAL ASSET VALUE, SEK BILLION

1) Market valued assets less net debt and estimated tax. Values for 1996 to 2001 were calculated on a pro forma basis.

9

The calculation of Lundbergs’ net asset value is based on the fair value of assets less liabilities and deferred tax on surplus value. On December 31, 2005, net asset value after deferred

tax amounted to SEK 26,078 m. (SEK 421 per share), compared with SEK 21,520 m. (SEK 347 per share) at the end of 2004.

On February 21, 2006, estimated net asset value after deferred tax was SEK 28,626 m. (SEK 462 per share).

CALCULATION OF NET ASSET VALUE

Dec. 31, 2005 Dec. 31, 2004 SEK m. SEK per share SEK m. SEK per shareFastighets AB L E Lundberg 1 5,747 93 5,207 84Cardo 2 2,101 34 2,057 33Handelsbanken 2 1,182 19 - -Holmen 2 6,382 103 5,616 91Hufvudstaden 2 4,934 80 4,470 72Industrivärden 2 4,394 71 3,432 55Indutrade 2 356 6 - -NCC 2 1,546 25 1,223 20Other securities 2 732 12 783 13

Total securities 27,375 442 22,790 368

Other assets, provisions and liabilities 3 -1,204 -19 -1,192 -19

Net asset value before deferred tax 26,170 422 21,597 348

Deferred tax, etc. 4 -92 -1 -77 -1

NET ASSET VALUE AFTER DEFERRED TAX 26,078 421 21,520 347

Market value 20,801 336 17,639 285

Price/NAV,% 80 82

1) The valuation of shares in Fastighets AB L E Lundberg is based on the sum total of shareholders’ equity and the difference between the book and market value of properties in the company less tax at a standard rate of 10%. The properties have been assigned an estimated fair value of SEK 7,697 m. (7,361) on December 31, 2005, of which development properties accounted for SEK 226 m. (257).

2) Publicly traded assets have been entered at the current market price or at the exercise price for written options if the latter price is lower.

3) Other assets, provisions (excl. deferred tax) and liabilities have been entered at book value at December 31, 2005 and 2004.

4) Deferred tax (28%) has been computed on the basis of the provision to the tax deferral reserve and the difference between the market value and tax-assessment value. Due to legal considerations, deferred tax on business-related participations was not computed on the basis of the difference between the market value and the tax-assessment value.

Lundbergs as an investment company - Net asset value10

In certain cases, the figures shown above have been rounded off, which means that the tables do not always tally.

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NET ASSET VALUE AFTER DEFERRED TAX PER SHARE

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CHANGE IN NET VALUE PER SHARE

KEY FIGURES

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005Net asset, SEK m. 9,748 11,892 10,783 14,874 13,380 13,665 13,692 18,024 21,520 26,078Net asset value per share, SEK 128 157 142 196 205 220 221 290 347 421Change in net asset value per share, % 23 23 -10 38 5 7 0 32 20 21

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8 000SEK

Thousands/month

Lundbergs Series B SIX General Index SIX Investment and Management Index No. of shares traded, right scale

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12

Series B Lundberg shares are listed on the Stockholm Stock Exchange’s O List. A round lot consists of 50 shares. Dur-ing 2005, an average of 29,060 Series B shares were traded per trading day. Total share turnover amounted to 7.2 million Series B shares, corresponding to 19% of the total number of Series B shares. The lowest price paid for the share in 2005 was SEK 283 and the highest was SEK 344.

Market capitalizationLundbergs’ market capitalization at year-end was SEK 20,801 m. (17,639). The share price rose by 18% during the year.

Share capital The share capital of L E Lundberg-företagen AB (publ) amounted to SEK 621 m. (621) during the year. On December 31, 2005, the total number of shares was 62,145,483 (62,145,483), each with a par value of SEK 10. The shares are divided into 24,000,000 (24,000,000) Series A shares, carrying ten votes per share, 38,000,000 (38,000,000) Series B shares, carrying one vote per share, plus 145,483 (145,483) repurchased Series B shares.

Repurchase of own shares The Board has been authorized to purchase Lundberg shares. For more detailed information, see page 30.

Ownership structureLundbergs has a total of about 11,500 shareholders (10,800), of whom some 7,800 (7,100) are registered in a nomi-nee’s name and about 3,700 (approx 3,700) in the owner’s own name. For-eign ownership amounts to 5.5% (3.5) of the share capital.

KEY FIGURES 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Dividend per share, SEK 3.25 3.75 4.25 4.75 5.25 5.75 6.00 6.50 7.00 7.751Growth in dividend per share, % 8 15 13 12 11 10 4 8 8 11Direct return, % 3.4 3.2 4.5 5.1 4.6 3.6 3.1 2.8 2.5 2.3Total return, % 35.3 25.4 -17.0 27.9 28.6 15.4 27.2 23.1 25.9 20.4Stock market price, SEK 95.00 116.00 94.00 94.00 115.00 158.00 195.00 232.50 284.50 335.50

1) Board of Directors’ proposal.

Lundbergs as an investment company - The Lundberg share

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DIVIDEND AND DIRECT RETURNSHAREHOLDING

No. of shareholders

As % of all shareholders

No. of shares held

As % of share

capital

Average no. of shares/

shareholders1 - 500 9,132 79.4 1,316,007 2.1 144501 - 2,000 1,722 15.0 1,846,663 3.0 1,0722,001 - 5,000 316 2.7 1,109,740 1.8 3,5125,001 - 20,000 209 1.8 2,160,648 3.5 10,33820,001 - 50,000 64 0.6 2,164,337 3.5 33,81850,001 - 53 0.5 53,548,088 86.1 1,010,341

TOTAL 11 496 100.0 62,145,483 100.0 5,406

TREND OF SHARE CAPITAL, SEK m.

Share capitalTotal paid-in

paid-out amountAdded/

canceled Total1981 Bonus issue, 3:1 75 1001982 Bonus issue, 1:1 100 2001983 New issue 300 30 2301984 Bonus issue, 1:1 230 4601989 New issue 412 46 5061990 Bonus issue, 1:2 253 7592000 Cancellation of repurchased shares -909 -76 6832002 Cancellation of repurchased shares -884 -62 621

LARGEST SHAREHOLDERS

Feb 2006Holding as % of

Feb 2005Holding as % of

share capital votes share capital votesFredrik Lundberg incl. companies 51.9 89.3 51.9 89.3Louise Lundberg 7.5 1.7 7.5 1.7Katarina Lundberg 7.5 1.7 7.5 1.7AMF Pension 2.4 0.5 2.0 0.4FPG 2.3 0.5 2.3 0.5Robur Funds 1.2 0.3 1.0 0.2Knowledge Foundation 1.1 0.3 1.1 0.3Handelsbanken fonder 0.9 0.2 0.9 0.2Skandia 0.8 0.2 1.0 0.2SEB Trygg Liv 0.8 0.2 - -Others 23.4 5.1 24.6 5.5Subtotal 99.8 100.0 99.8 100.0

Repurchased Lundberg shares1 0.2 - 0.2 -

TOTAL 100.0 100.0 100.0 100.0

Swedish shareholders 94.5 98.8 96.5 99.2Foreign shareholders 5.5 1.2 3.5 0.8

TOTAL 100.0 100.0 100.0 100.0

1) The Company’s own holding of repurchased Lundberg shares amount to 145,483 (145,483).

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TOTAL RETURN

Direct return - Dividend per share as a percentage of share price on December 31.

Total return - Sum total of change in share price and reinvested dividends.

14

In the financial report below, Lundbergs is presented from the perspective of both an investment company and a parent company, and the shares included in the balance reports are reported at acquisition values. The reason for this is to provide a presentation of Lundbergs’ operations based on cash flow. Most of the Group’s holdings in publicly traded securities are owned by the Parent Company, while other holdings are owned by wholly owned subsidiaries that conduct securities management or trading operations. These subsidiaries have been treated as if they are merged with the Parent Company, which means that all holdings of securities, including the operations of the unlisted wholly owned real estate company Fastighets AB L E Lundberg, are included at their respective acquisition values in the balance reports. Any returns from these holdings, mainly dividends, are reported in the income report.

Net asset value and the calculation of net asset value are presented on pages 10-11.

The financial report has been modified compared with cor-responding financial reporting in the Annual Report for 2004.

Earnings and change in securities portfolioNet profit as shown in the income report amounted to SEK 1,431 m. (1,482). Earnings include dividends totaling SEK 1,176 m. (1,221).

In February 2005, the shares in Ramirent and Stadium were sold for SEK 175 m. and SEK 400 m., respectively. In March, all Series B shares in NCC were sold for SEK 362 m.,

and Series A shares were acquired for SEK 14 m. Capital gains from the divested shares amounted to SEK 332 m., distributed as SEK 77 m. from the sale of NCC, SEK 82 m. from Ramirent and SEK 150 m. from Stadium.

During the third quarter, 700,000 shares in Sandvik were acquired for SEK 252 m.

During the fourth quarter, 6 million shares in Handelsbank-en were acquired for SEK 1,075 m. and 4 million shares in Indutrade for SEK 288 m. The shareholding in Indutrade cor-responds to 10% of voting rights and share capital.

Asset management costs amounted to SEK 47 m. (43), which corresponds to 0.2% of the estimated market value of the assets.

In addition to the acquisitions and divestments in NCC mentioned above, the percentage of voting rights and capital was affected by repurchased shares provided under current warrants programs. Re-stamped shares also affected the per-centage of voting rights in NCC.

FinancingCash and cash equivalents (excluding credit lines) declined by SEK 61 m. to SEK 19 m. (80). Interest-bearing liabilities decreased by SEK 31 m. to SEK 1,163 m. (1,194). Net interest-bearing debt amounted to SEK 1,143 m. (1,110). The debt/ equity ratio was 0.10 (0.10). The equity/assets ratio rose to 89% (88).

SEK m. 2005 2004Dividends 1,176 1,221Reversal, shares in NCC - 282Earnings from securities 332 23Management costs -47 -43Operating profit 1,461 1,483Financial income and expense 0 15Profit after financial items 1,461 1,498Taxes1 -30 -16Net profit 1,431 1,482

1) Dividends from Fastighets AB L E Lundberg, Cardo, Holmen, Hufvudstaden, NCC, Ramirent and Stadium are tax-exempt, as are capital gains from sales of shares in these companies.

INCOME REPORT BALANCE REPORT

Lundbergs as an investment company - Financial report

SEK m. 2005 2004ASSETSFixed assets

Tangible fixed assets 3 4Financial fixed assets 12,754 11,650

12,757 11,655Current assets 303 469Total assets 13,060 12,124

SHAREHOLDERS’ EQUITY AND LIABILITIESShareholders’ equity 11,618 10,621Provisions 167 168Long-term liabilities 19 10Current liabilities 1,256 1,324Total shareholders’ equity and liabilities 13,060 12,124

CASH FLOW REPORT

SEK m. 2005 2004 2003 2002 2001 2000Dividends Fastighets AB L E Lundberg 1 200 314 290 215 173 Cardo 86 86 402 80 70 58 Holmen 236 881 242 218 1,503 232 Hufvudstaden 373 112 103 93 79 61 Industrivärden 122 100 65 2 2 1 NCC 2 157 38 38 31 63 154 Other 19 11 12 10 15 22 1,194 1,229 1,177 725 1,949 702Sales of securities 984 171 52 457

Total assets contributed 2,178 1,229 1,348 777 1,949 1,159

Investments Cardo 131 95 Handelsbanken 1,075 Holmen 344 9 40 44 322 Hufvudstaden 66 657 Industrivärden 701 651 890 Indutrade 288 NCC 14 Other 363 15 3 4 259 35 1,740 1,060 794 934 369 1,110 Own dividend 434 403 372 357 333 360 Repurchase of shares 17 13 493 1,300 Over income-statement items 4 21 62 44 24 4 Paid tax 23 84 3 26 114 214 Financial items 25 -92 5 -26 0 -32 Total assets used 2,225 1,494 1,236 1,347 1,333 2,957 Change in net receivable/debt -47 -265 112 -570 616 -1,798 Closing net receivable/debt -1,265 -1,218 -953 -1,064 -494 -1,110 of which, interest-bearing -1,143 -1,110 -724 -647 -370 -8311) As of 2005, dividend; prior years, Group contribution.

2) In addition to the cash dividend, shares in Altima were also received in 2003 with a value corresponding to SEK 94 m.

PROPORTION OF VOTING RIGHTS, SHARE CAPITAL, CARRYING AMOUNT AND FAIR VALUE OF SHAREHOLDINGS

Feb. 21, 2006 Dec. 31, 2005 Dec. 31, 2004 Procent Voting rights Share capital Voting rights Share capital Voting rights Share capitalFastighets AB L E Lundberg 100.0 100.0 100.0 100.0 100.0 100.0Cardo 36.0 36.0 36.0 36.0 36.0 36.0Holmen 51.9 27.9 51.9 27.9 51.9 27.9Hufvudstaden 88.0 45.2 88.0 45.2 88.0 45.2Industrivärden 14.4 10.5 14.4 10.5 14.4 10.5Indutrade 10.0 10.0 10.0 10.0 - -NCC 19.1 10.1 18.7 10.1 18.5 13.6

Feb. 21, 2006 Dec. 31, 2005 Dec. 31, 2004 SEK m. Carrying amount Market value1 Carrying amount Market value1 Carrying amount Market value1

Fastighets AB L E Lundberg 165 5,769 165 5,747 165 5,207Cardo 2,021 2,538 2,021 2,101 2,021 2,057Handelsbanken 1,075 1,221 1,075 1,182 - -Holmen 2,941 7,380 2,941 6,382 2,941 5,616Hufvudstaden 2,828 5,368 2,828 4,934 2,828 4,470Industrivärden 2,280 4,556 2,280 4,394 2,280 3,432Indutrade 288 359 288 356 - -NCC 775 1,958 775 1,546 1,046 1,223Other 642 740 656 732 685 783

TOTAL 13,015 29,891 13,029 27,375 11,966 22,790

1) Publicly traded assets have been entered at the current market price or at the exercise price for written options if the latter price is lower. The valuation of Fastighets AB L E Lundberg’s estimated fair value is presented in the table called “Calculation of net asset value” on page 10.

15

Fastighets AB L E Lundberg

Housing 48%

Office 26%

Retail 14%

Other 12%

Distribution of annual rental revenues by type of premises

Share of Lundbergs’ total assets

Fastighets AB L E Lundberg 21%

16

Housing 54 %Retail 9%

Office 17%

Other 20%

Distribution of floor space by category

Chairman: Fredrik Lundberg CEO: Peter Whass www.lundbergs.se

Fastighets AB L E Lundberg is one of the major private real estate owners in Sweden. The real estate portfolio consists largely of centrally located residential, office and retail premises. With strategic positions in many of Sweden’s expansive municipalities, the company is well positioned for contin-ued strong growth.

The real estate holdings include 139 wholly or jointly owned investment properties in 16 municipalities through-out central and southern Sweden, with particular focus on major metropolitan areas and university cities. The portfolio also includes about 80 development objects. Most of the structures in the real estate portfolio were built during the construction-intensive years of the 1960s and 1970s, and consist largely of structures built on a proprietary basis. Originally, investments were concen-trated primarily on residential properties but, during the 1980s and 1990s, the portfolio was supplemented by the ad-dition of several commercial properties. Today, the division between residential and commercial properties is largely unchanged at 54% and 46%, respec-tively, of rentable floor space.

Business concept and strategyFastighets AB L E Lundbergs’ business concept is to manage and develop resi-

dential and commercial properties in municipalities where favorable growth is expected. The company focuses on:– low sensitivity to economic fluctua-

tions through an even distribution between residential and commercial properties.

– comprehensive local market know-ledge through a decentralized organization.

– utilizing the company’s many years of experience in property manage-ment and construction operations as the basis for effective management with high levels of tenant service.

– within development operations, to strive for optimal operating and development gains based on the potential of each individual property.

Market trendThe office-rental market was stable dur-ing 2005. Demand for office space re-mained relatively weak, although some improvement was noted during the year. Demand for housing and retail premises in major metropolitan regions and cities with colleges and universities remained favorable. The portfolio of properties is concentrated in central locations, which provides good potential for Fastighets AB L E Lundberg to capitalize on a fu-ture increase in demand for commercial properties in attractive locations.

Organization The company implemented organiza-tional changes during 2005, whereby property management is now divided into three regions: Stockholm, West and East. In conjunction with this restruc-turing, changes were also made in the organizational composition of executive management, which now consists of the President, Assistant to the President, three regional managers, development manager, a financial director and rental administration manager.

The changes create good potential for a continued focus on the current management operations and opportu-nities to further upgrade and develop properties in interesting communities.

Property-management operations are led by three regional managers, each with their own management office. Everyday management and rental activi-ties are handled locally by respective offices.

Property-development operations are conducted centrally from the head office in Norrköping, which also has resources for administration, operations, accounting, purchasing, information, IT, project development and construction management as well as environmental and quality matters.

17

Eastern 33%

Western 34%

Stockholm 33%

Distribution of annual rental revenues by region

Eastern 36%

Western 34%

Stockholm 30%

Distribution of floor space by region Fair value by region

Eastern 32%

Western 33%

Stockholm 35%

RegionsThe Stockholm region consists of Enköping, Eskilstuna, Nyköping, Solna, Stockholm, Södertälje and Uppsala.

Most of the municipalities in the re-gion are developing favorably due to their close proximity to Stockholm, which supports strong rental demand.

The company’s real estate holdings in Solna, Stockholm and Uppsala consist mainly of commercial premises, while housing accounts for 84% of managed properties in Eskilstuna, Nyköping and Södertälje.

The region is characterized by gen-erally strong demand for housing, al-though some increase has been noted in vacancy rates in Södertälje. Rental conditions for the commercial proper-ties remain favorable, with some risk for increased vacancy in office premises in Stockholm. A comprehensive renova-tion and rebuilding program was initiat-ed in the Klippan office and residential property in Stockholm during 2004. The project will be completed in 2006.

The West region consists of property-management offices in Arvika, Gothen-burg, Jönköping, Karlstad and Örebro.

Supported by strong demand for housing and for office and retail space, the rental situation is favorable through-out the entire region.

In Gothenburg, comprehensive reno-vation and rebuilding is now in progress

at the Krokslätt property to create space for the head office of Maersk Sverige AB. In Jönköping, a preliminary study will be conducted during 2006 to ana-lyze the feasibility of possible new con-struction of retail and office premises on the Ansvaret property. In Landskrona, the company manages a large industrial property.

The East region includes investment properties in Katrineholm, Linköping and Norrköping, with 70% of the re-gion’s portfolio concentrated in Norr-köping.

The rental situation for retail premis-es is favorable throughout the region, while demand for office space is some-what weaker. Tenant turnover in the residential portfolio is high, particularly in Norrköping, but vacancy rates are at acceptable levels. The entire Holmen-byggarna KB (formerly owned joint-ly with NCC) was acquired during the year. Substantial investments were also made in the Linden and Spiralen shop-ping centers as part of efforts to main-tain and strengthen Norrköping as an attractive retail location.

Development propertiesThe development properties are situated mainly in central Sweden and comprise 2,900 hectares of farmland, forests and about 80 objects in centrally located sites.

The aims of the propertydevelopment operations are to develop the proper-ties into sites suitable for commercial development and to create new projects for resale. This is achieved through active involvement in planning and property formation matters, and through cooperation with the parties who need developable land.

Detailed development planning is under way for a total of 600 single-family homes in Enköping, Eskilstuna, Nacka, Nyköping, Strängnäs, Svedala and Örebro. The largest development project now in progress is at Ekeby-Almby, outside Örebro, where 130 plots of land for single-family homes have been sold. Quality and the environmentThe operations of Fastighets AB L E Lundberg have been quality certified in accordance with ISO 9001:2000 since 1998. The company’s quality policy, in which security and safety are key con-siderations, also includes the principal environmental issues.

The greatest environmental impact of operations derives from purchased heat, of which district heating accounts for 98%. The environmental impact of district heating depends on the fuel the district heating supplier uses for the production of heat. During recent years, approximately 80% of district heat-

Fastighets AB L E Lundberg

1960-19691980-1989

1970-1979

1990-2006

before 19501951-1959

1 room

963

2 2412 607

945

2 rooms

4 rooms

3 rooms

More than 4 rooms, 233

Age structure of investment properties

Residential apartments by type

Housing 51%

18%

6%

13%

10%

< 1 SEK m.

1 - 3 SEK m.

3-5 SEK m.

> 5 SEK m.

Other 2%

Value of rental contracts

Housing 49%

11%

10%

6%

9%

8%

2006 1% 2007

2008

2009

2010

2011-

Garage 2%Other 4%

Maturity of rental contracts distributed by rental revenues

18

Rubrik 19

ing procurements has been based on renewable fuel sources.

Investments and divestmentsSales of investment properties during the year totaled SEK 362 m. (11), gener-ating capital gains of SEK 191 m. (7).

All shares in Holmenbyggarna Dalkarlen KB, a company formerly owned jointly with NCC, were acquired in September 2005. The purchase price was SEK 23 m., based on an underlying property value in the entire company totaling SEK 116 m. The company was established in 1988 to develop the area around Holmen’s former industrial park in central Norrköping, now called “The Industrial Landscape.” The area focuses on concert and conference activities, offices, education and housing.

In conjunction with Fastighets AB L E Lundbergs’ acquisition of the above shares, the company sold two proper-ties, Bomullsspinneriet 1 and Gropen 6, to Acta for SEK 220 m., generating a capital gain of SEK 32 m. for Fastighets AB L E Lundberg.

After the sale of the properties, Hol-menbyggarna comprises approximately 15,000 square meters of rentable space and about 45,000 square meters of de-velopable land with development rights.

Comprehensive renovations were completed at the Linden department store in Norrköping. The property’s

available space has been efficiency enhanced and upgraded to a commer-cial property ready to face the future. Total investments amounted to about SEK 90 m.

The Spiralen shopping center in Norr-köping was also refurbished through the addition of 450 additional square meters in the form of a glass building. Lindex, a new tenant, is now concen-trating its city establishment to the Spiralen shopping center. Lundbergs’ investment in the expansion project amounted to SEK 17 m.

A comprehensive renovation and rebuilding project is now in progress at the Klippan office and residential property in central Stockholm. The project will be completed during 2006, and total investments are estimated at approximately SEK 110 m.

In December 2005, Lundbergs’ prop-erties in Motala were sold to Allokton AB. The three properties comprise about 39,000 square meters of residential space, 6,500 square meters of retail space and 3,400 square meters of office space. The price for the properties was SEK 234 m., which generated a capital gain of SEK 156 m. for Fastighets AB L E Lundberg.

In January 2006, an agreement was also signed with Allokton AB con-cerning the sale of three properties in Enköping, with occupancy in March

2006. The properties comprise about 7,000 square meters of residential, retail and office space. The sale price was about SEK 61 m., generating a capital gain of about SEK 49 m.

Sales of development properties during the year amounted to SEK 94 m. (15), of which SEK 37 m. was attribut-able to single-family home sites, SEK 47 m. to larger projects and SEK 10 m. to land for operations, etc. The sales generated capital gains of SEK 45 m. (2).

Results during the year Net revenues, including revenues from sales of development properties, rose to SEK 969 m. (883). Operating expenses for electricity, heating, water and waste removal remained at the same level as in the preceding year, despite higher consumption fees. Maintenance costs increased, mainly as a result of a greater focus on planned maintenance meas-ures.

The vacancy rate in the total real estate holdings in February 2006 was 3.6%, divided as 1.6% in residential premises and 5.6% in other premises.

Low vacancy rates, continued invest-ments in the existing real estate hold-ings and favorable trends in the overall real estate market are key factors that contribute to value changes in the port-folio of investment properties.

19

Key figures as per January 1, 20061 Operating result

Stockholm West

East TotalNumber of properties 32 55 52 139Reported value, SEK m. 890 494 807 2,191Fair value, SEK m. 2,544 2,465 2,401 7,410Number of apartments 2,543 2,263 2,183 6,989Residential, sqm 189,550 159,690 156,414 505,654Residential, rent per sqm, SEK 796 808 788 767Residential, rental value, SEK 000s 150,800 129,000 123,300 403,100Residential, vacancy rate,% 2.4 0.4 2.0 1.6Office and retail, sqm 51,923 101,874 92,349 246,146Other premises, sqm 38,581 63,208 90,894 192,683Office/retail, rent per sqm, SEK 1,989 1,174 1,242 1,372Other premises, rent per sqm, SEK 607 519 450 486Office/retail, rental value, SEK 000s 103,300 119,600 114,700 337,600Other premises2, rental value, SEK 000s 23,400 32,800 40,900 97,100Office/retail, vacancy rate,% 6.2 4.5 5.2 5.3Premises, number of rental contracts 195 240 384 819

1) Excluding divested properties in Enköping. 2) Excluding development properties.

SEK m. 2005 2004Net revenues 969 883

Operating expenses -185 -184Maintenance -95 -74Personnel costs -101 -95Property tax -35 -34Divested development properties -49 -13

Total operating expenses -465 -400

Depreciation -4 -5Value change in investment properties 449 258Operating profit 950 735

Hufvudstaden

Stockholm Western City 37%

Stockholm Eastern City 31%

NK 21%

Gothenburg 11%

The Hufvudstaden share Distribution of annual rental revenues by type of premises

Annual rental revenues by business area

Proportion of Lundbergs’ total assets

FebJan 06NovSeptJulyMayMarchJan 0530

40

50

60

70

80

SIX Property IndexHufvudstaden A

SEK

Offices 55%Retail and restaurants 37%

Other 8%Hufvudstaden 18%

20

Chairman: Fredrik Lundberg CEO: Ivo Stopner www.hufvudstaden.se

Hufvudstaden is one of Sweden’s largest real estate companies, with a highly specialized and concentrated property portfolio. The company’s business concept is to use its own properties in central Stockholm and Gothenburg to offer high-quality office and retail premises.

Operations are divided into four busi-ness areas: Stockholm Eastern City, Stockholm Western City, NK and Gothenburg.

Stockholm Eastern City consists of 14 properties east of Regeringsgatan and two properties in the Old Town. Most of the business area’s properties are situated on Biblioteksgatan, Norrmalmstorg and adjacent streets.

Stockholm Western City consists of properties in the district around and west of Sveavägen. The business area has eight properties situated on the corner of Kungsgatan/Sveavägen, on Drottninggatan and Klarabergsgatan. Conference and restaurant operations are conducted in the World Trade Cent-er property. The subsidiary Parkaden has parking operations in two of Hufvudsta-den’s properties.

The NK business area comprises the NK department stores in Stockholm and Gothenburg. NK department stores are marketed externally under a uniform trademark, NK, but private retailers operate all of the stores. The aim is that NK department stores will be perceived

as world-class marketplaces in terms of product offering, customer service, atmosphere and function.

The Gothenburg business area con-sists of four properties in Gothenburg’s central business district. The largest property includes the Femman depart-ment store, which is part of the Nord-stans shopping mall. Retail premises account for nearly 60% of total rental revenues.

Hufvudstaden’s customers are companies that value centrally located, high-quality premises. Most rental revenue is attributable to retail stores, law firms, companies in the bank and financial sector and advertising and media companies. Hufvudstaden works with a long-term business approach and strives to preserve and develop the real estate portfolio.

Hufvudstaden’s goal is to gradually increase earnings from continuing oper-ations. The company aims to distribute dividends corresponding to more than half of net profit from operating activi-ties, unless the company’s investments or financial position require an alterna-tive course of action. Another goal is to achieve an equity/assets ratio of at least 40% over time.

Highlights of the year

Profit after tax for the year amount-ed to SEK 1,334 m. (771). The increase was primarily attributable to unrealized value changes in the property portfolio.

Earnings per share amounted to SEK 6.47 (3.74).

The property portfolio’s market value at year-end amounted to SEK 16.3 billion, creating net asset value of SEK 53 per share (50).

• Styrelsen har föreslagit en höjn-ing av den ordinarie utdelningen till 1:30 kronor per aktie och därutöver en extra utdelning om 2:70 kronor per aktie. Total utdelning föreslås därmed bli 4:00 kronor per aktie.

Key financial data

2005 2004Net revenues, SEK m. 1,344 1,358 Profit after net financial items, SEK m. 1,852 896Profit after tax, SEK m. 1,334 771Earnings/share after tax, SEK 6.47 3.74Dividend/share, SEK 1.45 1 4.00 2

Share price, Dec. 31, SEK, Series A share 52.00 47.60

1)Board of Directors’ proposal. 2) Including extraordinary dividend of SEK 2.70 per share.

Largest shareholders, December 31, 2005

% of share capital

% of voting rights

Lundbergs 45.2 88.0SEB Trygg Liv 11.7 2.4Société Générale 3.2 0.7Robur funds 2.6 0.5Skandia Liv 2.6 0.5Fortis Banque 1.6 0.3FPG 1.5 0.3

Lundbergs’ holding December 31, 2005

Series A shares 85,141,229Series C shares 8,177,680

Consolidated net sales for compar-able properties amounted to SEK 1,344 m. (1,336).

The rental vacancy rate at year-end was 7.1% (8.2).

The Board of Directors proposes a dividend of SEK 1.45 per share (1.30).

21

Sweden 24%

United Kingdom 14%

Germany 14%Spain 7%France 5%

Netherlands 5%Italy 4%

Other EU countries 13%

Rest of Europe 4%

Rest of world 10%

The Holmen shareExternal net sales by business area

External net sales by market

Proportion of Lundbergs’ total assets

FebJan 06NovSeptJulyMayMarchJan 05180

210

240

270

300

330

SIX Forest Products IndexHolmen B

SEK

Holmen Paper 52%

Holmen Skog 13%

IggesundPaperboard

30%

Iggesund Timber 3%

Holmen Kraft 2%

Holmen 23%

Holmen22

Chairman: Fredrik Lundberg CEO: Magnus Hall www.holmen.com

23

Holmen is a specialist forest products group with annual production capac-ity of nearly 2.7 million tons of paper and board. Europe is the company’s dominant market, accounting for 90% of sales. The Holmen group has about 4,900 employees, including slightly more than 20% outside Sweden.

Holmen is organized in five business areas. Holmen Paper produces and sells newsprint, magazine and catalog paper based on virgin-fiber and recycled fiber raw materials. The products are used mainly in the production of newspa-pers, magazines, catalogs and advertis-ing materials. The product areas com-prising improved newsprint, telephone directory paper and colored newsprint have particularly strong market posi-tions. Production capacity amounts to slightly more than 2.1 million metric tons annually. The business area’s main markets are Sweden, the UK, Germany and Spain.

Iggesund Paperboard manufactures and sells solid board and folding box-board based solely on virgin-fiber raw materials. The products are used mainly as packaging materials for products such as food, cosmetics, pharmaceu-ticals, tobacco and confectionary, and for graphic-design applications. Annual production capacity amounts to slightly more than 500,000 metric tons. The business area’s largest markets are the UK, Germany and France. Iggesund Pa-perboard is the market leader for high-grade solid board.

Iggesund Timber manufactures and sells sawn redwood timber to industrial manufacturers of consumer products. Its largest markets are the UK and Scandi-navia.

Holmen Skog is responsible for timber supplies to the group’s Swed-ish units and manages slightly more than one million hectares of produc-tive forestland. Holmen’s annual timber consumption amounts to approximately 4.5 million cubic meters and annual felling in wholly owned forests totals approximately 2.5 million cubic meters.

Holmen Kraft is responsible for the group’s holdings of hydroelectric power assets and electricity supplies to the group’s Swedish units. Its degree of self-sufficiency is slightly more than 30%.

In addition to financial return, the group’s forest and power assets, sawmills and recycled paper companies provide Holmen with knowledge of and control over key raw materials in terms of pur-chasing, price, availability and quality.

Holmen shall have a strong financial position, with a debt/equity multiple of 0.3–0.8. The goal for ordinary divi-dend payments corresponds to 5–7% of shareholders’ equity. Extraordinary dividends and share repurchases may be effected when permitted by the com-pany’s capital structure and financing requirements. Holmen aims to show favorable profitability in the form of a return that consistently and sustain-ably exceeds the cost of capital in the market.

Highlights of the year

Continued strong demand was noted for Holmen’s products dur-ing 2005. Earnings were largely unchanged compared with 2004. Prices for newsprint increased and board prices remained stable.

Test operations were started as planned toward year-end on the new MP62 newsprint machine at Holmen Paper Madrid.

A decision was made to invest SEK 415 m. in the Iggesund Mill’s KM 2 board machine in order to increase quality and quality consistency in the products.

Key financial data

2005 2004Net sales, SEK m. 16,319 15,653Profit after net financial items, SEK m. 1,740 1,746Profit after tax, SEK m. 1,256 1,275Earnings/share after tax, SEK 14.80 15. 10Dividend/share, SEK 11.002 10.00Share price, Dec. 31, Holmen B, SEK 262.50 230.001) After dilution.2) Board of Directors’ proposal.

Largest shareholders December 31, 2005

% of share capital

% of voting rights

Lundbergs 27.9 51.9Kempe Foundations 6.7 16.6Handelsbanken pension funds 3.1 8.6Alecta 2.8 0.8SHB/SPP Funds 2.6 0.8Robur Funds 2.3 0.7

Lundbergs’ holdingDecember 31, 2005

Series A shares 14,010,196Series B shares 9,598,720

Hurricane Gudrun in southern Sweden did not cause significant damage in Holmen’s forestlands. Many other private forest own-ers suffered substantial damage, however.

Cardo

CardoDoor 62%

CardoPump 38%

Europe 83%

North America 7%Asia 4%

Other 3%Middle East 3%

The Cardo shareNet sales by business area

Net sales by geographic area

Proportion of Lundbergs’ total assets

Cardo 8%

FebJan 06NovSeptJulyMayMarchJan 05100

150

200

250

300

350

400

SIX Industrial Conglomerates IndexCardo

SEK

Chairman: Fredrik Lundberg CEO: Peter Aru www.cardo.com

1) According to the 2005 division into business areas.

24

25

Cardo is a multinational industrial en-gineering group with strong positions in the markets for doors and logis-tics solutions, wastewater treatment technologies, systems for the pulp and paper industry and garage doors for private consumers. Cardo has subsidi-aries in more than 30 countries, mainly in Western Europe. Customers outside Sweden account for about 90% of net sales, and some 80% of the compa-ny’s 5,800 employees work outside Sweden.

Cardo’s operations are structured in four divisions: Door & Logistics Solutions, Wastewater Technology Solutions, Pulp & Paper Solutions and Residential Garage Doors.

The Door & Logistics Solutions Divi-sion is one of the world’s largest pro-ducers of industrial doors and Europe’s leading supplier of docking equipment, meaning loading docks, weather sealing products and load houses. Crawford is the largest and dominant brand. For docking solutions, the Hafa brand is also used in certain markets, and the Megadoor brand is used for sophisticat-ed door solutions for the aviation indus-try, among others. Cardo also has the industry’s most comprehensive service network that offers repairs, maintenance and product upgrades.

The Wastewater Technology Solu-tions Division is one of Europe’s leading suppliers of solutions for wastewater

and water treatment applications. The solutions include pumps, agitators, aerators and compressors for waste-water and water treatment applications and pumps for the construction indus-try. The product range also includes products for level and flow control, analyses, process control and remote supervision of municipal and industrial water treatment processes, in addition to a large offering of services. Most of the products are sold under the ABS brand. Bilge pumps for the construction and mining industry are sold under the Pumpex brand.

The Pulp & Paper Solutions Division includes Lorentzen & Wettre, one of the world’s leading suppliers of quality measurement equipment for paper mill laboratories, and Scanpump, a supplier of pumps, agitators and aerators for the paper and pulp industry.

The Residential Garage Doors Divi-sion is one of Europe’s largest manu-facturers of garage doors for private consumers. The products include most types of garage doors and are marketed under the Crawford, Normstahl and Henderson brands.

The group’s financial goals are to reach an operating margin of at least 10% by 2008, to generate average organic growth of at least 5% annually over a complete economic cycle and a minimum return on capital employed of 20%.

Highlights of the year

Peter Aru was appointed President and CEO of Cardo in April, and several members of the group’s management staff were replaced during the year.

Implementation of a new business strategy was completed. Cardo will now operate as a distinct operating industrial group within business-to-business, offering value-enhance-ment solutions based on quality products, a high service content and comprehensive applications know-how to strategically selected customers.

Rationalization and consolidation measures were implemented within the sales, administration and pro-duction organization to strengthen Cardo’s competitiveness and re-duce costs. Coordination was also enhanced through new group-wide functions within human resources, communications, purchasing, IT, finance and accounting.

Key financial data

2005 2004Net sales, SEK m. 7,880 7,686Profit after net financial items, SEK m. 210 419

Profit after tax, SEK M 147 326Earnings/share after tax, SEK 4.91 10.86Dividend/share, SEK 8.001 8.00Share price, Dec. 31, SEK 194.50 190.501) Board of Directors’ proposal.

Largest shareholders, Dec 31, 2005

% of share capital and voting rightsLundbergs 36.0If Skadeförsäkring 9.5Robur Funds 3.8Eikos Fund 3.2SEB Funds 2.4Orkla ASA 1.7

Lundbergs’ holdingDec 31, 2005

Number of shares 10,800,000

Effective January 1, 2006, Cardo was restructured into four divisions: Door & Logistics Solutions, Wastewater Technology Solutions, Pulp & Paper Solutions and Residential Garage Doors.

NCC

NCC is a leading Nordic construction and property development company. Sales in 2005 totaled SEK 50 billion, and the number of employees was 21,000.

NCC develops housing and property projects, builds office and industrial premises, housing, roads and civil engi-neering installations and other types of infrastructure. The company also offers input materials for production, such as gravel and asphalt, and is responsible for paving, operation and maintenance of roads. Its primary geographic area is the Nordic region.

The group’s construction operations, Construction, are organized geographi-cally. NCC Construction is represented in Sweden, Denmark, Finland, Norway and Germany.

NCC Construction builds homes, offices and other buildings, industrial premises, roads, civil engineering instal-lations and other types of infrastructure.

NCC Property Development devel-ops and sells commercial properties in the Nordic countries, and NCC Roads’ core business is to produce aggregates and asphalt and engage in paving and road maintenance operations. In ad-dition to the Nordic countries, NCC Roads also has business operations in Poland and the St. Petersburg area of Russia.

NCC’s profitability goal is to generate a return on equity of 15% after taxes. Net debt shall not exceed shareholders’ equity, and the group shall maintain a positive cash flow. In accordance with the dividend policy, at least half of net profit for the year after tax shall be distributed to the shareholders.

Key financial data

2005 2004Net sales, SEK m. 49,506 46,534Profit after net financial items, SEK m. 1,580 945Profit after tax, SEK m. 1,187 876Earnings/share after tax, SEK 10.86 8.05Dividend/share, SEK 15.502 14.50 3

Share price, Dec. 31, NCC B, SEK 142.50 88.001) After dilution.2) According to Board of Directors’ proposal, of which SEK 5.50 is ordinary

dividend and SEK 10.00 is extraordinary dividend.3) Including extraordinary dividend of SEK 10.00.

Largest shareholders, Dec 31, 2005

% of share capital

% of voting rights

Nordstjernan 32.3 55.8Lundbergs 10.1 18.7Robur Funds 4.9 5.5JPMorgan Chase Bank, USA 2.2 0.5SEB Funds 2.2 0.4

Lundbergs’ shareholding

Number of A shares 10,850,000

Construction Sweden 39%

Construction Denmark 14%Construction Finland 12%

Construction Norway 10%

Construction Germany 3%Property Development 3%

Roads 18%

Other 1%

NCC shareDistribution of net sales per business areaProportion of Lundbergs’ total assets

FebJan 06NovSeptJulyMayMarchJan 0540

80

120

160

200

SIX Construction and civil engineering indexNCC B

SEK

NCC 6%

Chairman: Tomas Billing CEO: Alf Göransson www.ncc.se

26

In March, an extraordinary dividend of SEK 10.00 per share was detached. The share-price diagram has not been adjusted for this.

Industrivärden is one of the Nordic region’s largest investment companies, with shareholdings in a concentrated number of exchange-listed companies with healthy development potential. The business concept is to create shareholder value based on profes-sional investment operations and active ownership. Active ownership is based on Industrivärden’s model for value creation and is exercised through representation on boards of directors.

The stock portfolio is well diversified and the company’s balance sheet is strong. In the past five years, Indus-trivärden’s net debt/equity ratio has varied between 5 and 17%.

Industrivärden has major share-holdings in some of Sweden’s leading companies. Its largest shareholdings are Handelsbanken, Ericsson, Sandvik and SCA. Industrivärden is also the largest owner of SSAB, Skanska, Indutrade and Munters.

Industrivärden’s objective over time is to generate high growth in net asset value, with the aim of providing a total return that exceeds the average for the Stockholm Stock Exchange. Industri-värden’s dividend policy is to distrib-ute a direct return to shareholders that exceeds the Stockholm Stock Exchange average. In the past 10 years, net asset value has risen by an average of 12% annually. The total return during the same period has been 20% per year.

Key financial data2005 2004

Adjusted shareholders’ equity, SEK m. 48,252 36,563Profit after tax, SEK m. 14,202 7,458Net asset value per share, SEK 250 189Net debt/equity ratio,% 7,0 11,5Dividend/share, SEK 7.001 6.00Share price, Dec. 31, Industrivärden A, SEK 217.00 169.501) Board of Directors’ proposal.

Largest shareholders, Dec 31, 2005% of share

capital % of voting

rightsAMF Pension 11.8 4.6Lundbergs 10.5 14.4Handelsbanken’s Pension Foundation 6.7 9.2Handelsbanken’s Pension Fund 6.6 9.1Jan Wallander & Tom Hedelius Foundation 5.9 8.1SCA Pension Foundation 4.6 6.4Oktogonen 3.4 4.6

Lundbergs’ shareholding

Number of Series A shares 20,250,000

Handelsbanken 25%

SCA 13%

Sandvik 18%

Ericsson 20%

Skanska 8%

SSAB 8%

Indutrade 3% Other 4%Munters 1%

Industrivärden shareComposition of stock portfolio, market valueProportion of Lundbergs’ total assets

FebJan 06NovSeptJulyMayMarchJan 05140

160

180

200

220

240

260

280

SIX Investment and holding company indexIndustrivärden A

SEK

Industrivärden 16%

Chairman: Tom Hedelius CEO: Anders Nyrén www.industrivarden.se

Industrivärden 27

Indutrade

Indutrade is a commercial engineer-ing company that markets industrial components, systems and services. A commercial engineering company distinguishes itself from wholesalers by offering technical advisory serv-ices, customer-specific solutions and generally more technically advanced products. It also offers high-quality support, training and other after-market services. Indutrade was listed on the Stockholm Stock Exchange in October 2005.

The group is divided into four business areas: Engineering & Equipment, Flow Technology, Industrial Components and Special Products. Each business area comprises several independent subsidi-aries. Indutrade consists of more than

60 subsidiaries with sales ranging from SEK 10 m. to SEK 150 m.

Indutrade’s principal products include flow control products, valves, filters and process technology, industrial control, transmissions, cutting tools and fasteners. Customers consist mainly of companies in the processing industry. Sales in 2005 amounted to SEK 3.8 billion and, during the company’s 30 years of business operations, sales have grown by an average 19% annually with good profitability. The number of employees at year-end was about 1,500.

Operations are concentrated in Sweden and Finland, which account jointly for three-fourths of net sales. Indutrade also has operations in Norway, Denmark, Germany, Benelux, the Baltic countries and Russia.

Key financial data

2005 2004Net sales, SEK m. 3,822 3,486Profit after net financial items, SEK m. 309 243Profit after tax, SEK m. 222 168Earnings/share after tax, SEK 5.55 4.20Dividend/share, SEK 2.751 -Share price, Dec. 31, SEK 89.00 -1) Board of Directors’ proposal.

Largest shareholders, Dec 31, 2005% of share capital/

voting rights Industrivärden 37.1Lundbergs 10.0Handelsbanken’s Pension Foundation 4.1Investment AB Öresund 3.0Alecta 2.7

Lundbergs’ shareholding

Number of shares 4,000,000

Engineering & Equipment

Flow Technology

Industrial Components

Special Products

36%

25%

18%

21%

Net sales per business areaProportion of Lundbergs’ total assets

50

60

70

80

90

100

FebJan 06DecNovOct 05

SIX WholesalerIndutrade

SEK

Indutrade1%

28

Chairman: Bengt Kjell CEO: Johnny Alvarsson www.indutrade.se

Indutrade share

29Annual Report

The Board of Directors and President of L E Lundbergföretagen AB (publ), whose registered office is in Stockholm and whose corporate registration number is 556056-8817, hereby submit their Annual Report for fiscal year 2005 for the Group and the Parent Company.

Report of the Board of Directors 30

Definitions 33

Group

Income statements 34

Balance sheets 35

Changes in shareholders’ equity 36

Cash flow statements 37

Notes 38

Parent Company

Income statements 61

Balance sheets 62

Changes in shareholders’ equity 63

Cash flow statements 63

Notes 64

Proposed distribution of profits 68

Auditors’ report 69

Group

Operations consist of real estate management operations, the manufacture and sale of newsprint, magazine paper, paper-board and sawn wood products, forest and power operations, and equity management (including securities trading).

The Group’s operations are described below. Information about the Group’s business sectors (Lundbergs, Hufvudstaden and Holmen) is presented on pages 30-32. The Parent Com-pany is described on page 33.

Sales and earningsThe Group’s net sales amounted to SEK 19,388 m. (18,835), of which Lundbergs accounted for SEK 1,724 m. (1,823), Hufvudstaden for SEK 1,344 m. (1,358) and Holmen for SEK 16,319 m. (15,653). Operating profit totaled SEK 5,597 m. (4,165). The corresponding operating profit for the business sectors was SEK 1,669 m. (1,121) for Lundbergs, SEK 1,983 m. (1,118) for Hufvudstaden and SEK 1,973 m. (1,952) for Holmen.

Financial items amounted to an expense of SEK 422 m. (expense: 536), of which net interest expense accounted for SEK 427 m. (expense: 579).

Profit after financial items totaled SEK 5,175 m. (3,628). After tax, net profit amounted to SEK 3,897 m. (2,803), which corresponds to SEK 36.46 (23.55) per share excluding minori-ties.

Investments Investments are reported under the different business sectors and the Parent Company below.

FinancingInterest-bearing net debt decreased by SEK 1,639 m. to SEK 12,178 m. (10,539). Interest-bearing liabilities amounted to SEK 13,023 m. (11,065) and interest-bearing assets to SEK 845 m. (526). The equity/assets ratio was 57% (57). The debt/equity ratio was 0.33 (0.32). The Group’s shareholders’ equity was SEK 37,397 m. (32,592), of which minority interest accounted for SEK 16,318 m. (15,770).

Tax The Group’s tax costs amounted to SEK 1,277 m. (825), corre-sponding to 25% (23) of pretax profit. Information on ongoing tax processes is presented in Note 11, on page 47.

Repurchase of own shares The Annual General Meeting on April 7, 2005 renewed the Board of Directors’ authorization to make decisions regarding the purchase of up to 10% of the company’s shares. How-ever, this authorization was not utilized. The Board will also

propose that the 2006 Annual General Meeting authorize the Board to repurchase the company’s Series B shares. On December 31, 2005, the holding of the company’s own Series B shares was 145,483.

Transition to IFRSAs of January 1, 2005, Lundbergs applies International Financial Reporting Standards (IFRS), including International Accounting Standards (IAS) in its consolidated accounting. This is a result of an EU ordinance that applies to all listed companies within the EU. As a result of the transition, an opening balance at January 1, 2004 was compiled explain-ing how the new regulations affect shareholders’ equity. In reporting for 2005, the comparative figures for 2004 have also been recalculated in accordance with IFRS, apart from IAS 39, in accordance with the voluntary exemptions permissible according to IFRS 1.

The most significant changes for the Group that resulted from the transition to IFRS pertained to investment properties, biological assets, financial instruments and deferred tax. As a result of the transition to IFRS, shareholders’ equity excluding minority interests and after taking tax effects in the opening balance at January 1, 2004 into account, rose by SEK 3,776 m. Profit for 2004, excluding minority interests, increased by SEK 450 m. Accordingly, shareholders’ equity at the end of 2004 rose by a total of SEK 4,226 m. At January 1, 2005, sharehold-ers’ equity rose by a further of SEK 1,172 m. (effect of IAS 39).

For further information about the transition to IFRS, see Note 37, page 56.

Business sectors

Lundbergs In this context, Lundbergs is defined as the Parent Company L E Lundbergföretagen AB, its wholly owned subsidiaries and, in certain cases, the subsidiaries’ groups of companies active within real estate management and securities trading.

Sales and earnings Net sales totaled SEK 1,724 m. (1,823) and operating profit amounted to SEK 1,669 m. (1,121).

Real estate management Net sales totaled SEK 969 m. (883) and operating profit amounted to SEK 950 m. (735). The increased earnings were due mainly to changes in the value of the real estate portfolio by SEK 449 m. (258).

The average vacancy rate was 3.4% (2.8).During the year, investment properties were sold for SEK

362 m. of which the sale of all the properties in Motala

Report of the Board of Directors30

31

accounted for SEK 234 m. The sale will have only a minor im-pact on pretax earnings because the properties were already entered in the balance sheet at the estimated market value. Investments amounted to SEK 243 m., of which SEK 23 m. pertained to the purchase of half of the shares in Holmen- byggarna Dalkarlen KB, following which this company be-came a wholly owned subsidiary.

As of 2005, investment properties are entered in the finan-cial statements at fair value. An internal valuation was con-ducted of the real estate portfolio at December 31, 2005 by assessing the fair value of each individual property. The value was established through a combination of the yield and the location-price method. The internal valuation was ascertained by commissioning independent valuations of certain proper-ties, which corresponded to 40% of the total fair value. In those cases where independent valuations were made, these have been used for establishing the fair value. The fair value, including completed net investments, had increased by SEK 368 m. to SEK 7,471 m. (7,103).

Development properties (properties classed as current assets) were sold for SEK 94 m. (15) during the year. Develop-ment properties are valued at the lower of acquisition value and fair value. Asset management Net sales totaled SEK 755 m. (940) and operating profit amounted to SEK 719 m. (386).

Net investments in shares amounted to SEK 1,094 m. (1,133).

EnvironmentNo operations that require permits or reporting in accordance with the Ordinance on Environmentally Hazardous Opera-tions and Safety Precautions (1998:899) were conducted during 2005.

OutlookProfit from property management during 2006 will be ad-versely affected by increased costs for operation and planned maintenance. The rental markets for retail and residential properties are expected to remain stable and demand for offices is expected to improve somewhat in the markets where Lundbergs is active.

An increase in ordinary dividends is expected to have a favorable impact on cash flow from equity management dur-ing 2006. Extraordinary dividends are expected to be lower than in 2005.

HufvudstadenHufvudstaden’s operations involve the ownership and man-agement of commercial office and retail properties in central Stockholm and central Gothenburg.

Sales and earnings Net sales totaled SEK 1,344 m. (1,358). Operating profit amounted to SEK 1,983 m. (1,118). The increase in profit was due to changes in the value of the real estate portfolio by SEK 1,200 m. (297).

The total vacancy rate on December 31, 2005 was 7.1% (8.2).

Real estate management During the period, SEK 79 m. (72) was invested in properties and equipment.

As of 2005, investment properties are entered in the financial statements at fair value. An internal valuation was conducted of the real estate portfolio at December 31, 2005 by assessing the fair value of each individual property. The value was established through the yield method. The valuation was ascertained by commissioning independent valuations of properties corresponding to 30% of the total fair value. The fair value, including completed net investments, had increased by SEK 1,276 m. to SEK 16,276 m. (15,000).

EnvironmentNo operations that require permits or reporting in accordance with the Ordinance on Environmentally Hazardous Opera-tions and Safety Precautions (1998:899) were conducted during 2005.

OutlookAlso during 2006, Hufvudstaden will concentrate on core operations, meaning the management, refinement and development of the real estate portfolio in order to generate the greatest possible return. Economic growth in Sweden is expected to increase somewhat in 2006, which is expected to eventually result in a decrease in rent losses and more new leasing. This will result in increased costs for adapting premises. Strategic acquisitions and divestments of individual properties cannot be excluded.

Holmen Holmen’s operations consist of the manufacture and sale of newsprint and magazine paper (Holmen Paper), paperboard (Iggesund Paperboard) and sawn wood products, as well as forest and power operations.

32

Sales and earnings Net sales amounted to SEK 16,319 m. (15,653).

Operating profit amounted to SEK 1,973 m. (1,952). Higher prices for newsprint and magazine paper had a favorable impact on earnings, at the same time as the cost of transportation, chemicals and energy increased substantially.

Investments Investments amounted to SEK 3,170 m. (1,291), of which SEK 2,309 m. pertained to investments in the new paper mill in Madrid.

Research and developmentThe total cost of Holmen’s research and development was approximately SEK 100 m. (100). Research and development work is decentralized with responsibility resting with each individual business area.

EnvironmentAt the end of 2005, Holmen was conducting activities requir-ing permits at seven mills. Three of these have environmental permits in accordance with the Environmental Protection Act and three have permits based on the Environmental Code. In 2006, the seventh mill, Ström Mill, is expected to be reclas-sified as having a reporting obligation rather than requiring a permit. As in the past, the mill is supervised with the mu-nicipality as the supervisory authority. During the autumn of 2005, an organization change was implemented, whereby Ström Mill was integrated into Iggesund Mill.

The mills’ sales corresponded to 68% of Holmen’s net sales.

The main environmental impact from the mills is caused by emissions to air and water as well as by noise and the produc-tion of waste.

The pulp and paper mills at Norrköping and Wargön were assessed for permits in 2002 in accordance with the Environ-mental Code. The Skärnäs terminal has had an environmental permit in accordance with the Environmental Code since 1999. The Hallsta Mill has held a new permit on the basis of the Environmental Protection Act since 2000. Iggesund Mill was granted a new permit under the same act in 2003. Iggesund Sawmill has held a permit in accordance with the Environmental Code since 1994.

During 2005, Hallsta Mill, Iggesund Mill and Iggesund Sawmill submitted their reports to the supervisory authorities regarding how they intend to fulfill the requirements accord-ing to the EU’s IPPC directive by October 30, 2007.

No significant permits need to be renewed or revised dur-ing 2006.

The Holmen Kraft business area generates electricity at Holmen’s wholly and jointly owned hydroelectric power plants. The permits held by all power plants under the terms of the Water Act include environmental conditions. At the end

of 2005, a permit for the construction of a new power plant by the Iggesund River was applied for at the Environmental Court. This power plant will replace three power plants cur-rently at the same location. A ruling is expected in early 2006.

The various Holmen mills participate in the EU’s trad-ing in emission rights for carbon dioxide. The Swedish mills also participate in trading in electricity certificates and in the Energy Authority’s program for energy efficiency (PFE). During 2005, the Iggesund and Hallsta Mills were certified for the energy management systems they had introduced – a require-ment for participating in PFE.

Activities in Holmen’s forests and at its pulp and paper mills in Sweden were certified in accordance with ISO 14001 at the end of 2005. The company’s forestry activities were also certified in accordance with FSC and PEFC.

A few cases of exceeded limits, incidents and complaints regarding industrial and forestry activities were noted during 2005. These non-conformities had no impact on earnings and were resolved by means of corrective action within the environmental management systems.

Of the Group’s activities outside Sweden, the mills at Workington, UK, and in Madrid, Spain, have some form of environmental impact. The mills’ sales corresponded to 14% of total group net sales. Workington received an environmen-tal permit for its activities in 2002, in accordance with the EU’s IPPC directive. The mill in Madrid received a permit in 2002 from the local environmental authorities. An adaptation of the permit to the IPPC directive has been under way since 2002. A ruling that will encompass all operations is expected at the beginning of 2006. The mills in Workington and Madrid are ISO 14001 certified.

OutlookCapacity utilization for newsprint is very high. Since Holmen’s additional capacity in Madrid will be offset by the fact that other manufacturers will discontinue production, capacity uti-lization is expected to remain high in 2006. In Europe, news-print prices were increased at the end of 2005. The new paper machine will increase Holmen’s deliveries of printing paper.

The paperboard market has normalized following the industrial conflict in Finland and is expected to remain stable in terms of volume. Despite certain upward price pressure, there is uncertainty regarding whether the sharp cost increases during 2005 can be passed on in the form of higher prices.

Raw-material costs continue to increase, albeit at a slightly lower pace. Holmen’s electricity costs will increase, despite a large degree of price hedging. Although the timber market remains difficult to foresee, due to the storm, there is certain upward price pressure.

After several years of major investments, these will now decline. The Group will concentrate more on utilizing all the implemented investments in terms of volume and quality, while capitalizing on the potential for improved earnings.

Report of the Board of Directors

Management of financial risks

The Lundberg Group’s risk management activities are decided by the boards of directors of the various companies, namely Lundbergs, Holmen and Hufvudstaden. Risk management is conducted in accordance with the finance policy adopted by the boards of directors of the particular company, and the common factor is the aim of achieving a low risk level. Risk management activities are centralized to a special depart-ment within all three companies. For a more comprehensive account of the management of financial risks, see Note 38 on page 58.

Parent company

Profit amounted to SEK 1,122 m. (1,515), which includes dividends totaling SEK 875 m. (1,239) and capital gains of SEK 309 m. (-) from the sale of shares. The Parent Company’s liquidity is satisfactory.

Investments amounted to SEK 1,727 m. (1,061), of which NCC shares accounted for SEK 14 m., Sandvik shares for SEK 252 m., Handelsbanken shares for SEK 1,075 m. and Indutrade for SEK 288 m. The Indutrade holding corresponds to 10% of the voting rights and share capital. Sales amounted to SEK 938 m., with the shares in Ramirent accounting for SEK 175 m., Stadium for SEK 400 m and NCC for SEK 362 m.

Ongoing tax process

Lundbergs has appealed to the administrative court of appeal regarding a decision made by the tax authorities in November 2004, whereby the Parent Company’s group contributions to a subsidiary were not approved. A provision of SEK 68 m. had already been posted.

Proposed dividend and distribution of profitsThe Board of Directors has proposed a dividend of SEK 7.75 per share or a total of SEK 481 m. The Board of Directors’ proposed distribution of profits is presented in entirety on page 68.

Definitions

Cash and cash equivalents Cash and bank balances and short-term investments (maximum term of three months).

Debt/equity ratioInterest-bearing net debt divided by the sum total of share-holders’ equity.

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

Equity/assets ratioShareholders’ equity expressed as a percentage of total assets.

Interest-bearing assetsInterest-bearing receivables, short-term investments and cash and bank balances.

Net interest-bearing debt Interest-bearing liabilities and interest-bearing provisions less interest-bearing assets.

TaxesCurrent tax, deferred tax and tax on profit participations in associated companies.

Vacancy rate The total possible rental revenues less actual rental revenues during the year as a percentage of the total possible annual rental revenues.

33

34

SEK m. 2005 2004

Net sales Note 2 19,388 18,835 Other revenues, etc. Note 3 708 644

20,096 19,479

Raw materials, goods for resale and consumable, and cost of sold inventory shares -7,862 -7,651Personnel costs Note 4 -2,732 -2,623 Other external costs Note 5 -5,006 -4,847 Depreciation Note 6 -1,176 -1,164 Result from participations in associated companies Note 7 627 415

-16,149 -15,869 Changes in value of investment properties Note 8 1,649 555

Operating profit Note 9 5,597 4,165

Financial income 36 120 Financial expense -458 -656

Net financial items Note 10 -422 -536 Profit before taxes 5,175 3,628 Tax Note 11 -1,277 -825 Net profit for the year 3,897 2,803 Attributable to: Parent Company’s shareholders 2,261 1,460 Minority interest 1,637 1,343

Net profit for the year 3,897 2,803 Earnings per share (SEK) 36.46 23.55There is no dilution effect

Income Statement, Group

SEK m. Dec. 31, 2005 Dec. 31, 2004

ASSETS Note 12

Fixed assetsIntangible fixed assets Note 13 745 646 Tangible assets Note 14 14,342 12,176 Biological assets Note 15 8,704 8,622 Investment properties Note 16 23,686 22,103 Participations in associated companies Note 17 4,288 4,900 Financial investments Note 18, 38 6,358 2,293 Other long-term holdings of securities Note 19 117 86 Long-term receivables Note 20 155 155 Deferred tax assets Note 11 331 285

Total fixed assets 58,727 51,266 Current assetsProperties classified as current assets Note 21 110 130 Inventories, etc. Note 22 2,825 2,727 Rental receivables and accounts receivable Note 23 2,580 2,350 Tax receivable Note 11 35 34 Prepaid expenses and accrued income Note 24 109 136 Other receivables Note 25, 38 611 347 Cash and cash equivalents Note 26 705 428 Assets held for sale Note 16 61 -

Total current assets 7,035 6,153

TOTAL ASSETS Note 33 65,761 57,419

SHAREHOLDERS’ EQUITY AND LIABILITIES

Shareholders’ equity Share capital 621 621 Reserves Note 27 2,366 -1 Earnings brought forward, including current-year profit 18,091 16,202

Shareholders’ equity attributable to Parent Company shareholders 21,079 16,823

Minority interest 16,318 15,770

Total shareholders’ equity 37,397 32,592 LiabilitiesLong-term liabilities Long-term interest-bearing liabilities Note 28, 38 6,674 6,305 Other long-term liabilities Note 29 23 14 Provision for pensions Note 30 361 344 Other provisions Note 11, 31 243 306 Deferred tax liabilities Note 11 10,738 10,212

Total long-term liabilities 18,040 17,180 Current liabilitiesCurrent interest-bearing liabilities Note 28, 38 5,987 4,416 Accounts payable 2,358 1,610 Tax liabilities Note 11 255 310 Other current liabilities Note 29 422 247 Accrued costs and prepaid income Note 32 1,108 947 Provisions Note 11, 31 195 118 Liabilities attributable to assets held for sale 0 -

Total current liabilities 10,324 7,646

Total liabilities Note 33 28,364 24,826

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 65,761 57,419

For information about the Group pledged assets and contingent liabilities, see Note 35.

Balance sheet, Group 35

36

Shareholders’ equity attributable to Parent Company shareholders

Earnings brought forward incl. Share net profit Minority Total SEK m. capital Reserves 4 for the year Total interest equity Opening balance, January 1, 2004 621 - 15,208 15,830 16,585 32,414

Tax attributable to items reported directly against equity -1 -1 -3 -4

Total change in net asset value reported directly against equity1 - -1 - -1 -3 -4 Net profit for the year 1,460 1,460 1,343 2,803

Total change in net asset value 1 - -1 1,460 1,459 1,339 2,798

Change in associated companies’ shareholders’ equity - - -46 -46 - -46 Change in Group composition2 - - - - 350 350 Dividends - - -403 -403 -2,503 -2,906 Repurchase of own shares - - -17 -17 - -17

SHAREHOLDERS’ EQUITY ON DECEMBER 31, 2004 621 -1 16,202 16,823 15,770 32,592 Opening balance, January 1, 2005 621 -1 16,202 16,823 15,770 32,592

Adjustment for changed accounting principles - 1,172 - 1,172 2 1,174

Adjusted shareholders’ equity, January 1, 2005 621 1,171 16,202 17,994 15,772 33,766

Change in hedging reserve during the year -9 -9 -29 -37 Change in translation reserve during the year 36 36 92 128 Change in fair value participations during the year 1,185 1,185 - 1,185 Tax attributable to items reported directly against equity -16 -16 21 6

Total change in net asset value reported directly against equity1 - 1,196 - 1,196 85 1,281 Net profit for the year from the income statement - 2,261 2,261 1,637 3,897

Total change in net asset value 1 - 1,196 2,261 3,457 1,722 5,179

Change in associated companies’ shareholders’ equity - - 62 62 - 62 Change in Group composition3 - - - - -112 -112 Dividend - - -434 -434 -1,063 -1,497

SHAREHOLDERS’ EQUITY ON DECEMBER 31, 2005 621 2,366 18,091 21,079 16,318 37,397 1) Excluding transactions involving the Company’s owners.2) Pertains to minority interest in issue of Holmen shares.3) Change in minority interest in Holmen.4) See Note 27 for a break-down.

Changes in shareholders’ equity, Group

SEK m. Note 26 2005 2004

Operating activitiesProfit after financial items 5,175 3,628 Adjustments for items not included in cash flow 1 -1,436 115 Taxes paid -674 -579

Cash flow from operating activities before changes in working capital 3,065 3,164

Cash flow from changes in working capitalChange in inventories -138 -267 Change in current receivables -237 -53 Change in current liabilities 817 96

CASH FLOW FROM OPERATING ACTIVITIES 3,508 2,940

Investing activitiesAcquisition of tangible fixed assets -3,102 -1,291 Sale of tangible fixed assets 140 96 Investment in investment properties -299 -231 Sale of properties/subsidiaries 362 474 Acquisition of financial assets -1,566 -716 Sale of financial assets 952 142

CASH FLOW FROM INVESTING ACTIVITIES - 3,513 -1,526

Financing activitiesChange in financial liabilities 1,774 367 Dividend paid -434 -403 Minority interest -1,064 -1,743

CASH FLOW FROM FINANCING ACTIVITIES 276 -1,779

CASH FLOW DURING THE YEAR 271 -365

Cash and cash equivalents on January 1 428 794 Exchange-rate effects 6 -1

Cash and cash equivalents on December 31 705 428

1) The adjustment pertains mainly to depreciation, results on sales of fixed assets, participations in results of associated companies and revaluation effects in accordance with IAS 40, 41 and IAS 39.

Interest, SEK m. 2005 2004

Interest received 23 18Interest paid -419 -592

-396 -574

Cash flow statement, Group 37

38

Note 1 - Accounting Principles

The consolidated accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and interpretation statements issued by the International Financial Reporting Interpretations Committee (IFRIC) as approved by the EU Commission for application within the EU. This annual report and the consolidated accounts are the first complete financial reports prepared in accordance with IFRS. In conjunction with the transition from the previously applied accounting principles to a report in accordance with IFRS, the Group has applied IFRS 1, which is the standard that describes how the transition to IFRS should be reported. Recommendation RR 30, Complementary accounting rules for corporate groups, issued by the Swedish Financial Accounting Standards Council, have also been applied.

Effective from 2005, the Group has converted to an income statement format based ex-clusively on types of cost items. The Parent Company applies the same accounting principles as the Group, with the exception of entries specified in Note 1, Parent company accounting principles, on page 64. The deviations between the Parent Company and Group principles were caused by limitations in terms of opportunities to apply IFRS in the Parent Company due to the Annual Accounts Act, the Pension Security Act and, in certain cases, tax considera-tions.

Conditions for preparation of Parent Company and Group financial reportsThe Parent Company’s functional currency is Swedish krona (SEK), which is also the reporting currency for the Parent Company and the Group. The financial reports, accordingly, are presented in SEK. Unless stated otherwise, all amounts are rounded off to the nearest million. Assets and liabilities are reported at historical acquisition values, with the exception of certain financial assets and liabilities, investment properties and biological assets, which are fair valued. Financial assets and liabilities reported at fair value consist of derivative instruments, financial assets classified as financial assets that are fair valued via the income statement or available-for-sale financial assets.

Fixed assets and divestment groups held for resale are reported at the lower of the previous carrying amount and fair value, less sales costs. In order to prepare the financial reports in accordance with IFRS, corporate management is required to make assessments and estimates as well as assumptions that effect the application of the accounting principles and the reported amounts of assets, liabilities, revenues and costs. The estimates and assumptions are based on historical experience and a number of other factors that are considered reasonable under the present circumstances. The result of these estimates and assumptions is then used to evaluate the carrying amounts of assets and liabilities that are not otherwise stated clearly by other sources. Actual results may deviate from these estimates and assessments.

The estimates and assumptions are reviewed regularly. Changes in estimates are reported in the period during which the change is made, only if it affects the period, or in the period the change is made and future periods if the change affects the current period and future periods.

Assessments made by corporate management in the application of IFRS that have a significant impact on the financial reports and estimates that may require substantial adjustments in the financial reports of future years are described in greater detail in Note 36.

The accounting principles for the Group, as described below, have been applied consistently for all periods presented in the Group’s financial reports, unless stated otherwise below, and in the preparation of the Group’s opening balance sheet in accordance with IFRS as per January 1, 2004, which explains the transition from previously applied accounting principles to IFRS accounting principles. The Group’s accounting principles have been applied consistently in the reporting and consolidation of parent companies, subsidiaries, associated companies and joint-venture companies.

Changes in accounting principlesThe transition to accounting in accordance with IFRS for the Group has been reported in accordance with IFRS 1 and is explained in Note 37. In compliance with the voluntary exceptions permissible in IFRS 1, comparable figures for IAS 39 and IFRS 5 have not been applied for 2004, but rather projected figures from January 1, 2005. As a result of the application of IAS 39, shareholders’ equity was affected in the amount of SEK 1,172 m as per January 1, 2005. No recalculation of the comparative year 2004 has been made.

To provide a uniform presentation of the Equity Management business segment, the profit/loss from capital investment participations, business-related participations and participations in associated companies are reported under operating profit beginning in 2005. Comparative figures from previous periods have been adjusted accordingly as a result of this change.

Segment reportingBusiness segments are the primary basis for divisions of the Group’s segments. Because the Group’s internal reporting systems are structured with due consideration for efforts to monitor returns on the Group’s products and services, business segments represent the primary basis for division of segments.

Conditions for companies operated on a commission basisHolmen’s operations are conducted mainly through the following companies on behalf of Holmen: Holmen Paper AB, Iggesund Paperboard AB, Iggesund Timber AB, Holmen Skog AB and Holmen Kraft AB.

Classifications, etc.Virtually all significant fixed assets and long-term liabilities in the Parent Company and Group consist exclusively of amounts expected to be recovered or paid more than 12 months after the balance sheet date. Virtually all significant current assets and current liabilities in the Parent Company and Group consist exclusively of amounts expected to be recovered or paid more than 12 months after the balance sheet date.

Consolidated accounts

SubsidiariesSubsidiaries are companies under the controlling influence of L E Lundbergföretagen AB. Controlling influence is defined as direct or indirect entitlement to formulate a company’s financial and operating strategies in order to reap financial benefits. Assessments of controlling influence must include determinations of whether shares with voting entitlements can be used or converted without undue delay. Subsidiaries are reported in accordance with the purchase method, whereby the acquisition of a subsidiary is treated as a transaction through which the Group indirectly acquires the subsidiary’s assets and assumes responsibility for its liabilities and contingent liabilities. The consolidated acquisition value is determined through an acquisition analysis conducted in conjunction with business acquisitions. The analysis establishes the acquisition value of the shares or business operations, the fair value of the acquired, identifiable assets and assumed liabilities and contingent liabilities. The difference between the acquisition value of the subsidiary’s shares and the fair value of the acquired assets, assumed liabilities and contingent liabilities, if the difference is positive, comprises consolidated goodwill. When the difference is negative, it is entered directly in the income statement.

The financial reports of subsidiaries are included in the consolidated accounts from the acquisition date until the final date of controlling influence.

Associated companiesAssociated companies are companies in which the Group has a significant but not a controlling influence over operating and financial control, usually through shareholdings ranging from 20 to 50% of total voting rights. Shares in associated companies are reported in the consolidated accounts in accordance with the equity method, as of the effective date on which significant influence is acquired. In accordance with the equity method, the Group’s carrying amounts for shares in associated companies correspond with the Group’s share of equity in the associated companies, as well as consolidated goodwill and other possible residual values of consolidated surplus and deficit values. The Group’s share in the net result of associated companies after financial items and minority interests is reported in the consolidated income statement as “Participations in results of associated companies,” after adjustments for any depreciation, impairments or liquidations of acquired surplus and deficit values. The carrying amount of the investments is reduced by dividends received from associated companies. Group shares in the reported tax of associated companies are included in consolidated tax expenses.

In connection with acquisitions, any differences between the acquisition value of the acquired holding and the ownership company’s share in the net fair value of the associated company’s identifiable assets, liabilities and contingent liabilities are reported in accordance with IFRS 3, Business Combinations.

When the Group’s share of reported losses in the associated company exceeds the carrying amount of shares held by the Group, the value of the shares is reduced to zero. Settlements for losses are also made against long-term financial dealings entered into without collateral, which by their financial nature represent a part of the ownership company’s net investment in the associated company. Subsequent losses are not reported, provided that the Group has not issued guarantees to cover losses arising in the associated company. The equity account-ing method is applied from the final date of significant control.

Notes, Group

39

Joint venturesFor accounting purposes, joint ventures are defined as companies in which the Group has a controlling influence over operating and financial control through cooperation agreements with one or more partners. In the consolidated accounts, holdings in joint ventures are consolidated in accordance with the proportional accounting method, whereby the Group’s share of revenues, expenses, assets and liabilities in joint ventures is reported in the consolidated income statement and balance sheet. In accordance with this method, the joint owner’s share of assets, liabilities, revenues and expenses in a joint venture is combined item-by-item with corresponding entries in the joint venture owners’ consolidated accounts. Shareholders’ equity accrued after the acquisition is the only item reported under Group equity. The proportional accounting method is applied from the date on which joint controlling interest is acquired until the date when such influence is terminated.

Transactions to be eliminated on consolidationAll intra-Group receivables, liabilities, revenues or expenses and unrealized gains or losses attributable to intra-Group transactions between Group companies are eliminated when the consolidated accounts are prepared. Unrealized gains arising from transactions with associated companies and jointly controlled companies are eliminated to an extent corresponding to the Group’s ownership share in the companies. Unrealized losses are eliminated in accordance with the same criteria as eliminations of unrealized gains, but only to the extent that there is some indication of impairment requirements.

Foreign currency

Transactions in foreign currency Transactions in foreign currency are translated to the functional currency using the exchange rate on the transaction date. Functional currency is the currency in the primary financial environments used by the companies to conduct their business operations. Monetary assets and liabilities denominated in foreign currency are translated to the functional currency using the exchange rate prevailing on the balance-sheet date. Exchange-rate differences arising from currency translations are reported in the income statement. Non-monetary assets and liabilities that are reported at historical acquisition values are translated using the exchange rate on the transaction date. Non-monetary assets and liabilities that are reported at fair value are translated to the functional currency using the exchange rate on the date of fair valuation, and the exchange-rate difference is then reported in the same way as other value changes in the asset or liability.

Financial reports of foreign operationsAssets and liabilities in foreign operations, including goodwill and other consolidated surplus and deficit values, are translated from the functional currencies of the foreign business operations to the Group’s reporting currency, Swedish krona (SEK), using the exchange rate prevailing on the balance-sheet date. Revenues and expenses in foreign operations are translated to SEK using an average exchange rate that represents an approximation of the exchange rates for each transaction date in question. Translation differences arising from currency translations of foreign operations are reported directly under shareholders’ equity as a translation reserve.

Net investments in a foreign businessTranslation differences arising from translations of foreign net investments and subsequent effects of net investment hedging are entered directly in the translation reserve under shareholders’ equity. When a foreign business is divested, the accumulated translation differences attributable to the business, less any currency hedging, are realized in the consolidated income statement. With regard to foreign business operations, the Group has chosen to specify the accumulated translation differences attributable to the period before January 1, 2004, when the transition was made to IFRS, as zero at the time of the transition to IFRS.

RevenuesThe Group’s primary revenues are derived from rent, dividends, sales of marketable securities, sales of current assets and sales of products (newsprint, magazine paper and board), timber and energy.

Net salesRental revenues are accrued in accordance with the rental contracts. Accordingly, rent paid in advance is reported as prepaid rental revenue. Discounts granted as compensation for successive occupancies, for example, are reported in the period they are granted. Other

discounts are distributed over the term of the rental contracts. Gross rent includes items related to additional charges for costs incurred, such as property tax and media expenses.

Dividend income is reported when the dividend has been approved and the entitlement to receive payment is considered secure. Dividend income comprises net sales for the Equity Management segment.

For the Holmen business area, invoiced sales attributable to products, timber and energy (excluding value-added tax, product discounts granted and similar revenue reductions as well as exchange-rate differences on sales in foreign currency) are reported as net sales. Sales are reported after the Group has transferred the critical risks and useful value related to ownership rights to goods sold to the purchaser, and there is no power of appointment or any remaining possibility to exercise actual control over the goods that were sold. Revenues from sales of services are reported when the services have been rendered.

Other revenuesRevenues attributable to items outside the ordinary business operations, changes in inventories, capitalized work on the company’s own behalf and value changes in forestland are reported as other revenues.

Revenues from property sales Revenues from property sales are normally reported on the date of transfer, provided that no risks and benefits have been transferred to the buyer prior to the transfer date. Control over the asset may have been transferred before the possession transfer date and, if so, revenue from the property sales is reported from the earlier date of transfer. In assessments of revenue reporting dates, due consideration is taken for agreements between the parties with regard to risks and benefits and involvement in continued management. In addition, circumstances beyond the control of the seller and/or buyer that might affect completion of the transaction are also taken into consideration.

Sales of products and implementation of service assignmentsRevenues attributable to sales of products are reported in the income statement when significant risks and benefits related to ownership of the products have been transferred to the buyer. Revenues attributable to service assignments are reported in the income statement based on the degree of completion on the balance sheet date.

Financial income and expense Financial income and expense consists of interest income attributable to bank balances and receivables, interest-bearing securities, interest expense on loans, dividends not included in the Equity Management business area, exchange-rate differences, unrealized and realized gains on financial investments and derivative instruments used within the Group’s financial operations.

Calculations of interest income on receivables and interest expense on liabilities are based on the effective interest-rate method. The effective rate is the interest rate that renders the present value of all future cash receipts and disbursements during the anticipated remaining fixed interest maturity equal to the carrying amount of the receivable or liability. The interest component in financial leasing payments is reported in the income statement by applying the effective interest-rate method. Interest income includes accrued amounts of transaction expenses and any discounts, premiums and other differences between the original value of the receivable and the amount received at settlement.

Interest expense includes accrued amounts of issue expenses and similar direct transaction expenses incurred to raise loans.

Financial instrumentsAs of January 1, 2005, financial instruments are valued and reported in the income statement in accordance with the rules in IAS 39, without retroactive adjustments for the comparative year.

Borrowing and investments are reported when the transaction is made (settlement date accounting), while derivative instruments are reported when the agreement is concluded (transaction day accounting). A financial asset or financial liability is entered in the balance sheet when the company becomes party to the instrument’s terms of agreement. Trade accounts receivable are entered in the balance sheet when the invoice has been sent. Rent receivables, however, are entered at the beginning of each rental period. Liabilities are entered when the counterparty has fulfilled his obligation and a contractual obligation to pay has arisen, even if the invoice has not been received. A financial asset (or part thereof) is removed from the balance sheet when the rights in the agreement are realized, expire or the company sells all significant risks and benefits associated with ownership. A financial liability

40

Note 1, continued

(or part thereof) is removed from the balance sheet when the obligation in the agreement is fulfilled or is otherwise nullified. A financial asset and a financial liability are offset and reported with a net amount in the balance sheet only when there is a legal entitlement to offset the amounts, and the company intends to adjust the entries by a net amount or, simultaneously, realize the asset and settle the liability.

Interest income and interest expense on financial instruments are reported in the income statement for the period in which the amounts are attributed. Calculations of interest income on receivable and interest expense on liabilities are based on the effective interest-rate method. The effective rate is the interest rate that renders the present value of all future cash receipts and payments during the fixed interest term equal to the carrying amount of the receivable or liability. Interest income includes accrued amounts of transaction costs and any discounts, premiums and other differences between the original value of the receivable and the amount received at settlement.

Financial instruments that are structured as continuous holdings in the operations are classified as fixed assets. A financial instrument is valued initially at fair value, plus transaction costs, with the exception of the categories financial asset or financial liability that are fair valued via the income statement.

Cash and bank balances. Cash and cash equivalents consist of cash and immediately available bank deposits. Bank overdraft facilities are classified as loan liabilities under current liabilities. Cash and bank balances are reported at nominal value.

Interest-bearing receivables and marketable securities are valued continuously at acquisition value in accordance with the effective interest-rate method.

Shares held as investments are fair valued via the income statement. Some shareholdings are classified in the category available-for-sale financial assets, valuations of which are adjusted continuously to fair value, with the change in value entered directly under equity. When the investments are removed from the balance sheet, the previously reported accumulated profit or loss is transferred to equity in the income statement. Equity capital instruments classified as available-for-sale assets must be subject to a significant and prolonged decline in fair value under the instrument’s acquisition value before impairment is executed. If an impairment requirement arises for an asset in the category available-for-sale assets, any previously accumulated decline in value is transferred directly to equity in the income statement. Impairments of equity instruments reported in the income statement may not be reversed at a later date in the income statement.

Trade accounts receivable are valued continuously at accrued acquisition value, since accounts receivable have short anticipated durations, and the valuation is made without discounting to nominal amounts. A receivable is tested individually with regard to anticipated loss risk and booked at the projected payment amount.

Trade accounts payable are valued continuously at accrued acquisition value, since accounts payable have short anticipated durations, and the valuation is made without discounting to nominal amounts.

Loans are reported at accrued acquisition value applying the effective annual interest rate method. In Holmen, however, loans are reported as hedged against change in values and loans reported with the support of the fair-value option are reported continuously at fair value.

Derivative and hedge reporting Derivative instruments are fair valued, with change in values charged against the income statement. Derivative instruments include forward contract agreements, options and swaps that are used to cover the risk of equity and exchange rate fluctuations and exposure to interest-rate and commodity risks. Hedge accounting may be applied when there is a link to the hedged item and hedging effectively covers the hedged position. Whenever derivatives are used for hedge accounting, to the extent they provide effective coverage, change in values in the derivative are reported in the income statement on the same line as the hedged item. Even if hedge accounting is not applied, value increases and declines in derivatives are reported as income and expense, respectively, under operat-ing profit or net financial items, based on the intended purpose of the derivative instrument and whether or not its application relates to an operational item or financial item. If hedge

accounting is not applied in the utilization of interest swaps, the interest coupon is reported as interest and other change in values in the interest swap are reported as other financial income or other financial expense.

Cash flow hedging Derivative instruments reported in accordance with hedge accounting are entered in the balance sheet at fair value, and the effective portion of the change in value is reported continuously under shareholders’ equity. The ineffective portion is reported in the income statement. Whenever a derivative instrument no longer meets the requirements for hedge accounting, or when the hedging instrument expires, is sold or terminated, the possible profit or loss that has arisen is reported as an adjustment of interest expense, and all hedged future interest payments are reported in the income statement. If the hedged future interest payments are not expected to be made, any accumulated losses are reported directly under profit/loss, and any gains are recognized as revenues when the derivative expires, is sold or is terminated.

Hedging of fair value. The derivative instrument is reported at fair value in the balance sheet, and the hedged asset/liability is also entered at fair value with regard to the hedged risk. The change in value in the derivative is reported in the income statement with the change in value reported in the hedged item.

Net investments Investments in foreign subsidiaries have been hedged to some extent through currency loans or forward contracts, which are reported at the exchange rates prevailing on the balance-sheet date in the annual accounts. For cases in which the hedging is not effective, the ineffective portion is reported in the income statement.

Other operating receivables and operating liabilitiesAfter individual valuations, changes have been reported in amounts expected to be received.

Intangible fixed assetsResearch expenditure is expensed as it occurs. Expenditure for development is activated to the extent it is expected to generate economic benefits in the future. The carrying amount includes expenditure on materials, direct labor costs and indirect costs attributable to the asset. Other development expenditure is reported in the income statement when it is incurred. The Parent Company reports all development expenditure in the income statement as costs. In the balance sheet, reported development expenditure is booked at acquisition value, less accumulated amortization and impairments. Intangible assets consist of goodwill, patents, licenses, emission rights and IT-systems. Emission rights have been reported at market price upon allotment. During the year, this allotment was entered as revenue at the same time as a provision corresponding to emissions during the year was expensed. Goodwill is valued at acquisition value, less any accumulated amortization. Goodwill is distributed among cash-generating units and is no longer amortized, but rather tested annually for impairment requirements. Goodwill arising from acquisitions of associated companies is included in the carrying amount of shares in associated companies; see Note 17. For goodwill in companies acquired before January 1, 2004, the Group did not apply IFRS retroactively in conjunction with the transition to IFRS, and the carrying amount on that date will continue to represent the Group’s acquisition value, after impairment testing; see Note 13.

Amortization principles Amortization is reported in the income statement as straight-line amortization over the estimated useful life of the intangible assets, provided such useful life cannot be determined. Goodwill and intangible assets with indefinite useful life are tested annually for impairment requirements, or as soon as indications arise that the asset in question has declined in value. Emission rights are not amortized. Amortizable intangible assets are amortized from the effective date they become available for utilization. The estimated useful life is:Patents and licenses 5-10 yearsIT systems 3-10 years

Tangible fixed assetsTangible fixed are reported at acquisition value less accumulated depreciation and any impairment. Tangible fixed assets that consist of components with different useful lives are treated as separate components of tangible fixed assets. The acquisition value includes the purchase price and costs directly attributable to measures implemented to adapt the asset to the site and to a condition whereby it can be utilized for the purpose that it was acquired. Borrowing expenses are not included in the purchase price of fixed assets built on a proprietary basis.

Notes, Group

41

Depreciation principlesDepreciation is reported in the income statement as straight-line depreciation over the estimated useful life. The Group applies component depreciation, whereby the estimated useful life is the basis for depreciation. Depreciation according to plan is based on the historical acquisition value, less estimated residual value, with due consideration for impairments. Straight-line depreciation is applied over the asset’s estimated useful life.

The following useful life (years) is used:Investment and storage buildings, housing (Holmen) 20-33 Operational buildings, land improvements and pulp, paper and board production machinery, 20 Sawmill machinery 12 Other machines 10 Forest motor roads 10 Fixtures and fitting 4-5

Land is not depreciated. Assessments of an asset’s residual value and useful life are made at regular intervals.

ImpairmentsCarrying amounts of the Group’s assets are impairment tested at the close of every fiscal year to determine if there are indications of impairment requirements. Exceptions are made for biological assets, available-for-sale assets and divestment groups reported in accordance with IFRS 5, investment properties, inventories, plan assets used to finance employee benefits and deferred tax assets. If any indication of impairment arises, an estimate is made to determine the asset’s recoverable value. Corresponding values of assets excluded from impairment testing, as listed above, are tested in accordance with appropriate standards.

The recoverable value of goodwill and other intangible assets with an indefinite useful life, and intangible assets that are not yet ready for utilization, is estimated annually.

If there are indications that carrying amounts of Group assets are too high, an analysis is conducted whereby the recoverable value of individual assets or naturally related asset types is determined as the higher of net realizable value and value in use. Value in use is measured as the projected future discounted cash flow. Impairment corresponds to the difference be-tween the carrying amount and recoverable value. Impairments may be reversed if a change has occurred in the parameters used to determine the asset’s recoverable value. A reversal may not exceed the carrying amount that should have been shown, less depreciation, if no depreciation was made. Amortization of goodwill is not reversed.

Biological assetsThe Group reports its forest assets by dividing up standing forests, which are reported as biological assets at fair value in accordance with IAS 41, and land, which is reported at acquisition cost in accordance with IAS 16. Changes in the fair value of standing forests are reported in the income statement. It is Holmen’s assessment that no relevant market prices are available to value forest holdings the size of Holmen’s forests. Accordingly, the valuation is based on estimated present value of the projected future cash flow from the standing forests. Reference is also made to Note 15.

Investment propertiesInvestment properties are properties held in order to receive rental revenues and/or value growth. Initially, investment properties are reported at acquisition value, which includes expenditures directly attributable to the acquisition. Investment properties are reported at fair value in the balance sheet. Fair value is based on internal and, in some cases, external valuations. The valuations are normally made annually. Updates are made continuously during the year of the properties’ fair value based on acquisition, divestments and investments.

Analyses are also made to determine if there are indications of changes in fair value of the properties due to major rentals, terminated contracts and significant changes in the required return. Unrealized and realized changes in values are reported in the income statement. Changes in values are reported net in the income statement, but divided among unrealized and realized change in values in the notes.

Additional expendituresAdditional expenditures are added to the carrying amount only if the future economic benefits linked to the asset are likely to become available to the company and the acquisition value can be estimated in a reliable manner. All other additional expenditures are reported as costs in the period they are incurred. The critical factor in assessments of when an

additional expenditure should be added to the carrying amount is whether or not it replaces identified components, or parts thereof, and in such cases the expenditure is capitalized. The expenditure is also added to the carrying amount in cases where new components are created. Costs for repairs are expensed as they occur.

InventoriesInventories are valued at the lower of acquisition value and production cost after an allowance for obsolescence or the net realizable value. The acquisition cost of finished or semi-finished products manufactured by the company consists of direct production costs and a reasonable portion of indirect production costs.

Properties classed as current assetsProperties classed as current assets (development properties) are valued in accordance with the lowest value principle per property or per valuation unit. Required impairment and recovery of previous impairments in accordance with this principle are reported under operating costs.

LeasingLeasing is classified in the consolidated accounts as financial leasing or operational leasing. Leasing of fixed assets, for which the Group is exposed to virtually the same risks and benefits as direct ownership of fixed assets, is classified as financial leasing. Accordingly, the leased asset is reported as a fixed asset and future leasing fees are reported as interest-bearing liabilities. Leasing of assets for which the lessor retains all practical ownership of the asset is classified as operational leasing, and the leasing fees are expensed on a straight-line basis over the leasing period.

Shareholders’ equity

Share capital

Repurchase of own sharesHoldings of treasury shares and other equity capital instruments are reported as a reduction in shareholders’ equity. Acquisitions of these instruments are reported as a deduction from shareholders’ equity. Payments received from divestments of equity instruments are reported as an increase in shareholders’ equity. Any transaction costs are charged directly against shareholders’ equity.

DividendsDividends are reported as liabilities after the Annual General Meeting has approved the dividends.

ProvisionsFair value provisions Fair value provisions include the accumulated net change in the fair value of available-for-sale financial assets until the time when the asset is removed from the balance sheet.

Hedging provisionThe hedging provision includes the effective portion of the accumulated net change in the fair value of cash-flow hedging instruments attributable to hedging transactions that have not yet occurred.

Translation provisionThe translation provision consists of all exchange-rate differences arising from translations of financial reports of foreign business operations presented in currencies other than the currency in which the Group’s financial reports are presented. The Group presents its financial reports in Swedish krona (SEK). The translation provision also includes the exchange-rate differences arising from revaluations of liabilities raised as hedging instruments on net investments in foreign business operations.

Profit brought forward, including current-year profitProfit brought forward, including current-year profit, consists of earnings reported by the Parent Company and its subsidiaries, associated companies and joint ventures, and the percentage of untaxed reserves attributable to shareholders’ equity. Provisions in preceding years to statutory reserves are included in this equity item. Equity method reserves are no longer included in the consolidated accounts, but are included in retained profits, including current-year profit.

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Note 1, continued

Employee benefits

Defined-contribution plansObligations concerning fees to defined-contribution plans are reported as an expense in the income statement during the period the employee performed the services for which the fee is intended.

Defined-benefit plansThe Group’s salaried employees in Sweden are included in the so-called ITP plan, which consists of the following benefits:• Retirement pensions• ITPK (supplementary retirement pension)• Disability pensions• Collective family pensions

Obligations for retirement pensions and family pension plans for salaried employees in Sweden are covered through insurance in Alecta. In accordance with URA 42, a statement issued by the Swedish Financial Accounting Standards Council’s Emerging Issues Task Force, the coverage is a defined-benefit plan that includes several employers. For fiscal year 2005, the company did not have access to information to support reporting of this plan as a defined-benefit plan. Therefore, the ITP-pension plan covered by insurance in Alecta is reported as a defined-contribution plan. Obligations regarding fees for defined-contribution plans are reported in the income statement as expenses when they arise.

In addition to the above obligations, there are defined-benefit obligations in accordance with the PRI/FPG system. The Group’s net obligations for defined-benefit plans are calculated separately for each plan based on estimates of the future benefits employees have accrued through their employment in both current and previous periods of employment; this benefit is discounted to a present value and the fair value of any plan assets is deducted. The discount rate is the interest rate prevailing on the balance-sheet date on a first-class corporate bond with a term corresponding to the Group’s pension obligations. When there is no active market for such corporate bonds, the market interest rate for government bonds with a corresponding term is used. The computation is made by a qualified actuary based on the projected unit credit method.

When the benefits in a plan improve, the percentage of increased benefits attributable to the employee’s service during previous periods is reported straight line in the income statement as an expense distributed over the average period until the benefits are fully accrued. If the benefit is fully accrued, an expense is entered directly in the income statement.

All actuarial profits and losses as of January 1, 2004, the date of the transition to IFRS, have been reported. The corridor rule is applied for all actuarial gains and losses arising from calculations of the Group’s obligations for different plans after January 1, 2004. In accordance with the corridor rule, the proportion of accumulated actuarial gains and losses that exceeds 10% of the larger of the present value of the obligations and the fair value of plan assets is reported in the income statement over the anticipated average remaining periods of employment for employees covered by the plan. Actuarial gains and losses are otherwise not recognized.

Holmen has different pension plans in different countries, the assets of which are usually separated for individual management. The pension plans are normally financed through payments by the respective Group companies and, in some cases, by the employees. The payment amounts are established in consultation with independent authorized actuaries. Actuarial gains and losses in Holmen are distributed over the average remaining professionally active careers of the employees.

Options issued to employees in subsidiariesLundbergs has issued options to employees of the subsidiary Holmen. The options entitle the holders to acquire shares in Holmen AB. The employees in question have paid a fair-market premium and, accordingly, IFRS 2is not applicable in terms of accounting regulations.

Lundbergs has a future commitment to provide shares in Holmen to employees of Holmen. Accordingly, the premium received has been expensed in Lundbergs. For cases in which the premium and redemption price are less than market value at the balance-sheet date, the difference is reported in the balance sheet as a liability.

ProvisionsA provision is reported in the balance sheet when the Group has a formal or informal commitment resulting from an event that has occurred, it is probable that an outflow of resources will be required to settle the commitment and the amount concerned can be reliably estimated. If the effect of when payment is made is significant, the calculation of the provision is discounted by the anticipated future cash flow at a pre-tax interest rate that reflects current market assessments of present value and, if applicable, risks related to the liability.

A provision for restructuring is reported when the Group has established a detailed and formal restructuring plan, and restructuring has either been started or announced publicly. No provisions are made for future operating expenses.

Based on interpretations of current environmental legislation and forestry regulations, reserves for future forestry charges are calculated when it is considered likely that a payment obligation will arise and a reasonable estimation of the amount can be made.

Costs for environmental measures associated with former operations and which do not contribute to current or future revenues are expensed as they arise.

A provision for guarantees is reported when the underlying products or services are sold.

TaxesTaxes reported in the income statement consist of current tax and deferred tax. Current tax is the tax to be paid or received for the current year. Adjustment of current tax attributable to previous periods is also included here. Deferred tax is calculated in accordance with the balance-sheet method, on the basis of the temporary differences between the reported and tax-assessment value of assets and liabilities, based on the tax rates and tax regulations that have been decided or announced at year-end. Temporary differences are not taken into account in consolidated goodwill or in differences pertaining to participations in subsidiaries or associated companies that are not expected to become subject to tax in the foreseeable future. Within the legal entity, untaxed reserves are reported including deferred tax liabilities.

Deferred tax assets pertaining to deductible temporary differences and tax loss carryforwards are only reported to the extent that they are likely to result in lower tax payments in the future. Deferred tax assets and deferred tax liabilities in the same country are reported net.

Available-for-sale fixed assets The implied significance of fixed assets (or divestment groups) classified as available-for-sale assets held is that most of their carrying amounts will be recovered through divestment, and not through utilization.

Immediately before classifying these holdings as being available for sale, the report carrying amount of the assets (and all assets and liabilities in a divestment group) are determined based on appropriate standards. In the initial classification as available-for-sale assets, the fixed assets and divestment groups are reported at the lower of the carrying amount and fair value less selling expenses. In accordance with IFRS 5.5, certain balance sheet items are exempt from the valuation regulations that apply for IFRS 5. At every subsequent reporting date, the fixed assets and divestment groups as a whole shall be valued at fair value less selling expenses.

Losses dues to decreases in value compared with the initial classification as an available-for-sale fixed asset are entered in the income statement, even in cases involving revaluations. The same applies for gains and losses attributable to subsequent revaluations.

Fixed assets are impaired as long as they are classified as available-for-sale assets.

Contingent liabilitiesA contingent liability is reported when there is a possible commitment deriving from events that have occurred whose existence can only be confirmed if one or more uncertain future events that are not fully within the control of the company occur or when there is a commitment that has not been reported as a liability or entered as a provision because it is not certain that an outflow of resources will be required.

Other Some of the reported figures have been rounded off, which means that tables and calculations do not always coincide. In texts and tables, figures between 0 and 0.5 are reported as 0. If a value is not available, this is indicated by a dash (-).

Notes, Group

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Note 2 - Net sales, SEK m.

2005 2004

Investment properties Rental revenues, etc. 2,106 2,118 Sales of properties classed as current assets 94 15 Other revenues 113 108

Equity management Sales of marketable securities, etc. 621 833 Dividends on shares 134 108

Newsprint and magazine paper 8,442 7,814 Paperboard 4,736 4,745 Timber 2,157 2,141 Sawn wood products 460 492 Energy 419 344 Other 105 117

19,388 18,835

Note 3 - Other revenues, etc. SEK m.

2005 2004

Sale of byproducts 215 163 Electricity certificates 56 67 Sale of fixed assets 116 61 Forestry assignments 57 51 Other 102 72

546 414 Change in inventories of finished products and work in progress 66 95 Change in inventories of shares - 22 74 Capitalized work on own account 36 - Change in value of biological assets 82 61

162 230

708 644 In accordance with IAS 20, government support of SEK 56 m. (67) was received in the form of revenues pertaining to electricity certificates and of SEK 40 m. (-) in the form of emission rights.

Note 4 - Employees, personnel costs and director and auditor fees, SEK m.

of whom of whom Average number of employees 2005 men (%) 2004 men (%)

Parent Company – Sweden 9 80 9 79

Total in Parent Company 9 80 9 79

Wholly owned subsidiaries – Sweden 186 74 190 74Hufvudstaden – Sweden 122 45 122 44Holmen

- Sweden 3,735 83 3,811 83 - Australia 4 50 3 33 - Belgium 4 50 4 50 - Denmark 3 33 3 33 - Estonia 23 83 22 82 - France 28 79 29 72 - Hong Kong 4 75 4 75 - Ireland 1 100 1 100 - Italy 5 40 4 25 - Netherlands 130 59 130 63 - Poland 4 25 4 25 - Portugal 2 50 2 50 - Switzerland 10 60 10 70 - Singapore 6 50 6 50 - Spain 343 85 293 84 - United Kingdom 536 90 539 89 - Germany 18 61 18 61 - United states 12 67 14 57

Total in subsidiaries 5,176 82 5,209 81

Total in Group 5,185 82 5,218 81

2005 2004Wages, salaries, other Wages, salaries Social Wages, salaries Socialremuneration and social and other security and other security security costs, SEK m. remuneration costs remuneration costs

Parent Company 9 5 10 5 - of which, pension costs 1 2 2 Wholly owned subsidiaries 74 36 67 34 - of which, pension costs 10 9

Total in Parent Company and wholly owned subsidiaries 83 42 77 39 -of which, pension costs 12 10 Hufvudstaden 50 25 51 29 - of which, pension costs 7 8 Holmen 1,811 707 1,732 688 -of which, pension costs 187 199

Total in other subsidiaries 1,861 732 1,783 717 - of which, pension costs 194 207

Total in Group 1,944 774 1,860 756 - of which, pension costs2 206 217

1) The Presidents/Deputy Presidents category accounted for SEK 1.3 m. (1.2) of the Parent Company’s pension costs.

2) The Presidents/Deputy Presidents category accounted for SEK 10.7 m. (11.0) of the Group’s pension costs. On December 31, 2005, the Group’s outstanding pension obligations regarding these pension costs amounted to SEK 77.9 m., of which obligations within Holmen accounted for SEK 72.4 m. The obligations are mainly covered by plan assets in independent pension foundations and through reinsurance in FPG.

Wages, salaries and other remuneration by country and distributed among 2005 2004Board of Directors and Board of Board of Presidents 3 and other Directors and Other Directors and Other employees, SEK m. Presidents3 employees Presidents3 employees

Parent Company – Sweden 7 3 7 3

Total in Parent Company 7 3 7 3 Wholly owned subsidiaries – Sweden 8 65 7 60 Hufvudstaden - Sweden 5 45 4 47 Holmen

- Sweden 16 1,333 16 1,324 - Other Nordic countries 1 1 1 1 - France 1 11 1 11 - Netherlands 10 43 5 43 - Spain 1 133 1 84 - United Kingdom 6 206 4 196 - Germany 1 11 1 11 - Eastern Europe 1 4 1 3 - Other European countries 5 11 4 10 - Other countries 5 11 3 12

Total in Group 66 1,878 55 1,805 3) Deputy Presidents are equated with Presidents.

In addition to the above information regarding wages, salaries and other remuneration paid during 2005, the following information pertaining to remuneration and benefits paid to senior executives is provided in accordance with the recommendation from Sweden’s Industry and Commerce Stock Exchange Committee.

44

Note 4, continued

GroupIn 2003, Lundbergs issued a total of 256,000 options to senior Holmen executives. Since the premiums paid were based on commercial market terms, IFRS 2 is not applicable. The option program has not been taken into account in the table above.

The President of the Parent Company has received salary of SEK 1.5 m. (1.5) and, in his capacity as Chairman of the Board of Holmen and Hufvudstaden, director fees totaling SEK 0.8 m. (0.7). There are no agreements concerning variable or other types of remuneration.

Parent Company and wholly owned subsidiariesThe Chairman of the Parent Company Board received SEK 0.3 m. (0.3) in director fees. Other director fees paid by the Parent Company amounted to SEK 0.9 m. (0.8). Director fees in subsidiaries amounted to SEK 0.2 m. (0.2). The President, also a Board Member in the Parent Company, was paid a total salary of SEK 1.5 m. (1.5) (also see under Group). Subsidiary presidents and executive vice presidents in the Parent Company and subsidiaries were paid SEK 12.0 m. (11.3), including bonus payments of SEK 2.6 m. (1.7).

Remuneration and benefits received by other senior executives totaled SEK 7.4 m. (7.2), including bonus payments of SEK 2.3 m. (1.5).

An equal-status system is applied in the companies, whereby payroll costs and payroll overheads are distributed among the Group companies concerned in relation to the time booked for projects and work performance.

For all employees in Fastighets AB L E Lundberg, there was a bonus program for 2005 based on earnings and profitability targets. The maximum bonus payment is two months’ salary for senior executives and three months’ salary for the president. Other employees can receive a maximum payment corresponding to one month’s or half a month’s salary. The bonus program for all L E Lundberg Kapitalförvaltning AB employees is based on the results of activities. The maximum total bonus is approximately 15% of the achieved result over time. Bonus payments are not pensionable income.

Pension commitments are covered by the ITP (individual supplementary insurance) plan and are defined-benefit commitments. Pension is payable to the President and other senior executives as of age 65 in accordance with the applicable ITP plan. The maximum pensionable income is 30 base amounts.

No particular agreements have been concluded in regard to severance pay for the President of the Parent Company. Where applicable, other senior executives may qualify for severance pay corresponding to six monthly salaries if their employment is terminated by the company. If termination is served by the company, the President is entitled to a term of notice of six months and other senior executives four to 12 months. If the President of the Parent Company resigns, a term of notice of six months applies. If the other senior executives resign, the terms of their collective agreement apply, whereby the term of notice is affected by age and period of employment.

The Chairman and one other member of the Board have been assigned to process matters regarding the remuneration to be paid to the President, which is then decided by the Board as a whole. The President negotiates and reaches agreement with other senior executives regarding their remuneration.

Hufvudstaden In 2005, the Chairman of the Board received SEK 0.3 m. (0.3). Other Board members who are not employed by Hufvudstaden received a total of SEK 1.0 m. (0.9).

Hufvudstaden’s President received remuneration of SEK 3.3 m. (3.0) in 2005, of which a bonus accounted for SEK 0.5 m. (0.4). Remuneration and benefits received by other senior executives totaled SEK 7.3 m. (7.8), including bonus payments of SEK 1.4 m. (1.2).

In the case of notice of termination by the company, the President is entitled to a term of notice of two years. If the President resigns, a term of notice of six months applies. In both instances, any remuneration from a new employer will be deducted. The Group’s pension obligations and the pension plan for the President are covered by the ITP pension plan and are benefit-defined schemes. According to the current pension plan, the President’s retirement age is 65.

In the case of notice of termination by the company, the other senior executives are entitled to a term of notice of one year. If they resign, a term of notice of six months applies. In both instances, any remuneration from a new employer will be deducted.

The Chairman of the Board has been delegated by the Board to negotiate with the President regarding his remuneration, following which decisions are made by the Board. The President has been delegated by the Board to negotiate with other senior executives and agree on their remuneration and to then report back to the Chairman.

Permanent employees of the Hufvudstaden group were covered by a bonus program during the year. The criteria for bonus payments were business results and customer satisfaction. Managers with personnel responsibility were also subject to a personal assessment. The maximum bonus payment for full-time employees was half a month’s salary, but not less than SEK 15,000. The maximum bonus for managers was a month’s salary. For members of Executive Management, there was a bonus program during the year based on business results, customer satisfaction and personal targets. The maximum bonus payment for the year was SEK 500,000 for the President and a total of SEK 1,458,000 for other senior executives.

In the accounts, an amount for bonus payments based on business results and customer satisfaction was reserved at the actual outcome. For personal targets, a reserve correspond-ing to the maximum payment (SEK 393,000) was posted. The bonus outcome for 2005 was affected by reserves for 2004 totaling SEK -68 m. A precondition for both bonus programs is that decisions are made by the Board for one year at a time and that the bonus is subject to a ceiling. No bonus will be paid if the company reports a loss. Bonuses paid for 2005 totaled SEK 3.2 m. (3.8), or an average of SEK 11,000 per employee and for Executive Management, including the President, an average of SEK 261,000 per person. Bonus payments are not pensionable income.

Holmen The Chairman of the Board received remuneration of SEK 0.5 m. (0.4). The President received salary and other remuneration of SEK 5.3 m. (April-Dec 2004: 4.0). The former President received salary and other benefits of SEK 2.3 m. in 2004.

All senior executives receive a contractual fixed annual salary. There are no variable salary increments or payments in the form of bonuses or similar programs. For information on the options written by Lundbergs, see below.

The period of notice for the President is 12 months if employment is terminated by the company, and six months if terminated by the President. Severance pay corresponding to two annual salaries could be payable if employment is terminated by the company. The com-pany is entitled to deduct remuneration received from other parties from this amount. Under an agreement with the President regarding a future pension, the retirement age has been set at 65, with each party having the right to activate the pension but not earlier than when the President turns 60. The pension, which is benefit defined, is payable at a rate of 60% of pensionable income up to age 65 and thereafter in an amount corresponding to customary ITP pension plans, complemented by a retirement pension of 32.5% and a family-pension of 16.25% linked to the portion of salary corresponding to between 20 and 50 base amounts. Pensionable income is defined as the average of the most recent three years’ total salary.

A Remuneration Committee has been appointed from among the Board members to prepare matters pertaining to the President’s salary and other terms of employment, and to present proposals to the Board, which makes decisions on the matter. This committee has also established a pay policy for the other senior executives.

In addition to the President, Executive Management consists of ten persons who report directly to the President, five business area presidents and five corporate staff heads. Salaries and other benefits paid to these executives (excl. the President) totaled SEK 15.6 m. (15.7).

The period of notice for these senior executives is 12 months if employment is terminated by the company, and six months if it is terminated by the executive. If the termination notice is served by the company, severance pay ranging from 1.0 to 2.5 annual salaries could be payable, depending on age.

Under agreements with the said executives regarding future pensions, the retirement age has been set at 65, but with a mutual right for either party to activate the pension after age 60. The pension, which is based on a defined-benefit plan, is payable between age 60 and 65 and corresponds to 65% of pensionable salary up to 30 base amounts and 32.5% of amounts between 30 and 50 base amounts. The regular pension received at age 65 complies with the customary ITP plan. In addition, supplementary retirement pension amounting to 32.5% and family pension to 16.25% are paid for the portion of salary within 20 to 50 base amounts. Pensionable income is defined as the average of the most recent three years’ total salary.

Distribution of company management by gender

Percentage of women Dec. 31, 2005 Dec. 31, 2004

Board of Directors 11 11Other senior executives 9 6

Notes, Group

45

OPTIONS AND CONVERTIBLE DEBENTURES In 2003, Lundbergs issued a total of 256,000 options to senior Holmen executives with payment based on commercial market terms. The paid premium amounted to SEK 25 per option. The number of outstanding options at the end of 2005 was 246,000. Each option provides entitlement during the period February 1, 2007 to March 15, 2007 to acquire 1.12 Series B share for SEK 194.70 per share. The calculated value based on fictive exercise at December 31, 2005 was SEK 18.7 m. Reduced by the paid premiums, the net profit for the option holders would amount to SEK 12.5 m. During 2004, all options in Hufvudstaden were repurchased.

OPTIONS Holmen Hufvudstaden 2005 2004 2005 2004

Change in number of options held by employees

Options outstanding, beginning of year 246,000 256,000 160,000Repurchased - -10,000 -160,000

Options outstanding, year-end 246,000 246,000 - - Information regarding stock options repurchased during the year Maturity March 15, 2007 December 31, 2004Price per option, SEK 44.20 7.30 - 17.40Total disbursement, SEK 000s 442 1,442Amount reported in income statement, SEK 000s -192 -962Terms and conditions for options outstanding at year-end Maturity Feb 1-March 15, 2007 Exercise price, SEK 1 194.70 Number 246,000 1) ) The exercise price has been recalculated to compensate for the extraordinary dividend paid in 2004.

CONVERTIBLE DEBENTURES In 1998, a convertible debenture loan and call options were issued by Holmen to all employees on commercial market terms. Conversion to the various shares occurred during the first quarter of 2004. As a result, Holmen’s shareholders’ equity rose by SEK 474 m. Thereafter, there are no convertible debentures or call options in Holmen.

AUDIT Bo Ribers, KPMG Bohlins, was re-elected auditor of the Parent Company at the 2003 Annual General Meeting for a term of four years. At the 2005 Annual General Meeting, Kjell Bidenäs, KPMG Bohlins, was elected auditor of the Parent Company for a term of two years. Remuneration paid to KPMG Bohlins as follows.

Fees and other compensation to auditors, SEK m. 2005 2004 2003

Auditing assignments 8 8 7 Other assignments 11 11 9

19 19 16

Note 5 - Other external costs

Operational leasing The Group’s leasing charges during the year amounted to SEK 62 m. The amount pertained mainly to ground rent and fees for trucks. Future irrevocable leasing charges are distributed as follows, SEK m.: - 1 year 1 year - 5 years 5 years -

58 61 16

Note 6 - Depreciation/amortization according to plan, SEK m.

2005 2004

Intangible fixed assets - 7 - 4 Tangible fixed assets

Buildings and land - 115 - 126 Machinery and equipment - 1,054 - 1,034

- 1,176 - 1,164

Note 7 - Results from participations in associated companies, SEK m.

2005 2004

Participation in profit/loss 257 335 Reversed impairment - 80 Capital gains 370 -

627 415

Note 8 - Changes in value, SEK m.

2005 2004

Investment properties, realized 22 24 Investment properties, unrealized 1,627 531

1,649 555

Note 9 - Segment reporting, SEK m.

The primary criterion for classification of the Group’s segments is by business segment. The Group and the Board of Directors monitor the return at the business sector level when controlling Holmen and Hufvudstaden.

BUSINESS SEGMENTS Lundbergs Lundbergs Real estate management Equity management Hufvudstaden Holmen Total

2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Net sales 969 883 755 940 1,344 1,358 16,319 15,653 19,388 18,835Operating expenses - 364 - 305 - 622 - 931 - 474 - 454 - 10,687 - 10,150 - 12,147 - 11,841 Personnel costs - 101 - 95 - 16 - 13 - 83 - 81 - 2,518 - 2,420 - 2,718 - 2,609 Depreciation - 4 - 5 - 0 - 0 - 4 - 4 - 1,167 - 1,156 - 1,176 - 1,164 Participations in results of associated companies 601 390 26 25 627 415 Changes in value, investment properties 449 258 1,200 297 1,649 555

Profit per business segment 950 735 719 386 1,983 1,118 1,973 1,952 5,624 4,192

Unallocated costs - 28 - 26

Operating profit 950 735 719 386 1,983 1,118 1,973 1,952 5,597 4,165

Net financial items - 422 - 536 Taxes - 1,277 - 825

Taxes 3,897 2,803

Minority interest 1,637 1,343

46

Note 9, continued

OTHER INFORMATION

Lundbergs Lundbergs Real estate management Equity management Hufvudstaden Holmen Total

2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Assets 7,562 7,282 6,646 2,705 16,396 15,128 29,528 26,589 60,132 51,705Participations in associated companies - - 2,666 3,232 - - 1,622 1,668 4,288 4,900Unallocated assets 1,342 814

65,761 57,419

Liabilities 231 204 - - 392 330 3,713 2,842 4,336 3,376Unallocated liabilities 40,346 37,220

44,682 40,596

Investments -119 156 1,094 1,133 79 72 3,170 1,291 4,224 2,652Depreciation 4 4 0 0 1 1 1,167 1,156 1,172 1,161

GEOGRAPHIC MARKETS

Sweden United Kingdom Spain Other areas Total

2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

External sales 6,985 6,839 2,336 2,460 1,111 951 8,956 8,585 19,388 18,835Net assets 54,096 49,390 1,263 1,117 4,667 2,656 57 65 60,083 53,228Investments 1,755 1,855 105 167 2,359 623 5 7 4,224 2,652

External sales are reported in accordance with the customers’ location. Net assets and investments are reported in accordance with the country in which the operations are located. The Group’s products and services are presented on page 30.

Note 10 - Net financial items, SEK m.

2005 2004

Financial income Dividends 6 91 Interest income 25 26 Other 5 3

36 120 Financial expense

Interest expense - 252 - 255 Interest expense, property loans - 200 - 243 Compensation paid for interest difference, property loans - - 107 Impairments -3 - 51 Other - 2 - 1

- 458 - 656

- 422 - 536

Net financial items consist of interest income and interest expense and exchange-rate gains and losses on receivables and liabilities included in financial net debt. Net financial items also include dividend income and transaction costs and the accrual of the difference between funds received and repayment amounts for loans raised. They also include income of SEK 9 m. from a revaluation of financial instruments that were fair valued, as well as the result of the revaluation of derivative instruments attributable to cash flow hedging and the hedging of net assets in foreign operations, which are reported directly against shareholders’ equity. Fair valuation has been conducted by calculating the discounted cash flow on the basis of available market quotations for interest and exchange rates. The change in the market value of the loan that was fair valued in accordance with the “fair value option” affected income by SEK 6 m., of which changed market interest rates resulted in a change in market value by SEK 9 m.

Note 11 - Taxes, SEK m.

2005 2004

Reported in income statement

Current tax cost/tax income Tax cost during the year - 666 - 738 Tax attributable to previous years 2 8

Deferred tax cost/tax revenue

Temporary differences - 599 - 71 Changes in capitalization of loss carryforwards 53 32

Tax on participation in associated company profit - 67 - 57

- 1,277 - 825 Reconciliation of effective tax 2005 2004

Reported profit before taxes 5,175 3,628

Swedish income tax rate 28% - 1,449 28% - 1,016 Difference in tax rates for foreign operations - - 1% - 20 Other non-tax-deductible costs 0% -8 1% - 20 Non-taxable revenues -4% 199 -6% 220 Standard interest on tax-deferral reserve 0% - 22 - - Tax disputes - - -1% 26 Tax attributable to prior years 0% 2 0% 8 Tax in associated companies 0% 5 -1% 23 Other 0% - 3 1% - 46

25% - 1,277 23% - 825

Notes, Group

47

Tax items entered directly in shareholders’ equity 2005 2004

Deferred tax attributable to participations in fair value - 11 -Deferred tax attributable to hedging reserve 13 -Deferred tax attributable to translation reserve -16 -

-14 -Reported in balance sheet

Receivables 2005 2004

Deferred tax assets 331 285 Current tax assets 35 34

367 319

Liabilities 2005 2004

Provision for taxes Deferred tax liability 10,738 10,212 Other provisions 72 69

Current tax liability 255 310

11,065 10,591

Deferred tax assets and liabilities 2005 2004 Asset Liability Net Asset Liability Net

Tangible fixed assets - 1,837 - 1,837 - 1,849 - 1,849 Biological assets - 2,437 - 2,437 - 2,414 - 2,414 Investment properties - 5,290 - 5,290 - 4,813 - 4,813 Financial investments - 33 - 33 - Pension provisions 81 81 80 80 Untaxed reserves - 874 - 874 - 861 - 861 Loss carryforwards 374 374 299 299 Deferred tax liabilities

reported net among deferred tax assets - 134 - 134 - 106 - 106

Other provisions 10 - 268 - 257 12 - 275 - 263

331 -10,738 -10,407 285 -10,212 -9,927

Tax loss carryforwards in Holmen for which deferred tax assets have not been reported in the income statements and balance sheets amount to SEK 200 m. (-), an amount that does not expire in accordance with current tax regulations. No deferred tax assets have been reported for these items, because it is not probable that the Group will utilize them to offset future taxable profits.

Change in deferred tax on temporary differences and loss carryforwards

Balance Reported via Reported via Balance at Jan. 1, income shareholders’ at Dec. 31, 2004 statement equity 2004

Tangible fixed assets - 1,876 27 - 1,849 Biological assets - 2,397 - 17 - 2,414 Investment properties - 4,730 - 83 - 4,813 Pension provisions 88 - 8 80 Untaxed reserves - 865 5 - 861 Loss carryforwards 271 28 299 Other - 348 - 25 4 - 369

- 9,858 - 73 4 - 9,927

Balance Reported via Reported via Balance at Jan. 1, income shareholders’ at Dec. 31, 2005 statement equity 2005

Tangible fixed assets - 1,849 12 - 1,837 Biological assets - 2,414 - 23 - 2,437 Investment properties - 4,813 - 477 - 5,290 Financial investments - - 21 - 11 - 33 Pension provisions 80 1 81 Untaxed reserves - 861 - 13 - 874 Loss carryforwards 299 75 374 Other - 369 - 20 - 3 - 391

- 9,927 - 466 - 14 - 10,407

Ongoing tax processesLundbergs Lundbergs has filed an appeal with the court of administrative appeal regarding a deci-sion made by the county court in November 2004, whereby the Parent Company’s group contributions to a subsidiary were not approved. An appeal has been filed with the county court regarding a decision by the Swedish Tax Agency to refuse to exempt leasing fees from taxation. These cases trace their roots to previously rejected claims for value depletion in the 1989 – 1991 tax returns. The appealed decisions should be viewed in the same light. The combined amount for tax and charges is SEK 96 m. A provision of SEK 52 m. has already been posted. It is not considered necessary to post a provision for the remaining amount.

Holmen Holmen is involved in two non-completed major tax disputes. One of them involves Holmen’s subsidiary MoDo Capital (a total of approximately SEK 600 m. in taxes and charges), a case that was won by Holmen in the county court in 2004 but has been appealed by the Swedish Tax Agency to the court of administrative appeal. The second involves Holmen’s French subsidiary, whereby the tax authorities have petitioned to the county court that the tax be increased by about SEK 400 m. Holmen has responded and does not share the Swedish Tax Agency’s view regarding the two cases and therefore no provision has been posted in the accounts for these disputes.

Hufvudstaden A Hufvudstaden subsidiary has received a ruling from the Swedish Tax Agency stating that it has not been granted a deduction for a certain part of the costs for the renovation of the Norrmalmstorg 1 property. The Swedish Tax Agency believes that these costs should be capitalized as a building subject to depreciation of 2% annually. Since Hufvudstaden does not share the Swedish Tax Agency’s view, this ruling has been appealed to the county court. The amount for taxes and charges totals approximately SEK 25 m. However, should the court find in favor of the Swedish Tax Agency, this will have no impact on total reported tax.

48

Note 12 - Other holdings

Participations in subsidiaries Percentage of 1

Number of shares share capital share capital Holding Registered office Country Dec. 31, 2005 2005 2004

Fastighets AB L E Lundberg (publ) Norrköping Sweden 250,000 100 100Holmenbyggarna Dalkarlen KB Norrköping Sweden - 100 50Fastighets AB Strömstaden Norrköping Sweden 4,587 68 68L E Lundberg Nordic AB Stockholm Sweden 1,251 100 100AB Consila Norrköping Sweden 1,000 100 100Linden 14 Fastighets AB Norrköping Sweden 1,000 100 100

Förvaltnings AB L E Lundberg Stockholm Sweden 1,000 100 100Senda i Sverige AB Stockholm Sweden 25,000 100 100

L E Lundberg Holding AB Stockholm Sweden 1,000 100 100Hufvudstaden AB (publ) Stockholm Sweden 93,318,909 (88.0) 45.2 (88.0) 45.2

AB Citypalatset Stockholm Sweden 1,200 100 100Fastighetsaktiebolaget Medusa Stockholm Sweden 300 100 100Aktiebolaget Hamngatsgaraget Stockholm Sweden 3,000 100 100AB Nordiska kompaniet Stockholm Sweden 19,460,666 100 100Parkaden AB Stockholm Sweden 5,000 100 100Vasaterminalen AB Stockholm Sweden 2,022,000 100 100Fastighetsaktiebolaget Stockholm City Stockholm Sweden 7,776 100 100Hotel Stockholm AB Stockholm Sweden 10,000 100 100NK Cityfastigheter AB Stockholm Sweden 1,680 100 100NK Concession Aktiebolag Stockholm Sweden 1,000 100 100World Trade Center Stockholm AB Stockholm Sweden 1,000 100 100WTC Parkering AB Stockholm Sweden 1,000 100 100

L E Lundberg Kapitalförvaltning AB Stockholm Sweden 150,000 100 100

Holmen AB (publ) Stockholm Sweden 23,608,916 (51.9) 27.9 (51.9) 27.9Holmen Paper AB Norrköping Sweden 100 100 100Iggesund Paperboard AB Hudiksvall Sweden 1,000 100 100Iggesund Timber AB Hudiksvall Sweden 1,000 100 100Holmen Skog AB Örnsköldsvik Sweden 1,000 100 100Holmen Kraft AB Örnsköldsvik Sweden 1,000 100 100AB Ankarsrums Skogar Norrköping Sweden 1,000 100 100Domsjö Klor AB Örnsköldsvik Sweden 1,000 100 100Fiskeby AB Norrköping Sweden 2,000,000 100 100Haradsskogarna AB Örnsköldsvik Sweden 100,640 100 100Harrsele Linjeaktiebolag Örnsköldsvik Sweden - - 100Holmens Bruk AB Norrköping Sweden 49,514,201 100 100Holmen Försäkring AB Stockholm Sweden 10,000 100 100Husum Copy AB Örnsköldsvik Sweden 100 100 100AB Iggesunds Bruk Hudiksvall Sweden 6,002,500 100 100Iggesund Kraft AB Örnsköldsvik Sweden 58,000 100 50Junkaravan AB Örnsköldsvik Sweden 1,537,398 100 100Lägernskog AB Örnsköldsvik Sweden 1,480 100 100MoDo Holding AB Örnsköldsvik Sweden 100 100 100MoDo-Iggesund CTMP AB Örnsköldsvik Sweden 400,000 100 100MoDo Forest Management AB Stockholm Sweden 100 100 100Skärnäs Terminal AB Hudiksvall Sweden 4,800 100 100Ströms Trävaru AB Örnsköldsvik Sweden 400 100 100AB Överums Skogar Norrköping Sweden 1,000 100 100Holmen France Holding SAS Paris France 40,000 100 100Holmen Reinsurance SA Luxemburg Luxembourg 12,000 100 100Holmen UK Ltd Workington United Kingdom 1,197,100 100 100Iggesund Paperboard Ltd Workington United Kingdom - 100 100Holmen Suecia Holding SI Madrid Spain 9,448,557 100 100Holmen Paper Madrid Sl Madrid Spain - 100 100Iggesund Paperboard Asia Pte Ltd Singapore Singapore 800,000 100 100Cartón y Papel Reciclado SA Madrid Spain - 100 50

1) The share of the voting rights is presented in parentheses if it is not the same as the percentage of the share capital.

Notes, Group

49

Participations in joint venturesIn 2004, the Group had a 50% holding in Holmenbyggarna Dalkarlen KB, which engages in real estate management and property development operations. In September 2005, the remaining 50% was acquired. In the preceding year, revenue of SEK 15 m. and profit of SEK 8 m. was received. The assets amounted to SEK 157 m., of which current assets accounted for SEK 21 m. Long-term liabilities corresponded to SEK 119 m. and current liabilities to SEK 4 m., which in relation to the assets resulted in a net asset value of SEK 33 m.

Note 13 - Intangible fixed assets, SEK m.

Goodwill Other Total

Accumulated acquisition valueOn Jan. 1, 2004 556 31 587 Translation differences, etc. during the year 53 0 53 Acquisitions during the year - 13 13

On Dec. 31, 2004 609 44 653 On January 1, 2005 609 44 653 Translation differences, etc. during the year 23 31 54 Acquisitions during the year 40 13 53

On Dec. 31, 2005 672 88 760 Accumulated amortization according to plan On January 1, 2004 -4 -4 Amortization during the year -4 -4

On Dec. 31, 2004 - -8 -8 On January 1, 2005 -8 -8 Amortization during the year -7 -7

On Dec. 31, 2005 - -15 -15 Carrying amount On Jan. 1, 2004 556 26 582 On Dec. 31, 2004 609 36 646 On Jan. 1, 2005 609 36 646 On Dec. 31, 2005 672 73 745

Of the total carrying amount, goodwill accounted for SEK 672 m. (609). Of this goodwill, SEK 86 m. derived from Lundbergs’ acquisition of Holmen, SEK 546 m. from Holmen’s acquisition of the newsprint mill in Madrid in 2000 and SEK 40 m. from Holmen’s 2005 acquisition of the majority interest in a company in Madrid that conducts operations based on recycled-paper. Following the transition to IFRS, goodwill is not amortized according to plan, but is tested annually to determine any impairment requirement in accordance with IAS 36. When assessing the recoverable amount of Lundbergs’ acquisition of Holmen, the share price at December 31, 2005 is used as guidance. The mill and the recycled-paper-based company are part of the Holmen business area, which is the organizational level at which the recoverable amount has been calculated. Goodwill accounts for 5% of the business area’s total fixed assets. The recoverable amount has been calculated on the basis of value in use and on the present value of cash flow for the period 2006-2008. Thereafter, an unchanged cash flow has been used. The assessment includes additional volumes from the new paper machine that became operational at the end of 2005-06 and certain volume increases from other machines, mainly as a result from increased efficiency. Price and cost assumptions are based on known changes. Cash flow has been discounted using a weighted capital cost corresponding to 9.0% before tax and 6.5% after tax. It has been calculated on the basis of the Group’s targeted capital structure, whereby a current risk-free long-term interest rate and a risk premium of 5% for shareholders’ equity and of 1% for borrowed capital have been used. The calculation shows that the value in use significantly exceeds the carrying amount.

Note 14 - Tangible fixed assets, SEK m.

Work in Buildings, Machinery progress and land and and advance forestland equipment payments Total

Acquisition value On Jan. 1, 2004 4,561 21,048 61 25,670 Divestments and scrappage - 8 - 148 - - 156 Translation differences, etc. 3 - 67 - - 65 Investments 10 628 638 1 276

On Dec. 31, 2004 4,566 21,461 699 26,725 On Jan. 1, 2005 4,566 21,461 699 26,725 Divestments and scrappage - 24 - 170 - - 194 Reclassification - 3 131 - 128 Translation differences, etc. 52 277 17 346 Company acquisitions 80 94 - 174 Investments 722 2,939 - 653 3,008

On Dec. 31, 2005 5,392 24,732 63 30,187 Depreciation and impairment On Jan. 1, 2004 - 2,014 - 11,543 - 13,557 Divestments and scrappage 7 131 138 Translation differences, etc. 6 33 39 Depreciation during the year - 126 - 1,044 - 1,170

On Dec. 31, 2004 - 2,127 - 12,422 - - 14,549 On Jan. 1, 2005 - 2,127 - 12,422 - 14,549 Divestments and scrappage 15 151 166 Reclassification - - 59 - 59 Translation differences, etc. - 22 - 152 - 174 Company acquisitions - 3 - 57 - 60 Depreciation during the year - 115 - 1 054 - 1,169

On Dec. 31, 2005 - 2,252 - 13,593 - - 15,845 Carrying amount On Jan. 1, 2004 2,547 9,505 61 12,113 On Dec. 31, 2004 2,439 9,038 699 12,176 On Jan. 1, 2005 2,439 9,038 699 12,176 On Dec. 31, 2005 3,140 11,139 63 14,342 Tax-assessment value (pertains to properties in Sweden) 2005 2004

Forest and agricultural properties 10,110 8,117 Buildings, other land, etc. 3,682 3,728

13,792 11,845

Note 15 - Biological assets

Holmen’s forest assets were previously reported at acquisition cost adjusted for write-ups. According to IFRS, forest assets must be divided into standing forest in accordance with IAS 41 and land, which is reported in accordance with IAS 16. According to IAS 41, standing forest must be valued at each reporting occasion and reported at fair value. Changes in fair value are reported in the income statement. In those cases where market prices or another comparable value is lacking, biological assets must be valued at the present value of the future cash flow from the assets. The land on which the forest grows is valued at acquisition cost according to IAS 16. The assessment is that no relevant market prices are available that could be used to value forest holdings of the size owned by Holmen. Accordingly, the valuation is conducted by calculating the present value of the anticipated future cash flow from the standing forest. A cash flow calculation is conducted for the coming 100 years, which is regarded as the forest’s felling cycle. Holmen holds a total of 1,035,000 hectares of productive forestland with a volume of standing forest of 113 million forest cubic meters. Felling is calculated in accordance with felling plans that are established every tenth year.

50

Note 15, continued

The current felling plan is from 2000. For the period 2000-2009, felling is estimated to average 2.5 million m3 per year. The amount of felling is expected to increase during forthcoming ten-year periods and then to stabilize around a level of 3.0 million m3 in about 40 years. This corresponds to an average increase in felling by 0.4% annually. About 55% of the felling is accounted for by timber that is sold to sawmills and the remainder is accounted for by pulpwood sold to the pulp and paper industry. Cash flow is calculated on the basis of felling volumes in accordance with Holmen’s current felling plans and assessments of future price and cost trends. Costs for reforestation have been taken into account, since reforestation after felling is a legal obligation. Cash flow from the standing forest amounted to SEK 380 m. in 2005, which was lower than normal due to a low felling level and high felling costs caused by the storm in southern Sweden at the beginning of the year. On average, cash flow during 2001-2005 was nearly SEK 450 m. per year, which might be considered to correspond to a normal level based on the current price and cost situation, and felling volume. On the basis of the current felling plan and the assumption about the price and cost trend made in the valuation in accordance with IAS 41, cash flow is estimated to increase from this level by approximately 0.5% annually in the coming 30 years. During the period thereafter, cash flow is estimated to increase by the assumed rate of inflation of 2%. Cash flow before tax is discounted using an interest rate 6.25%, which is adjudged to be the long-term cost of capital for forest operations.

Deferred tax, meaning the tax expected to be charged against future earnings from felling operations, has been calculated for the entire value of the standing forest. The value of forest assets at the end of 2005 was estimated at SEK 8,704 m., which is the value of the estimated cash flow before tax. The associated deferred tax liability was estimated at SEK 2,437 m. The net carrying amount for the standing forest after tax was SEK 6,267 m. The value before tax had increased by SEK 82 m. since December 31, 2004, which has been recog-nized in the income statement for 2005. At the same time, the deferred tax liability on standing forest rose by SEK 23 m., which increased the Group’s reported tax cost. The increased value of standing forest may be divided as follows:

2005 2004

Carrying amount on Jan. 1, SEK m. 8,622 8,561 Cash flow, felled forest - 380 - 460 Change in fair value 462 521

Carrying amount on Dec. 31 8,704 8,622

The extracted amount, SEK 380 m. pertains to cash flow from the felling of standing forest during 2005. The change in fair value of the remaining forest (SEK 462 m.) consists largely of the increase in present value that arose as a result of one year passing, which means that the cash flow from future felling came one year closer. In addition, changes in market prices and felling costs caused by the storm in southern Sweden at the beginning of the year had a certain negative impact on the value. Certain smaller acquisitions and divestments of properties were implemented during 2005, which had an insignificant impact on the value of the standing forest. The after-tax value of the forest assets would be affected by changes in the following principal valuation assumptions:

Change in value

Growth rate Increase by 0.1%/year SEK 170 m.

Price inflation Increase by 0.1%/year SEK 200 m.

Cost inflation Increase by 0.1%/year SEK -110 m.

Discount rate Increase by 0.1% SEK -170 m.

Effects of the transition to IFRS are described in Note 37.

Note 16 - Investment properties

Investment properties are fair valued (IAS 40) Properties owned Acquired Sold throughout Total properties properties the year 2005

Fair value, Jan. 1 48 295 21,759 22,103Acquisition value 52 52 Investments 1 295 297 Sales revenues - 355 - 355 Reversed to available-for-sale assets -61 -61Unrealized change in value 13 35 1,579 1,627 Realized change in value 22 22

Closing fair value 114 - 23,573 23,686

Available-for-sale assets1 61 61

114 - 23,634 23,7471) Since a decision has been taken within Fastighets AB L E Lundberg to sell certain properties, these have been

reported separately. Properties owned Acquired Sold throughout Total properties properties the year 2004

Fair value, Jan. 1 158 484 21,198 21,841 Acquisition value 82 82 Investments 3 1 131 135 Sales revenues - 509 - 509 Unrealized change in value 17 514 531 Realized change in value 24 24

Closing fair value 260 - 21,843 22,103 Tax assessment value of properties reported as investment assets 2005 2004

Buildings 8,632 8,953 Land 6,663 6,673

15,294 15,626 Information about fair value of investment properties The value of the real estate portfolio has been assessed by fair valuing every single property. 2005 2004

On Jan. 1 22,103 21,841 On Dec. 31 23,747 22,103

Valuation methodLundbergs - Fair value has been established through a combination of the location-price and the yield method. The calculation of the yield value is based on discounted cash flow over the coming ten-year period and thereafter calculating a perpetual yield. The discount factor varies from 6.0 to 11.9%. The calculation of cash flow is based on assumed inflation of 2%, normalized maintenance costs and a normalized vacancy rate. This calculation is then weighted with various location-price factors when arriving at the final valuation per property. To safeguard the internal valuation, independent valuations of certain properties were obtained, which corresponded to 40% of the total fair value. In those cases where independent valuations are available, these were used to establish the fair value. Average yield, measured as the net operating income for 2005 (after normalizing maintenance costs) in relation to fair value, is approximately 7%.

Notes, Group

51

Hufvudstaden - Fair value has been established in accordance with the yield method. The operating surplus is based on market-adapted rental revenues, reduced for an estimated long-term vacancy rate of 5-7%. Normalized operation and maintenance costs have been deducted.

The required yield used in the valuation varies from region to region and among the various sub-regions within regions. The estimated required yield is based on information received about yield requirements in the market in terms of the purchase and sale of comparable properties in similar locations. Such factors as different types of properties, technical standard and building design have also been taken into account. For leasehold properties, the calculation has been based on a required yield that is 0.5 of a percentage point higher.

The following data was used in the valuation:

Rental Net operating revenues, income, Required yield, SEK m. SEK m. %

Stockholm, commercial 5.0 - 6.5Gothenburg, commercial 6.0 - 6.5

1,316 932 5.71

1) Average

To safeguard the valuation, independent valuations were obtained, which corresponded to 30% of the internally estimated fair value.

The independent valuations arrived at a fair value amounting to SEK 5.0 billion within a range of +/- 6-8%. Hufvudstaden’s internal valuation of the same properties amounted to SEK 4.9 billion. Accordingly, the internal valuation were approximately SEK 0.1 billion less than the independent valuations. Based on a comparison between the internal and the independent valuations, it may be stated that Hufvudstaden’s valuation lies within the value interval arrived at by the independent valuation companies.

INVESTMENT PROPERTIES – IMPACT ON PROFIT DURING THE YEARAll investment properties generate rental revenues. See Note 9 for revenues and costs.

DUE DATES, RENTAL REVENUESRental revenues during the year (gross less vacancies) totaled SEK 2,106 m. (2,118). Future rents attributable to non-cancelable operational leasing contracts have the following due dates.

Due dates, SEK m. 2005 2004

Within one year Commercial premises 232 268 Housing 404 424 Other 34 76 Between one and five years Commercial premises 1,139 1,048 Other 84 94 Later than five years Commercial premises 128 139 Other 7 3

2,029 2,052

Note 17 - Participations in associated companies, SEK m.

2005 2004

Acquisition value and carrying amount On January 1 5,060 4,991 Investments 16 -Divestments - 749 - 11 Reversals/impairments - 80 Reclassification, etc. - 58 -

4,269 5,060 Accumulated results from participations, etc. On January 1 - 160 - 250 Current year’s participations in associated companies’ net profit - 55 147 Change in associated companies’ equity 64 - 43 Divestments 170 - 15

19 - 160

4,288 4,900

Specification of the Parent Company’s holdings Number Fair of participations in of shares, value associated companies Dec. 31, 2005 Dec. 31, 2005 2005 2004

Parent Company’s1 Cardo AB (publ) 10,800 000 2,101 1,978 1,958 NCC AB (publ) - Series A shares 10,850 000 1,546 688 660 NCC AB (publ) - Series B shares2 - 250 Ramirent Oyj 3 - 98 Stadium AB - 266

2,666 3,232 Subsidiaries’ Harrsele AB 9,886 1,486 1,488 Industriskog AB 25,000 0 0 Baluarte Sociedade de Recolha e Recuperação de Desperdicios, Lda 29 - Cartón y Papel Reciclado SA4 - 91 Ets Emilie Llau SA 7,381 32 28 Peninsular Cogenaracion SA 4,500 66 56 Various shares 9 5

4,288 4,900

1) Associated companies are reported in accordance with ÅRL Chapter1, Section 5, whereby certain criteria must be met before a company is classified as an associated company. In cases where Lundbergs does not hold 20% of the share capital but has ownership representation on the Board of Directors, participates in work involving strategic issues and where there are significant connections with the operations conducted by these companies, such companies are categorized as associated companies.

2) The carrying amount of NCC’s Series B shares is SEK 27 m. less than the acquisition value. Calculation of the recoverable value is guided by the stock-market price of the shares.

3) Consolidated goodwill on the acquisition amounted to SEK 5 m.4) Holmen Paper Madrid Sl owns 100% of this company as of December 2005.

In the consolidated income statement, participations in the results of associated companies are reported in two items. Firstly, as pretax profit and secondly as participations in the associated companies’ tax, which is reported together with the Group’s taxes.

52

Note 17, continued

The consolidated value of the owned portion of directly owned associated companies is reported below. With respect to the value of indirectly owned associated companies, only the owned portion is reported, because their impact on earnings is not significant. Shareholders’ Owned as a % ofASSOCIATED COMPANIES - 2005 Country Revenues Profit Assets equity voting rights share capital

Parent Company’s Cardo AB (publ) Sweden 76 53 1,978 -43 36.0 36.0NCC AB (publ) Sweden 155 116 688 -87 18.7 10.1

230 169 2,666 -130 Subsidiaries’Harrsele AB Sweden 49.4 49.4 Industriskog AB Sweden 33.3 33.3 Baluarte Sociedade de Recolha e Recuperação de Desperdicios, Lda Portugal 50.0 50.0 Ets Emilie Llau SA France 38.0 38.0 Peninsular Cogenaracion SA Spain 50.0 50.0 Shareholders’ Owned as a % ofASSOCIATED COMPANIES - 2004 Country Revenues Profit Assets equity voting rights share capital

Parent Company’s Cardo AB (publ) Sweden 151 117 1,957 -64 36.0 36.0NCC AB (publ) Sweden 128 119 910 -136 18.5 13.6 Ramirent Oyj Finland 10 7 98 5 6.5 6.5 Stadium AB Sweden 24 17 266 16 20.0 20.0

313 260 3,232 -179 Subsidiaries’ Harrsele AB Sweden 49.4 49.4 Industriskog AB Sweden 33.3 33.3 Cartón y Papel Reciclado SA1 Spain 50.0 50.0 Ets Emilie Llau SA France 38.0 38.0 Peninsular Cogenaracion SA Spain 50.0 50.0 1) 100% owned since December 31, 2005.

Note 18 - Financial investments, SEK m.

Percentage in 2005 of voting rights share capital 2005 2004

Available-for-sale financial assets 1

Handelsbanken A 0.9 0.9 1,182 -Industrivärden A 14.4 10.5 4,394 2,280Indutrade 10.0 10.0 356 -Sandvik 0.3 0.3 259 -Other shares 167 13

6,358 2,2931) The assets have been fair valued based on the current stock-market price.

Note 19 - Other long-term holdings of securities, SEK m.

2005 2004

Brännälvens Kraft AB 36 36Papeles Allende SA, Spain - 49SweTree Technologies 5 -Vattenfall Tuggen AB 75 -Other shares 1 1

117 86Accumulated acquisition value

On January 1 95 96 Investments 80 -Divestments - 59 -Translation differences during the year 1 - 1

117 95 Accumulated impairments

On January 1 - 9 - 9 Divestments 9 -

0 - 9

CARRYING AMOUNT 117 86

Since it has not been possible to establish a reliable fair value for these items, the holdings have been valued at accrued acquisition value.

Notes, Group

53

Note 20 - Other long-term receivables, SEK m.

2005 2004

Financial receivables Investments in credit institutions 20 24 Derivative instruments 6 - Promissory note loans 0 1 Other receivables 48 34

74 59 Other receivables 81 96

155 155

Note 21 - Properties classified as current assets, SEK m.

2005 2004

On January 1 130 124 Acquisitions during the year 19 6 Reclassifications - 1 1 Divestments and scrappage - 39 - 8 Impairments/reversals - 7

CARRYING AMOUNT 110 130 Includes SEK 65 m. (65) for accumulated impairments. The tax-assessment value of the Group’s properties amounted to SEK 151 m. (143). The estimated fair value in accordance with internal valuations is SEK 226 m. (257).

Note 22 - Inventories, etc., SEK m.

2005 2004

Shares in publicly traded companies 307 328 Felling rights and similar assets 265 291 Finished products, goods for resale and products in progress 1,223 1,157 Raw materials and consumables 854 808 Timber and pulpwood 176 143

2,825 2,727

At year-end, the fair value of shares in publicly traded companies was SEK 307 m. (361). As of January 1, 2005, the shares are fair valued in accordance with IAS 39.

Note 23 - Rental receivables and accounts receivable, SEK m.

2005 2004

Rental receivables 19 12 Accounts receivable 2,561 2,338

2,580 2,350 Rental receivables and accounts receivable are reported after a deduction for anticipated losses, which were insignificant at December 31, 2005. The Group’s accounts receivable are mainly European. About 20% of the Group’s outstanding accounts receivable are hedged against credit losses. Accounts receivable in foreign currency have been valued at the year-end exchange rate.

Note 24 - Prepaid expenses and accrued income, SEK m.

2005 2004

Prepaid expenses 87 118 Accrued rental revenues, etc. 17 12 Other 5 6

109 136

Note 25 - Other receivables, SEK m.

2005 2004

Financial receivables Unrealized exchange-rate differences and accrued interest 41 18 Other receivables 25 23

66 40

Receivables from associated companies 11 - Derivative Instruments1 79 - Other receivables 455 307

545 307

611 347 1) In all significant respects, the fair value of derivative instruments refers to the hedging of future cash flow.

Note 26 - Cash and cash equivalents, SEK m.

2005 2004

Short-term bank deposits 215 69 Bank balances 490 359

705 428

Note 27 - Provisions, SEK m.

Translation provision 2005 2004 Provision, January 1 - 1 - Translation differences during the year 41 - 1

40 - 1

Hedging provision 2005 2004 Provision, January 1 - - Changed accounting principles - 9 -Cash flow hedges reported directly against shareholders’ equity - 9 - Tax attributable to hedging during the year 2 -

- 15 -

Fair value provision 2005 2004Provision, January 1 - - Changed accounting principles 1,181 - Valuation reported directly against shareholders’ equity 1,185 - Tax attributable to valuation during the year - 24 -

2,342 -

Total provisions 2005 2004 Provisions, January 1 - 1 - Changed accounting principles 1,172 - Change during the year in:

Translation provision 41 - 1 Hedging provision - 6 - Fair value provision 1,161 -

2,366 - 1

Note 28 - Interest-bearing liabilities, SEK m.

Information about contractual terms and conditions for interest-bearing liabilities are presented in the notes. For further information about the company’s exposure to interest-rate risks and exchange-rate risks, reference is made to Note 38.

Long-term liabilities 2005 2004

Loans on investment properties 4,090 3,680 Other long-term liabilities 2,584 2,625

6,674 6,305

Current liabilities 2005 2004

Commercial paper 3,810 1,346 Loans on investment properties 935 955 Liabilities to credit institutions 28 68 Other liabilities 1,214 2,047

5,987 4,416

54

Note 28, continued

Agreements have been concluded concerning the issue of commercial paper in the Swedish money market in a total nominal amount of not more than SEK 2,000 m. for Lundbergs. Holmen concluded an agreement during the year concerning a five-year line of credit of EUR 600 m., replacing the previous line of credit of EUR 500 m. Ongoing financing was mainly handled through Holmen’s Swedish commercial paper program of SEK 6,000 m. and a Swedish Medium Term Note program with a limit of SEK 4,000 m. At year-end, Lundbergs had SEK 625 m. and Holmen SEK 3,185 m. outstanding under the commercial paper programs, and Holmen had SEK 3,121 m. outstanding under the MTN program.

In addition to the above, Lundbergs had long-term committed lines of credit totaling SEK 3,000 m., of which SEK 1,400 m. had been utilized at year-end, and Hufvudstaden had committed lines of credit with a maturity of less than 12 months totaling SEK 700 m., of which SEK 145 m. had been utilized at year-end.

Note 29 - Other liabilities, SEK m.

Long term 2005 2004

Other liabilities 23 14

Other long-term liabilities include call options on shares issued to senior executives in Holmen AB (publ) with a fair value of SEK 19 m. The corresponding value in 2004 was SEK 10 m.

Current 2005 2004

Liabilities to subsidiaries 42 23 Derivative instruments 67 - VAT deduction 35 39 Other current 278 184

422 247

Note 30 - Provision for pensions

For a description of pension commitments within the Group, see Accounting Principles, Note 1. Occupational pension plans in Sweden (ITP plan) for which premiums are paid to Alecta and alternative ITP plans total SEK 52 m. (52). The provision for pensions item totals SEK 361 m., of which Lundbergs accounted for SEK 41 m., Holmen for SEK 315 m. and Hufvudstaden for SEK 6 m.

Lundbergs – Within this business segment, there are also occupational pension plans in accordance with the FPG/PRI programs.

Information is provided below on these defined-benefit pension plans. Pension costs, SEK m. 2005 2004

Cost of employee pensions 1 1 Interest expense 2 2

3 3 The cost of employee pensions is reported as an operating expense. The interest expense is reported among net financial items.

Insofar as the total gain or loss resulting from changed actuarial assumptions falls outside a corridor corresponding to 10% of the higher of either the pension obligation or the fair value of plan assets, the gain or loss is entered in the income statement. Net value of defined-benefit pension obligations, SEK m. 2005 2004

Defined-benefit pension obligations 50 39 Non-reported actuarial gains and losses, net -9 -1

Provision for pensions, net 41 38 Of which, credit insured via FPG 37 32

Trend of pension liability, SEK m. 2005 2004

Opening balance 38 34 Pension cost 3 3 Pension payments -0 -0 Redeemed benefits -0 -0

41 38

Dec. 31, Dec. 31, Significant actuarial assumptions,% 2005 2004

Discount rate 3.6 4.5Future pay increases 3.0 3.0Future inflation 2.0 2.0

Holmen – Within this business segment, there are pension commitments in trusts in the UK. Commitments exceeding ITP for group management in Sweden are secured via a foundation. Information is provided below on pensions reported as defined-benefit pension plans.

Pension costs, SEK m. 2005 2004

Cost of employee pensions excluding premiums paid by employees 36 28 Interest expense 79 75 Expected return on investment assets - 71 - 69

44 34 The cost of employee pensions is reported as an operating expense. The net of interest expense and the expected return on plan assets is reported in net financial items as an interest expense. Insofar as the total gain or loss resulting from changed actuarial assumptions falls outside a corridor corresponding to 10% of the higher of either the pension obligation or the fair value of the investment assets, the gain or loss is entered in the income statement evenly distributed over the employees’ remaining average period of employment. The actual yield on plan assets in 2005 was SEK 162 m. In the compilation below, the net value of defined-benefit pension commitments is specified. Most of the commitments below pertain to pension plans in the UK.

Net value of defined-benefit pension obligations, SEK m. 2005 2004

Defined-benefit pension obligations 1,774 1,442 Fair value of plan assets - 1,400 - 1,138

374 304 Non-reported actuarial gains and losses, net - 103 - 34

Provision for pensions, net 271 270 The plan assets do not include any financial instruments issued by Group companies or any assets used by the Group. Trend of pension liability, SEK m. 2005 2004

Funded plans, opening balance 270 297 Pension cost 44 34 Funds contributed by employer - 64 - 58 Currency effects 21 - 3

271 270

Non-funded plans 44 32

Provision for pensions, net 315 302 Dec. 31, Dec. 31 Significant actuarial assumptions, % (weighted average) 2005 2004

Discount rate 4.6 5.1Expected return on plan assets 5.3 5.8Future pay increases 3.7 3.7Future inflation 2.7 2.7

Notes, Group

55

Note 31 - Other provisions, SEK m.

Personnel and re- Forestry structuring Property reserve1 costs tax2 Taxes Other Total

GroupJanuary 1 145 38 70 87 83 423 Provisions during the year 68 15 - 3 33 119 Utilized during the year - 78 - 18 - - - 8 - 104

135 35 70 90 108 438

Current portion 77 35 70 - 13 195 Long-term portion 58 - - 90 95 243

135 35 70 90 108 438 1) The forestry provision pertains to future reforestation measures following final felling.2) Hufvudstaden subsidiary Vasaterminalen AB previously received review dispensation from the Supreme

Administrative Court regarding whether or not the company’s Terminal 1 property should be subdivided as a rental unit. The case has now been decided and the company’s appeal has been rejected. A provision was previously posted for an amount corresponding to the Swedish Tax Agency’s demand plus interest on the additional tax during the period of grace. During 2004, the 1991-1993 tax years were definitively settled.

Note 32 - Accrued expenses and prepaid income, SEK m.

2005 2004

Wages, salaries and social security costs 701 618 Rental revenues 283 274 Interest expense 11 19 Share payments 0 0 Other 113 37

1,108 947

Note 33 - Information regarding fair value of financial instruments, SEK m.

Value, Dec. 31, 2005 Value, Dec. 31, 2004

Carrying Fair Carrying Fair Net financial debt amount value amount value

AssetsLong-term receivables 74 74 59 60 Current receivables 66 66 40 53 Cash and cash receivables 705 705 428 428

845 845 526 541 Liabilities

Pensions1 361 473 344 378 Other long-term liabilities 6,674 6,724 6,305 6,412 Current liabilities 5,987 5,987 4,416 4,548

13,023 13,184 11,065 11,338

12,178 12,340 10,539 10,797 1) Pensions are not financial liabilities.

Financial instruments not included among net financial debt Financial investments, see Note 18 6,358 6,358 2,293 3,454Rental receivables and accounts receivable 2,580 2,580 2,350 2,350 Other assets 625 625 402 402 Accounts payable 2,358 2,358 1,610 1,610 Other liabilities 422 422 247 247

Financial derivatives not included among net financial debtHedging of transaction exposure - 17 - 17 43 145 Financial electricity hedging 29 29 - - 37 Interest-rate swaps - 47 - 47 - - 57 Fair value is calculated as the discounted present value of future payments. The difference between fair value and the carrying amount is due to unreported actuarial losses and to the fact that certain assets and liabilities are not fair valued in the balance sheet but are entered at accrued acquisition value.

Note 34 - Related parties

The Parent Company is a related party in relation to its subsidiaries, see Note 12. Sales of Purchases of Interest Interest Debt to goods to goods from received from paid to related parties, Summary of relationships with related parties related parties related parties related parties related parties Dec. 31

Associated companies 2004 - 30 - - 1 Associated companies 2005 - 54 - - 10 Key personnel in executive positions 2004 8 - 0 20 653 Key personnel in executive positions 2005 9 - 0 4 54 Other related parties 2004 - - - 0 4 Other related parties 2005 - - - 0 2 Services resulting from related party transactions were priced on normal commercial terms.

Key personnel in executive positions Via his wholly owned subsidiary Byggnads AB Karlsson & Wingesjö (including subsidiaries), Fredrik Lundberg directly or indirectly holds 89.4% of the voting rights and 52.4% of the share capital in L E Lundbergföretagen AB (publ.). Fredrik Lundberg, who is the President and a Member of the Board of the Parent Company, received salary of SEK 1.5 m. (1.5) and, in his capacity as Chairman of the Board of the subsidiaries Holmen and Hufvudstaden, received total director fees of SEK 0.8 m. (0.7). No variable or other types of remuneration were received.

56

Note 35 - Pledged assets and contingent liabilities, SEK m.

2005 2004

Pledged assets Real estate mortgages 3,675 3,539 Bank accounts 44 44 Financial liabilities 22 1,608 Other commitments 71 46

3,812 5,238 Contingent liabilities Liability as main partner in limited partnership 258 126 Rejected deduction for Group contributions granted 44 44 Other contingent liabilities 1,303 1,245 Sureties 12 14

1,617 1,429

The contingent liabilities for the Parent Company and the Group include SEK 44 m. related to rejected tax deductions for Group contributions granted to subsidiaries and to a rejected claim for tax-exemption for leasing fees. The Group’s other contingent liabilities pertain mainly to the ongoing tax processes described in Note 11.

Supported by provisions under the Environmental Code, Swedish environmental authorities are currently focusing on matters involving land surveys and post-processing of closed down operations. In each individual case, the responsibility for post-processing is determined with the help of feasibility assessments. Accordingly, Holmen may have environmentally related contingent liabilities that cannot be quantified at present but which could give rise to costs or investments in the future.

Note 36 - Important estimations and assessments

The carrying amounts are based in part on estimations and assessments made. This applies mainly to the biological assets (Note 15) and investment properties (Note 16) that are fair valued, assessments of the need to impair goodwill (Note 13) and tangible fixed assets (Note 14), as well as defined-benefit pension commitments (Note 30). These carrying amounts are affected if the estimations and assessments upon which they are based change in terms of interest rate, price and the demand trend. With respect to the two ongoing tax processes within Holmen (Note 11), no provision has been posted for the disputed tax, fees and interest payments totaling SEK 1,043 m. (Note 11). It is estimated that it will be possible to utilize deferred tax assets of SEK 331 m. (Note 11), which will result in lower tax charges in the future.

Note 37 - Transition to IFRS

As of January 1, 2005, Lundbergs applies International Financial Reporting Standards (IFRS) in its consolidated accounting. This is a result of an EU ordinance that applies to all listed companies within the EU. As a result of the transition, the comparative figures for 2004 have also been recalculated in accordance with these regulations. The principal effects resulting from the transition, and how the opening balance at January 1, 2004 and earnings for 2004 have been affected are presented below. Figures are reported after taking tax effects into account and after making deductions for minority shareholdings.

IFRS 1 – The partial sales of subsidiaries resulted in earnings declining by SEK 27 m.

IFRS 3 Business Combinations – As a result of this standard, goodwill resulting from company acquisitions is no longer amortized according to plan. Instead, goodwill is subject to annual impairment tests to determine whether there is any write-down (impairment) requirement. Profit for 2004 improved by SEK 150 m. According to the new standard, minority shareholdings in the shareholders’ equity of subsidiaries are reported under a separate heading within shareholders’ equity.

IAS 12 Income taxes – Previously, deferred tax deriving from the acquisition of real estate operations was reported on the basis of the value assigned to the acquisition according to RR 9 Income Taxes. According to IAS 12, deferred taxes are to be reported in nominal amounts, which for Swedish companies amount to 28%. The effect of the recalculation to full deferred tax liabilities amounts to SEK 193 m., which was charged against opening shareholders’ equity.

IAS 19 Employee Benefits – As of January 1, 2004, the Group applies the Financial Accounting Standards Council’s recommendation RR 29, Employee Benefits, which corresponds well with IAS 19. Within the Group, there are pension obligations that are financed in various ways. Certain parts are secured by means of premiums paid to Alecta. According to a statement from the Financial Accounting Standards Council’s Emerging Issues Task Force, Alecta pensions are considered to be a defined-benefit plan that covers several employers. For 2004, the Group did not have access to the type of information that would enable it to report the Alecta plan as a defined-benefit plan, which is why it is being reported as a defined-contribution plan until further notice. Accordingly, this plan has no impact on the opening balance. Certain pension obligations are part of the PRI/FPG system, which is a defined-benefit plan. The transition to IAS 19 had a negative impact of SEK 5 m. on shareholders’ equity. Actuarial losses of SEK 1 m. affected profit for 2004. The subsidiary Holmen switched to IAS 19 as early as 2003. When switching to IFRS, non-reported actuarial gains and losses at January 1, 2004 were set at zero. As a result, the opening balance for shareholders’ equity in Lundbergs rose by SEK 12 m.

IAS 28 Holdings in associated companies – The effects of the listed associated companies’ transition to IFRS have also had an impact on Lundbergs’ shares in their earnings and equity, by an amount corresponding to Lundbergs’ percentage shareholding. This had a negative effect of SEK 1 m. on the opening balance for shareholders’ equity. Profit for 2004, excluding the reversal of goodwill amortization, which is reported under IFRS 3 above, was reduced by SEK 17 m.

IAS 39 Financial instrument (Disclosures and Classification) – As of January 1, 2005, financial instruments are to be reported in accordance with IAS 39. According to this standard, all financial assets and liabilities, including derivatives, are to be reported, depending on their classification, either at fair value or accrued acquisition value. For financial instruments reported at fair value, the change in fair value during the period is to be reported in the income statement or against shareholders’ equity in the event that the asset is classified as a financial asset that can be sold or if hedge accounting is applied. Within the Group, hedge accounting according to IAS 39 is applied, where applicable, in terms of both hedge accounting and the adjustment of maturity periods for loans. At the beginning of 2005, IAS 39 resulted in consolidated shareholders’ equity rising by SEK 1,172 m.

IAS 40 Investment Properties – Lundbergs has elected to report its investment properties at fair value. Information on how fair value has been calculated is presented on page 55 of the 2004 annual report. This increased shareholders’ equity on January 1, 2004 by SEK 3,495 m. The change in the value of the portfolio during 2004 amounted to SEK 226 m., which has been credited to earnings for 2004. Investment properties entered at fair value have not been depreciated. This had a positive effect of SEK 60 m. on earnings for 2004. According to IAS 40, expenditure for planned maintenance, tenant-oriented improvements and special projects may only be expensed if the measures satisfy the standard’s requirements for entering items as an expense. Otherwise, the expenditure is to be capitalized as an asset. This improved earnings for 2004 by SEK 46 m.

IAS 41 Agriculture and Forestland – The standard states that in every closing account, standing timber shall be reported at fair value. In the event that market prices or another comparable value of the biological assets is lacking, the present value of future cash flow from the assets is calculated. Changes in fair value are reported in the income statement. Lundbergs is of the opinion that there is a lack of relevant market prices that can be used for valuations of forest holdings of the size owned by the Group. Accordingly, the valuation is conducted by calculating the present value of future anticipated cash flow from standing timber. The calculation of cash flow pertains to the coming 100 years, which is adjudged to be the felling cycle for forestland. The cash flow is calculated on the basis of felling volumes in accordance with the current felling plan and on assessments of the future price and cost trend. The cost of reforestation has been taken into account because reforestation after felling is a legal obligation. Cash flow before tax is discounted using an interest rate of 6.25%, which is adjudged to be the long-term cost of capital for forest operations. Deferred tax has been calculated for the entire value of standing timber. According to IAS 16, the land on which the timber grows is valued at acquisition cost.

For the opening balance for 2004, the value of forest assets has been increased by SEK 2,360 m. to SEK 8,661 m, of which standing timber accounts for SEK 8,561 m. Simultaneously, the deferred tax liability pertaining to forest assets increased by SEK 682 m. to SEK 2,397 m. Lundbergs’ shareholders’ equity, excluding minority interests, rose by SEK 462 m. Changes in the value of forest assets during 2004 amounted to SEK 61 m., of which Lundbergs’ share corresponded to SEK 11 m.

Notes, Group

57

CONDENSED INCOME STATEMENTS IN ACCORDANCE WITH IFRS IAS 28 Holdings IAS 40 IAS 41 Jan-Dec Jan-Dec IFRS 3 in associated Fair value Fair value 2004SEK m. 2004 IFRS 1 Goodwill companies of properties of forestland IFRS

Net sales 18,735 18,735Operating expenses -14,546 -27 62 61 -14,451Depreciation -1,363 60 139 -1,164Changes in value, investment properties

Realized 223 -199 24Unrealized 3 528 531

Operating profit 3,051 -27 60 - 530 61 3,674 Results from financial itemsResult from participations in associated companies 293 118 -22 390Result from other securities and receivables classed as fixed assets 138 138Financial income and expense -573 -573

Profit after financial items 2,909 -27 178 -22 530 61 3,628 Taxes -662 -11 4 -139 -17 -825

Net profit for the period 2,247 -27 167 -17 391 43 2,803 Attributable to: Parent Company shareholders 1,010 -27 150 -17 332 11 1,460Minority interest 1,237 16 59 32 1,343

Net profit for the period 2,247 -27 167 -17 391 43 2,803

CONDENSED BALANCE SHEETS IN ACCORDANCE WITH IFRS IAS 19 IAS 28 Holdings IAS 40 IAS 41 Jan. 1 Jan. 1, IAS 12 Employee in associated Fair value Fair value 2004SEK m. 2004 Taxes benefits companies of properties of forestland IFRS

ASSETSFixed assets

Intangible fixed assets 586 586Tangible fixed assets 32,553 7,597 2,360 42,510Financial fixed assets 7,059 -1 7,058

40,199 - - -1 7,597 2,360 50,154Current assets

Properties classified as current assets 124 124Other current assets 5,957 5,957

6,081 - - - - - 6,081

TOTAL ASSETS 46,280 - - -1 7,597 2,360 56,235 SHAREHOLDERS’ EQUITY AND LIABILITIES

Shareholders’ equity attributable to Parent company shareholders 12,054 -193 12 -1 3,495 462 15,830Shareholders’ equity attributable to minority interests 13,790 -233 33 1,780 1,216 16,585Long-term liabilities 13,252 426 -45 2,322 682 16,637Current liabilities 7,184 7,184

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 46,280 - - -1 7,597 2,360 56,235

58

Note 37, continued

IAS 28 IAS 40 IAS 41 IAS 39 IAS 19 Holdings in Fair Fair Dec. 31 Fair value Jan. 1 Dec. 31 IFRS 3 IAS 12 Employee associated value of value of 2004 financial 2005 SEK m. 20041 IFRS 1 Goodwill Taxes benefits companies properties forestland IFRS instruments IFRS

ASSETSFixed assets

Intangible fixed assets 620 26 646 646Tangible fixed assets 32,355 8,127 2,421 42,901 42,901Financial fixed assets 7,619 118 -18 7,719 1,157 8,876

40,593 - 144 - - -18 8,127 2,421 51,266 1,157 52,423Current assets

Properties classified as current assets 130 130 130Other current assets 6,022 6,022 206 6,229

6,153 - - - - - - - 6,153 206 6,359

TOTAL ASSETS 46,746 - 144 - - -18 8,127 2,421 57,419 1,364 58,782 SHAREHOLDERS’ EQUITY AND LIABILITIES

Shareholders’ equity attributable to Parent company shareholders 12,596 -27 150 -193 12 -18 3,827 474 16,823 1,172 17,994Shareholders’ equity attributable to minority interests 12,875 27 -17 -233 33 1,838 1,247 15,770 2 15,772Long-term liabilities 13,628 11 426 -45 2,461 699 17,180 22 17,202Current liabilities 7,647 7,647 168 7,815

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 46,746 - 144 - - -18 8,127 2,421 57,419 1,364 58,782

1) Compared with previously reported amounts, there has been a reclassification of minor items between assets and liabilities.

Note 38 - Management of financial risks

The Lundberg Group’s risk management is decided by the respective Board of Directors of Lundbergs, Holmen and Hufvudstaden. Risk management is pursued in accordance with the finance policy established by the Board of the particular company with the aim of minimizing the risk level. In all three companies, risk management is centralized in a special department. The risks that are managed primarily are the interest-rate risk and the refinancing-risk associated with financing. Within Holmen, exchange-rate and commodity risks associated with business operations (transaction exposure), financing and net investments in foreign operations are also managed.

LUNDBERGSLundbergs’ strategy is to create long-term value growth while maintaining financial balance. The financial risk is limited by maintaining a low debt/equity ratio combined with good access to funds. Since, to a considerable extent, Lundbergs is an equity-managing company, a strong financial position is an essential requirement. The Group’s strong financial position is confirmed by the Standard & Poor’s credit-rating institute, which has assigned Lundbergs a long-term rating of A/stable outlook and short-term ratings of A-1 and K-1. These high ratings facilitate less expensive borrowing and more effective access to money and bond markets.

Financing riskThe financing risk is the risk that it will not be possible to secure necessary financing for operations at a given point in time.

On December 31, 2005, Lundbergs’ interest-bearing net debt totaled SEK 2,210 m. (2,477), of which interest-bearing liabilities accounted for SEK 2,250 m. (2,530) and interest-bearing assets for SEK 40 m. (53). The maturity structure is presented in the table below. In addition to raised loans of approximately SEK 1,500 m., Lundbergs had committed, long-term lines of credit totaling SEK 1,600 m. on December 31, 2005 and a total of SEK 100 m. in committed lines of credit with a maturity of less than 12 months. Ongoing financing is arranged through the issue of commercial paper in the Swedish money market. The contracted limit for such issues is a total nominal amount of not more than SEK 2,000 m., of which SEK 625 m. (250) had been issued on December 31, 2005.

Maturity structure, capital amounts, December 31, 2005

Maturity Volume, SEK m. Proportion, %

2006 750 332008 100 42009 700 312012 70 31

Total 2,250 100

Interest-rate riskThe interest-rate risk pertains to the impact of a change in market interest rates on the Group’s financing costs.

Lundbergs’ indebtedness is low, which means its interest-rate risk is limited. Derivative instruments are not used. The average period of fixed interest on December 31, 2005 was 43 months. Based on periods of fixed interest and net indebtedness on December 31, 2005, a one-percentage point change in market interest rates would have an effect of approximately SEK 8 m. on earnings in 2006. Longer term, changes in interest rates would impact on the entire net indebtedness. The maturity structure for fixed-interest loans on December 31, 2005 is presented in the table below.

Maturity structure, fixed-interest loans, December 31, 2005 Average effective Maturity Volume, SEK m. Proportion, % interest rate, %

2006 750 33 1.82008 100 4 4.52009 700 31 3.82012 700 31 4.3

Total 2,250 100 3.3

Credit riskLundbergs has limited exposure to credit risks. The exposure that does exist mainly derives from past-due accounts receivable and rent. The risks are limited through conscious selection of customers with good payment ability and advance invoicing of rent. The credit risk is also limited by the fact that financial assets consist solely of instruments with a high credit rating.

Notes, Group

59

HUFVUDSTADENHufvudstaden is mainly exposed to financing and interest-rate risks. Hufvudstaden endeavors to have a credit portfolio with diversified capital maturities that enable amortization, if required. Borrowing normally occurs on the basis of short interest maturities and interest-swaps are used to attain the desired interest-maturity structure. Derivative instruments are used only to minimize risk and must be connected to underlying exposure. At present, the company only has derivative instruments that fulfill the requirement for hedge reporting. No imbedded instruments have been identified that should be removed from their host contracts and reported separately.

Hufvudstaden aims to use surplus liquidity to repay existing loans. The surplus liquidity that is not used for such repayments may only be invested in instruments with a high liquidity and a low risk.

Financing riskThe financing risk arises when difficulties arise in obtaining financing for operations at a given point in time. To minimize the cost of Hufvudstaden’s borrowing and to ensure that financing can be obtained, the company must have committed lines of credit that cover the need of operating credits.

On December 31, 2005, Hufvudstaden’s interest-bearing net debt totaled SEK 3,432 m. (3,121), of which interest-bearing liabilities accounted for SEK 3,525 m. (3,135) and interest-bearing assets for SEK 93 m. (14). Hufvudstaden had committed lines of credit with a maturity of less than 12 months totaling SEK 700 m., including SEK 145 m. that was utilized. The average capital maturity was 32 months (19).The maturity structure is presented in the table below.

Maturity structure, capital, December 31, 2005

Maturity Volume, SEK m. Proportion, %

2006 935 272007 790 222008 600 172010 500 142011 350 102013 350 10

Total 3,525 100

Interest-rate riskThe interest-rate risk pertains to the impact on earnings that a lasting change in interest rates has on net financial items. Hufvudstaden’s financing sources consist mainly of shareholders’ equity, cash flow from operating activities, borrowing and lines of credit.

Interest-bearing borrowing gives risk to exposure to the interest-rate risk. Hufvudstaden’s finance policy establishes frameworks for how the interest-rate risk is to be managed. A fundamental objective is that the expiration structure of tenant leases must be taken into account when deciding maturity periods, and that there must be a well-considered balance between current borrowing costs and the risk of a significant negative impact on earnings arising from a sudden major change in interest rates. Interest swaps are used to attain the desired interest maturity. On December 31, 2005, these instruments had a negative fair value of SEK 47 m., which is reported against shareholders’ equity when hedge accounting is applied.

Assuming that the borrowing volume and the interest maturities remain unchanged, a one-percentage-point change in the interest rates for the current derivative instruments would affect Hufvudstaden’s interest expense in 2006 by +/- SEK 10 m. Changes in the value of contracted derivative instruments have not been taken into account.

The average interest maturity was 30 months (27) and the average interest expense was 3.9% (4.2).

Maturity structure, fixed interest rates, December 31, 2005 Average, effective Maturity Volume, SEK m. Proportion, % interest rate, %

2006 1,525 43 3.62007 200 6 3.52008 600 17 4.82010 500 14 4.12011 350 10 3.92013 350 10 4.1

Total 3,525 100 3.9

Credit risksThe credit risk mainly derives from past-due accounts receivable and rent and financial derivatives with a positive value. Exposure to credit risks is limited.

Losses on past-due accounts receivable and rent arise when customers are declared bankrupt or cannot fulfill their payment commitments for other reasons. The risks are limited through conscious selection of customers who have well-documented business acumen and competitive operations. Hufvudstaden’s main rule is to demand a bank guarantee or a surety in connection with new leasing. Rent is invoiced in advance.

Exposure to financial derivative contracts is limited by Hufvudstaden’s policy of only concluding such contracts with large financial institutions with a high credit rating. In addition, framework agreements with these institutions have been concluded regarding the netting of different derivative contracts, which further reduces exposure to credit risks.

HOLMENHolmen aims to minimize it capital costs through appropriate financing and efficient control and management of financial risks.

Currency risk Holmen has considerable amounts of sales in currencies other than the cost currency. In order to reduce the impact of currency fluctuations on earnings, Holmen hedges its net currency flows by means of currency forward contracts or currency options. The net flows in EUR, GBP and USD for the coming four months are always hedged, which normally corresponds to accounts receivable and outstanding orders. The Holmen Board could decide to hedge the flows for a longer period if this is deemed appropriate taking product profitability, the company’s competitiveness and the currency situation into account.

At the beginning of 2005, the group had hedged most of the estimated currency flows in EUR for 2005, as well as portions of the flows in GBP and USD. The result of the currency hedges, which are reported in operating profit as the contracts expire, in 2005 was a negative SEK 111 m. (positive: 218). At the end of 2005, about 75% of estimated net currency flows in 2006 were hedged and about 33% of flows in 2007.

Transaction exposure, December 31, 2005 2006 2007 12 months of Total Average Average Average estimated hedging exchange exchange exchange net flows, SEK m. SEK m. rate % rate % rate

EUR 4,600 6,500 9.33 91 9.25 52 9.48GBP 1,000 700 13.69 70 13.69 USD 900 300 7.80 31 7.80 Other 500 150 24

Total 7,000 7,650 75 33

Holmen’s earnings are affected by exchange-rate changes when the earnings of foreign subsidiaries are translated to SEK. This exposure is not normally hedged. Shareholders’ equity is affected by exchange-rate changes when the assets and liabilities of foreign subsidiaries are translated to SEK. Hedging of this exposure (equity hedging) is assessed from case to case and is then applied to the consolidated value of the net assets. Currency forward contracts or loans in foreign currency are used for hedging.

Net assets and equity hedges at December 31, 2005, SEK m. Net assets Equity hedges

EUR 1,319 1,326GBP 1,546 410Other 32

Exchange-rate differences arising from the translation of foreign net assets amounted to SEK 200 m. in 2005, while the loss on equity hedges amounted to SEK 52 m., both of which are reported directly against shareholders’ equity. The fair value of outstanding hedges at December 31, 2005 was a negative SEK 16 m., of which a positive SEK 16 m. pertained to financial derivatives and a negative SEK 29 m. to loans, which are reported directly against shareholders’ equity when hedge accounting is applied.

Financing riskHolmen reduces the risk that future capital supply and refinancing of maturing loans will become difficult or expensive by spreading the maturities on its financial liability through the use of committed lines of credit.

60

Note 38, continued

Holmen’s interest-bearing net debt at December 31, 2005 amounted to SEK 6,536 m., of which interest-bearing liabilities accounted for SEK 7,248 m., short-term investments and cash and bank deposits for SEK 580 m. and interest-bearing assets for SEK 132 m. The maturity profile of the net debt is shown in the table below.

Holmen has a committed line of credit totaling EUR 600 m. that runs until 2010. It also has a committed line of credit totaling EUR 80 m. connected to the investment in Spain. Holmen’s day-to-day financing during the year was arranged during 2005 mainly via the group’s Swedish commercial paper program subject to a limit of SEK 6,000 m. and through a Swedish Medium Term Note subject to a limit of SEK 4,000 m. At year-end, SEK 3,185 m. of the commercial paper program and SEK 3,121 m. of the MTN program was outstanding. Holmen has a BBB+ long-term corporate credit rating and an A-2 / K-1 short-term rating with stable outlook from the Standard & Poor’s credit rating institution.

Maturity structure, capital amounts, December 31, 2005 UnutilizedMaturity Volume, SEK m.1 Proportion, % lines of credit

2006 4,349 63 1002007 618 9 1002008 8 0 1002009 457 6 1002010- 1,501 22 6,000

Total 6,933 100 6,400

1) Excluding provisions for pensions.

Interest-rate riskHolmen’s interest maturities are normally short. However, they could be lengthened in order to limit the effect of a rise in interest rates. Interest swaps are used to lengthen maturities without changing the underlying loans. During 2005, the maturities varied from 20 to 24 months and the maturity at the end of 2005 was 20 months. Calculated on the basis of maturities and net debt at December 31, 2005, a one-percentage point change in market interest rates would affect annualized earnings for 2005 by about SEK 26 m.

The interest maturities of liabilities, the distribution by currency and the average interest rate for various maturities are shown in the table below. Items in the column named “Other” mainly relate to provisions for pensions in the UK. In addition to the above items, a loan of EUR 80 m. should be added, which will be reported following the start-up of the new paper machine in Spain and will mainly be subject to fixed interest.

Maturity structure, fixed-interest loans, December 31, 2005 Total 0-1 year 1-3 years 3-5 years >5 years Other

SEK -1,626 -276 -600 -750 EUR -4,754 -3,297 -1,128 -329 GBP -194 75 -269Other 38 38

Total -6,536 -3,460 -600 -1,878 -329 -269

Average interest rate, % 3.4 2.7 5.5 3.6 3.9 4.7

CommoditiesHolmen reduces its exposure to changes in electricity prices by utilizing physical supply agreements at fixed prices and financial hedges. The gains/losses on financial hedges, which are reported as the contracts mature, amounted to SEK 37 m. in 2005. The fair value of outstanding financial hedges on December 31, 2005 was SEK 29 m., which is reported within shareholders’ equity, because hedging reporting is applied.

Holmen’s net purchases of electricity in 2005 amounted to approximately 2,800 GWh. During 2005, Holmen increased the degree of hedging for the period 2006-2015, mainly by concluding new physical supply agreements at fixed prices with Vattenfall. About 85% of the estimated net purchases of electricity in Sweden in 2006 have been hedged, while 70-75% has been hedged for 2007-2015. The hedges are mainly effected at fixed physical prices.

There is OTC trading in financial contracts for certain pulp and paper products. To date, Holmen has only utilized such markets to a limited extent in efforts to hedge the sales or purchase level.

Credit riskHolmen’s customer credit risk is limited by conducting checks of credit ratings, whereby in-formation about the customers’ financial position is ordered from credit disclosure companies and, in certain cases, by insuring accounts receivable against bad customer debts. On De-cember 31, 2005, approximately 20% of the group’s accounts receivable was insured against bad customer debts. Financial transactions give rise to credit risks in relation to financial counterparties. The risk of a counterparty not meeting his commitments is limited by select-ing counterparties with solid credit ratings, limiting exposure to individual counterparties and by using ISDA and FEMA agreements. At December 31, 2005, the group had outstanding derivative contracts in a nominal amount of SEK 15.2 billion and a negative fair value of SEK 51 m. Calculated in accordance with the Swedish Financial Supervisory Authority’s provisions for financial institutions, Holmen’s total counterparty risk associated with derivative instru-ments would amount to SEK 224 m. on December 31, 2005.

OTHER FINANCIAL RISK MANAGEMENT

InsuranceAll of Lundbergs’ and Hufvudstaden’s properties are covered by full-value insurance. Hufvudstaden has a special terrorist insurance that covers damage up to SEK 25 m. Holmen insures its mills against property damage and consequential losses. The level of risk accepted varies from mill to mill, subject to a maximum of SEK 30 m. for an individual claim. Holmen’s forest holdings are not insured, because they are widely dispersed throughout large parts of the country, and the risk of comprehensive, simultaneous damage over large areas of the forest holdings is therefore regarded as small.

Notes, Group

61Income Statement, Parent Company

SEK m. 2005 2004

Operating expensesPersonnel costs Note 2 - 14 - 14 Depreciation Note 3 - 0 - 0 Other external costs Note 4 - 12 - 12

Operating loss - 27 - 26 Result from financial items Result from participations in Group companies 502 922 Result from participations in associated companies 554 410 Result from other securities and receivables classed as fixed assets 125 136 Other interest income and similar income 16 12 Interest expense and similar costs - 11 - 35

Profit after financial items Note 5 1,159 1,419

Appropriations Note 6 - 9 167

Profit before taxes 1,149 1,586

Tax Note 7 - 27 - 72

Net profit for the year 1,122 1,515

The Parent Company’s notes are on pages 64-67.

62

SEK m. Dec 31, 2005 Dec 31, 2004

ASSETS

Fixed assets

Tangible fixed assets Note 8 3 3

Financial fixed assetsParticipations in Group companies Note 9 4,275 4,275 Participations in associated companies Note 10 2,796 3,411 Other long-term holdings of securities Note 11 4,013 2,293 Other long-term receivables Note 12 0 1 Deferred tax assets Note 7 3 4

Total financial fixed assets 11,087 9,983

Total fixed assets 11,090 9,986

Current assetsCurrent receivables

Accounts receivable 0 0 Receivable from Group companies Note 13 474 916 Other receivables 1 4 Prepaid expenses and accrued income - 1

Total current receivables 474 922

Cash and bank balances Note 14 19 80

Total current assets 494 1,001

TOTAL ASSETS 11,584 10,987

SHAREHOLDERS’ EQUITY AND LIABILITIES

Shareholders’ equity Note 15 Restricted shareholders’ equity

Share capital (62,145,483 shares) 621 621 Statutory reserves 344 344

Unrestricted shareholders’ equity Earnings brought forward 7,649 6,587 Net profit for the year 1,122 1,515

Total shareholders’ equity 9,736 9,067 Untaxed reserves Note 16 200 190 LiabilitiesCurrent liabilities

Liabilities to Group companies Note 13 1,487 963 Current tax liabilities 79 80 Other liabilities Note 13, 17 77 681 Accrued costs and prepaid income Note 18 6 6

Total current liabilities 1,648 1,731

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 11,584 10,987

PLEDGED ASSETS AND CONTINGENT LIABILITIES Note 19 1,513 1,135

Balance sheet, Parent Company

63Changes in shareholders’ equity and cash flow statement, Parent Company

CHANGES IN SHAREHOLDERS’ EQUITY, SEK m. Restricted shareholders’ equity Unrestricted shareholders’ equity

Share Statutory Repurchase of Earnings Net profit Total capital reserves company shares brought forward for the year equity

Shareholders’ equity, January 1, 2004 621 344 - 13 7,067 8,019 Group contributions granted - 65 - 65 Tax effect of Group contributions 18 18 Net profit for the year from income statement 1,515 1,515

Total change in net asset value excluding transactions with the company’s shareholders 621 344 - 13 7,020 1,515 9,487

Dividend - 403 - 403 Repurchase of company shares - 17 - 17

SHAREHOLDERS’ EQUITY ON DECEMBER 31, 2004 621 344 - 30 6,617 1,515 9,067 Shareholders’ equity, January 1, 2005 621 344 - 30 8,131 9,067 Group contributions granted - 27 - 27 Group contributions received 2 2 Tax effect of Group contributions 7 7 Net profit for the year 1,122 1,122

Total change in net asset value excluding transactions with the company’s shareholders 621 344 - 30 8,113 1,122 10,170

Dividend - 434 - 434

SHAREHOLDERS’ EQUITY ON DECEMBER 31, 2005 621 344 - 30 7,679 1,122 9,736

CASH FLOW STATEMENT, SEK m. Note 14 2005 2004

Operating activities Profit after financial items 1,159 1,419 Adjustments for depreciation and impairments 4 - 230 Adjustments for items not included in cash flow - 309 - Taxes paid - 24 - 84

Cash flow from operating activities before changes in working capital 829 1,106 Cash flow from changes in working capital Change in current receivables 3 - 2 Change in current liabilities - 601 - 144

CASH FLOW FROM OPERATING ACTIVITIES 231 960

Investing activitiesAcquisition of tangible fixed assets - 1 - 1 Acquisition of subsidiaries - - 344 Acquisition of financial assets - 1,736 - 716 Divestment of financial assets 937 4

CASH FLOW FROM INVESTING ACTIVITIES - 799 - 1,058

Financing activities Loans raised 967 626 Repurchase of company shares - - 17 Group contributions - 26 - 65 Dividend paid - 434 - 403

CASH FLOW FROM FINANCING ACTIVITIES 507 141

CASH FLOW DURING THE YEAR - 61 43

Cash and cash equivalents on January 1 80 37

Cash and cash equivalents on December 31 19 80

Notes, Parent Company

Note 1 - Parent Company’s accounting principles

The Parent Company applies the same accounting principles as the Group, apart from the cases specified below. The deviations that exist between the Parent Company’s and the Group’s accounting principles were the result of limitations in the ability to apply IFRS within the Parent Company, due to the Annual Accounts Act and the Pension Security Act, and in certain cases for tax purposes.

The Parent Company has prepared the annual report in accordance with the Annual Accounts Act (1995:1554) and the Swedish Financial Accounting Standards Council’s recom-mendation RR 32, Accounting for Legal Entities. As a result of RR 32, the Parent Company, as the legal entity, must apply all of the EU approved IFRS and statements to the extent that this is possible within the framework of the Annual Accounts Act and taking into account the correlation between accounting and taxation. This recommendation specifies the exceptions from and additions to IFRS that may be applied.

When consolidating the Group, a cost-divided income statement was used, which is why a corresponding presentation is used for the Parent Company. In accordance with the transitional rules pursuant to RR 32, the company has elected not to apply Chapter 4, Section 14 a-e of the Annual Accounts Act, which permits the fair valuation of certain financial instruments. As of January 1, 2006, the rules pursuant to Chapter 4, Section 14 a-e of the Annual Accounts Act will be applied. This will result in a change of accounting principles.

Prerequisites for preparing the Parent Company’s financial reportsThe Parent Company’s functional currency is SEK, which is also the reporting currency. This mans that financial reports are presented in SEK. In certain cases, the amounts shown have been rounded off, which means that figures in tables and calculations do not always tally. In running texts and tables, amounts between 0 and 0.5 are rounded down to 0. Assets and liabilities are reported at their historical acquisition value.

Subsidiaries and associated companiesParticipations in subsidiaries and associated companies are reported in the Parent Company according to the acquisition value method. Dividends received are reported as revenue only if they derive from earnings accrued after the acquisition. Dividends exceeding these accrued earnings are regarded as repayment of investments and reduce the carrying amount of the shareholdings.

RevenuesDividend income is reported when the right to receive the dividend is considered certain.

Financial instrumentsThe Parent Company applies the valuation rules stated in IAS 39. However, what is written elsewhere about financial instruments also applies to the Parent Company. In the Parent Company, financial instruments are valued at acquisition value less any impairments.

Tangible fixed assetsTangible fixed assets are reported at acquisition value less accumulated depreciation and any impairments.

TaxesIn the Parent Company, untaxed reserves are reported including deferred tax liabilities.

Group and shareholder contributionsIn the Parent Company, Group and shareholder contributions are reported in accordance with the statement issued by the Swedish Financial Accounting Standards Council’s Emerging Issues Task Force. Shareholder contributions are entered directly in the shareholders’ equity of the recipient and are capitalized in shares and participations by the donor, to the extent that no impairment is required.

Group contributions are reported in accordance with their financial implication, which means that Group contributions granted in order to minimize the Group’s total tax must be reported directly against earnings brought forward, less the current tax effect.

Available for sale fixed assetsThe Parent Company applies IFRS 5, including the exceptions specified in RR 32: 7-8, which means that only the disclosure requirements of IFRS 5 are taken into account

Note 2 - Personnel costs for employees

Sickness absenceFigures are not required in cases where the average number of employees has been less than ten in the past two years. Other information pertaining to the Parent Company’s employees and personnel costs is presented in Note 4 to the consolidated accounts.

Note 3 - Depreciation/amortization according to plan, SEK m.

2005 2004

Machinery and equipment - 0 - 0

Note 4 - Fees and remuneration paid to the auditors

Bo Ribers, KPMG Bohlins, was re-elected auditor of the Parent Company at the 2003 Annual General Meeting for a term of four years. At the 2005 Annual General Meeting, Kjell Bidenäs, KPMG Bohlins, was elected auditor of the Parent Company for a term of two years. Remuneration paid to KPMG Bohlins is presented below.

Fees and other compensation to auditors, SEK m. 2005 2004 2003

Auditing assignments 0.3 0.2 0.2 Other assignments 2.0 1.5 1.2

2.3 1.8 1.4

Note 5 - Net financial items, SEK m.

Results from Results from participations in participations in Group companies associated companies 2005 2004 2005 2004

Dividends 502 922 245 128 Capital gains 309 Reversals, impairments 282

502 922 554 410 Results from other Interest income/ receivables and expenses and receivables classed similar income as fixed assets statement items 2005 2004 2005 2004

Dividends 128 189 Reversals, impairments - 3 - 51 Interest income, Group companies 8 11 Interest income, others 8 1 Interest expense, Group companies - 5 - 13 Interest expense, others - 5 - 22 Other - 0 - 2 - 0 - 1

125 136 5 - 23

Note 6 - Appropriations, SEK m.

2005 2004

Difference between book depreciation and depreciation according to plan - Equipment - 0 0 Tax allocation reserve, provision during the year - 24 - 49 Tax allocation reserve, reversal during the year 14 216

- 9 167

64

65

Note 7 - Taxes, SEK m.

2005 2004

Current tax cost Tax cost during the year - 27 - 58 Tax attributable to previous years 1 2

Deferred tax cost

- pertaining to temporary differences - 1 - 16

- 27 - 72 Reconciliation of effective tax 2005 2004

Profit before taxes 1,149 1,586 Swedish income tax rate 28% - 322 28% - 444 Other non-tax-deductible costs 0% - 3 1% - 15 Non-taxable revenues -26% 297 -25% 401 Tax attributable to prior years 0% 1 0% 2Other 0% - 1 1% - 16

Reported effective tax 2% - 27 5% - 72 Tax items entered directly in shareholders’ equity 2005 2004

Group contributions received/granted 7 18 Reported deferred tax assets 2005 2004

Financial fixed assets 3 4

Note 8 - Tangible fixed assets, SEK m.

EQUIPMENT 2005 2004

Accumulated acquisition value On January 1 5 4 Acquisitions during the year 1 1 Divestments and scrappage during the year - 0 - 0

5 5Accumulated depreciation according to plan

On January 1 - 2 - 2 Divestments and scrappage during the year 0 0 Depreciation according to plan during the year - 0 - 0

- 2 - 2

CARRYING AMOUNT 3 3

Note 9 - Participations in Group companies, SEK m.

2005 2004

Accumulated acquisition value On January 1 4,275 3,930 Acquisitions during the year - 344

CARRYING AMOUNT 4,275 4,275 Specification of the Parent Company’s direct holdings Organization Registered Number of shares Shareholding as a % 1 Fair value Carrying amount of participations in subsidiaries No. headquarters Dec. 31, 2005 2005 2004 Dec. 31, 2005 Dec. 31, 2005 Dec. 31, 2004

Fastighets AB L E Lundberg (publ) 556049-0483 Norrköping 250,000 100 100 165 165 L E Lundberg Kapitalförvaltning AB 556188-2290 Stockholm 150,000 100 100 15 15 L E Lundberg Holding AB 556563-2477 Stockholm 1,000 100 100 1,153 1,153 Holmen AB (publ) 556001-3301 Stockholm 23,608,916 27.9 27.9 6,400 2,941 2,941 (51.9) (51.9) Other direct participations 0 0

4,275 4,275 Indirectly owned subsidiaries (major shareholdings) Owned by Holmen AB (publ) Holmens Bruk AB 556002-0264 Norrköping 49,514,201 100 100 AB Iggesunds Bruk 556000-8053 Hudiksvall 6,002,500 100 100 Holmen UK Ltd, United Kingdom Workington 1,197,100 100 100 Owned by L E Lundberg Holding AB Hufvudstaden AB (publ) 556012-8240 Stockholm 93,318,909 45.2 45.2 4,934 (88.0) (88.0) - AB Citypalatset 556034-7246 Stockholm 1,200 100 100 - AB Nordiska kompaniet 556008-6281 Stockholm 19,460,666 100 100 - Vasaterminalen AB 556118-8722 Stockholm 2,022,000 100 100 1)The proportion of voting rights is presented within parentheses under the proportion of share capital, if these two percentages are not identical.

66

Note 10 - Participations in associated companies, SEK m.

Acquisition value and carrying amount 2005 2004

On January 1 3,411 3,129 Purchases 14 -Divestments - 629 -Reversals, impairments - 282

2,796 3,411 Specification of holdings of participations in associated companies

Registered Number of shares Shareholding as a % 1 Fair value Carrying amount Organization No. headquarters Dec. 31, 2005 2005 2004 Dec. 31, 2005 Dec. 31, 2005 Dec. 31, 20042

Cardo AB (publ) 556026-8517 Malmö 10,800,000 36.0 36.0 2,101 2,021 2,021 NCC AB (publ) - A shares 556034-5174 Solna 10,850,000 10.1 10.1 1,546 775 761 (18.7) (18.3) NCC AB (publ) - B shares 556034-5174 Solna - 3.2 - 285 - (0.2) Ramirent Oyj 3 Helsinki - 6.5 - 94 Stadium AB 556187-3299 Norrköping - 20.0 - 250

2,796 3,411 1) The proportion of voting rights is presented within parentheses under the proportion of share capital, if these two percentages are not identical.2) The carrying amount of NCC’s Series B shares is SEK 27 m. less than the acquisition value. 3) Consolidated goodwill on the acquisition amounted to SEK 5 m.More information about the Parent Company’s associated companies is presented in Note 17 to the consolidated accounts.

Note 11 - Other long-term holdings of securities, SEK m.

2005 2004

Accumulated acquisition valueOn January 1 2,387 1,671 Acquisitions during the year 1,720 716 Divestments during the year - 0 -

4,107 2,387 Accumulated impairmentsOn January 1 - 94 - 43 Impairments during the year - - 51

- 94 - 94

CARRYING AMOUNT 4,013 2,293

Specification of holdings major shareholdings Shareholding in 2005 as a % of Fair share voting value capital rights Dec. 31, 2005 2005 2004

Handelsbanken A 0.9 0.9 1,182 1,075 -Industrivärden A 10.5 14.4 4,394 2,280 2,280Indutrade 10.0 10.0 356 288 -Sandvik 0.3 0.3 259 252 -Other shares 167 118 13

4,013 2,293

Note 12 - Other long-term receivables, SEK m.

Long-term receivables 2005 2004

Promissory note receivables 0 1 Other receivables 0 0

0 1 Accumulated acquisition value On January 1 1 25 Receivables added - 0Receivables settled - 1 - 24

0 1 Accumulated impairments On January 1 - 1 - 1 Receivables settled 1 -Impairments during the year - - 0

- 0 - 1

CARRYING AMOUNT 0 1

Notes, Parent Company

67

Note 14 - Cash flow statement, SEK m.

The cash flow statement has been prepared in accordance with the indirect method. The reported cash flow only comprises transactions that gave rise to receipts and disbursements.

Items not included in cash flow 2005 2004

Capital gain/loss, sale of shares - 309 - Interest and dividend received Interest received 16 12 Interest paid - 10 - 35 Dividend received 874 1,239

880 1,217 Cash and bank balances 1 Bank balance 0 0 Balance on overdraft facility 19 80

Total balance sheet/cash flow statement 19 80 1) The granted overdraft facility amounts to SEK 100 m. (100).

Note 15 - Shareholders’ equity

RESTRICTED RESERVES Restricted funds may not be reduced by means of profit distribution.Statutory reserves – The purpose of statutory reserves is to save a portion of the net profit that is not required to cover any carried forward loss. UNRESTRICTED SHAREHOLDERS’ EQUITY Earnings brought forward – Consists of the preceding year’s unrestricted shareholders’ equity, possibly following an allocation to statutory reserves and after any profit distribution has been granted. This item plus reported net profit for the year constitute total unrestricted shareholders’ equity, that is the amount that is freely available for distribution as dividends to shareholders. Series A shares Par value Series B shares Par value

Total shares issued(all shares are fully paid) 24,000,000 SEK 10 38,145,483 SEK 10

Number of shares outstanding at beginning of year 24,000,000 38,000,000 at end of year 24,000,000 38,000,000

Number of voting rights per share 10 1 The average number of shares outstanding in 2005 was 62,000,000 (62,103,093).Series B shares are listed on Stockholm Stock Exchange’s O List. Shareholders are entitled to request conversion of Series A shares to Series B shares. No such conversions were effected during the year.

Number of shares 2005 2004

Opening number of repurchased shares 145,483 70,400Purchases during the year - 75,083

145,483 145,483

Note 16 - Untaxed reserves, SEK m.

2005 2004

Machinery and equipmentOpening balance, Jan. 1 0 0 Accelerated depreciation during the year 0 - 0

Closing balance, Dec. 31 0 0

Tax allocation reserves Tax allocation reserve, allocated for 2001 tax year - 14 Tax allocation reserve, allocated for 2002 tax year 25 25 Tax allocation reserve, allocated for 2003 tax year 1 1 Tax allocation reserve, allocated for 2004 tax year 101 101 Tax allocation reserve, allocated for 2005 tax year 49 49 Tax allocation reserve, allocated for 2006 tax year 24 -

199 190

200 190 Untaxed reserves include SEK 56 m. (53) for deferred tax.

Note 17 - Other liabilities, SEK m.

2005 2004

Loans from related parties 55 657 Accounts payable 1 1 Other liabilities 20 23

77 681

Note 18 - Accrued expenses and prepaid income, SEK m.

2005 2004

Wages, salaries and social security costs 5 4 Other 1 3

6 6

Note 19 - Pledged assets and contingent liabilities, SEK m.

2005 2004

Contingent liabilities for the benefit of subsidiaries 1,468 1,091 Other contingent liabilities 44 44

1,513 1,135

The contingent liabilities include SEK 44 m. related to rejected tax deductions for Group contributions granted to subsidiaries and to a rejected claim for tax-exemption for leasing fees.

Note 13 - Related parties

The Parent Company is a related party in relation to its subsidiaries; see Note 9. Sales of goods Interest Interest paid Debt to Receivable from to related received from to related related parties, related parties, Summary of relationships with related parties, SEK m. parties related parties parties Dec. 31 Dec. 31

Subsidiaries 2004 - 11 13 963 916 Subsidiaries 2005 - 8 5 1,487 474

Key personnel in executive positions 2004 8 0 20 653 - Key personnel in executive positions 2005 9 0 4 54 -

Other related parties 2004 - - 0 4 - Other related parties 2005 - - 0 2 -

Services resulting from related party transactions were priced on normal commercial terms.

Key personnel in executive positionsVia his wholly owned subsidiary Byggnads AB Karlsson & Wingesjö (including subsidiaries), Fredrik Lundberg directly or indirectly holds 89.4% of the voting rights and 52.4% of the share capital in L E Lundbergföretagen AB (publ.). Fredrik Lundberg, who is the President and a Member of the Board of the Parent Company received salary of SEK 1.5 m. (1.5). No variable or other types of remuneration were received. Total remuneration in the Group is included in personnel costs in Note 4, page 43.

68 Proposed distribution of profits

The Board of Directors proposes that the funds available for distribution by the Annual General Meeting, in an amount of SEK 8,771 m., or to be precise SEK 8,771,470,694.59, be distributed as follows:

To shareholders, a dividend of SEK 7.75 per share SEK 481 m.To be carried forward SEK 8,290 m. SEK 8,771 m.

The company has 62,145,483 registered shares, of which 145,483 are currently treasury shares that do not qualify for dividends. The sum total of the dividend above, SEK 481 m., may change if the number of treasury shares changes before the record date for dividends.

A statement motivating the dividend proposal will be available on the company’s website www.lundbergs.se no later than two week before the Annual General Meeting. The statement will also be sent to those shareholders who request it.

The annual report and the consolidated financial statements were approved for publication by the Board on February 23, 2006. The consolidated income statement and balance sheet and the Parent Company’s income statement and balance sheet will be subject to adoption at the Annual General Meeting on April 4, 2006.

April 7, 2006 is proposed as the record date for payment of dividends. If the Annual General Meeting approves the proposal, it is estimated that the dividends will be distributed by VPC on April 12, 2006.

To the best of our knowledge, the annual report has been prepared in compliance with generally acceptable accounting standards for listed companies, the figures provided correspond to actual conditions and nothing of material importance has been omitted that could change the impres-sion of the company created by the annual report.

Stockholm, February 23, 2006

Per Welin Gunilla Berg Lennart Bylock Chairman of the Board

Tom Hedelius Sten Peterson Bengt Pettersson

Christer Zetterberg Fredrik Lundberg President and Chief Executive Officer

69Auditors’ Report

We have audited the annual report, the consolidated financial statements, the accounts and the administration of the Board of Directors and the President of L E Lundbergföretagen AB (publ) for the 2005 fiscal year. The Board of Directors and the President are responsible for these accounts and the admin-istration of the Company, and for ensuring that the Annual Accounts Act is applied when the annual report and the consolidated financial statements are compiled, and that the International Financial Reporting Standards (IFRS) adopted by the EU and the Annual Accounts Act are applied for compil-ing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, consolidated accounts and the administration based on our audit.

We conducted our audit in accordance with Generally Ac-cepted Auditing Standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable, but not absolute, assurance that 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 accounts and consolidated accounts have been prepared in accordance with the Annual Accounts Act and consequently provide a true and fair picture of the Company’s earnings and financial position in accordance with Generally Accepted Auditing Standards in Sweden. The consolidated financial statements have been compiled in accordance with the International Financial Reporting Standards adopted by the EU and with the Annual Accounts Act and provide a true and fair picture of the Group’s earnings and financial position. The Report of the Board of Directors 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 Com-pany and the Group, that the profit in the Parent Company be dealt with in accordance with the proposal in the Report of the Board of Directors, and that the members of the Board and the President be discharged from liability for the fiscal year.

Stockholm, March 3, 2006

Bo Ribers Kjell Bidenäs Authorized Public Accountant Authorized Public Accountant

KPMG KPMG

Auditors’ ReportTo the Annual General Meeting of L E Lundbergföretagen AB (publ)

Corporate Registration Number: 556056-8817

70 Corporate governance report

IntroductionA Swedish Code of Corporate Governance was introduced on July 1, 2005.

The Stockholm Stock Exchange has introduced the Code in its regulations for major publicly listed companies and declared that it should be adopted as soon as possible, but not later than the 2006 Annual General Meetings. L E Lundbergföretagen AB applies the Code, which during 2005 necessitated that different rules were adopted gradually, and the entire Code will be adopted during 2006.

The Code is a form of self-regulation within Swedish industry based on the “comply or explain” principle, whereby companies that apply the code may deviate from individual rules but, in such cases, must explain the reason for each deviation. This Corporate Governance Report complies with the Code’s rules. The report does not constitute a section of the formal annual accounts and has not been reviewed by the company’s auditors.

Division of responsibilitiesResponsibility for the management and control of L E Lund-bergföretagen AB is divided among the shareholders at the Annual General Meeting, the Board of Directors, its elected committees and the President, in accordance with the Swed-ish Companies Act, other laws and regulations, pertinent rules for stock market companies, the Articles of Association and the Board’s internal control instruments.

ShareholdersIn February 2006, the company had 11,496 shareholders. The ten largest owners had total holdings corresponding to 76.5% of the share capital. Foreign investors owned about 5.5% of the share capital. For additional ownership information per-taining to February 2006, see page 13.

Annual General MeetingThe Annual General Meeting is the highest decision-making body in LE Lundbergföretagen AB. The Annual General Meet-ing, which is held within six months of the close of the fiscal year, adopts the income statement and balance sheet, makes a resolution regarding dividends, elects members of the Board and, when applicable, auditors and approves their fees, and makes resolutions concerning motions submitted by the Board of Directors and shareholders.

All shareholders who are listed in the share register on a given record day, and who have notified the company of their intention to participate in the meeting within the allotted time period, are entitled to participate in the meeting and exercise voting rights equal to the total number of shares they hold. Shareholders who are unable to attend in person may partici-pate via proxy. More detailed information on the 2006 Annual General Meeting is presented on pages 78-79.

2005 Annual General Meeting The 2005 Annual General Meeting was held on April 7, 2005. The annual accounts and auditors’ report were presented at the meeting. In conjunction with the presentation, the Board Chairman presented information concerning the Board’s work agenda, the principles for remuneration to members of the Board and senior management officers and information concerning work with the auditors. In addition, President and CEO Fredrik Lundberg provided a presentation of Group operations during 2004.

The auditors presented a report on their audit in a sepa-rate audit report and, in conjunction with this presentation, reviewed their work during the preceding year.

Nomination Committee In view of the composition of shareholders, it has not been deemed necessary to appoint a Nomination Committee. Therefore, motions for the election of a Chairperson for the Annual General Meeting, elections of Board members and auditors, as well as remuneration to be paid to Board members and the auditors are submitted by the company’s major shareholders and presented in the announcement of the Annual General Meeting and on the company’s website. The company, accordingly, does not comply with rules of the Code concerning nomination committees.

Board of Directors and its work

Composition of the BoardIn accordance with the Articles of Association, the Board of Directors shall consist of no less than three and no more than eight members elected by the Annual General Meeting for the period extending to the next Annual General Meeting. L E Lundbergföretagen AB’s Board of Directors, which is elected by the Annual General Meeting, consists today of eight members, including the President. L E Lundbergföre-tagen AB has not established an age limit for Board members or any time limitation on how long a Board member may remain on the Board.

Per Welin, Chairman of the Board, has previously served as Chief Financial Officer of shipping and insurance companies and was vice president of Göteborgs Bank. Gunilla Berg is CFO of the SAS Group and worked previously as executive vice president and CFO of Kooperativa Förbundet. Lennart Bylock has served as President, Chairman and Board mem-ber of a large number of companies, including several stock market companies. Tom Hedelius has served as President and Board Chairman of Handelsbanken. Fredrik Lundberg is Presi-dent and CEO of L E Lundbergföretagen AB. Sten Peterson is President of Byggnads AB Karlsson & Wingesjö. Bengt Petters-son has served as President and CEO of Holmen AB. Christer Zetterberg has served as President and CEO of Holmens Bruk, PK-banken and AB Volvo, among other companies. A descrip-

tion of the main assignments currently held by Board mem-bers is presented on pages 74-75.

The Board of Directors meets the listing requirements of the Stockholm Stock Exchange with regard to independence in relation to the company, executive management and the company’s major shareholders. The definition of independ-ence under the Code of Corporate Governance differs from that specified in the listing requirements, particularly with regard to independence in relation to the company. Based on the Code’s definition, four of the eight Board members (name-ly, Gunilla Berg, Lennart Bylock, Tom Hedelius and Bengt Pet-tersson) are independent in relation to the company, and all four are also independent in relation to major shareholders. According to the Code, a majority of the Board members shall be independent in relation to the company. Accordingly, the company deviates from the Code on this point. The deviation is explained in part by the Code’s rules regarding independ-ence in relation to the company, as opposed to the Stockholm Stock Exchange’s listing requirements, whereby the Code excludes Board members who have served for more than 12 years on the company’s Board (in L E Lundbergföretagen, this applies to Per Welin and Christer Zetterberg), and by the fact that the Board functions extremely well and its members have the different skills and experience required to manage and develop the company. This has also been confirmed in the evaluation of the Board and its work that has been conducted. Only one Board member has an operational function in the company, namely its President Fredrik Lundberg.

ChairmanAt the statutory Board meeting held on April 7, 2005, Per Welin was elected Chairman of the Board. The Chairman organizes and directs the Board’s efforts to ensure the work is conducted effectively and in compliance with the Swedish Companies Act, other laws and regulations, pertinent rules for stock market companies (including the Code) and the Board’s internal control instruments. The Chairman monitors the operations in a dialog with the President and is responsible for ensuring that other Board members receive satisfactory information and appropriate decision-making documentation. The Chairman is responsible for keeping Board members up to date and broadening their knowledge of the company and otherwise providing whatever training might be required to effectively conduct their Board work. The Chairman is also responsible for annual evaluations of the Board’s work.

Board of Directors’ workThe Board of Directors establishes written working proce-dures every year that regulate the Board’s work agenda and its internal distribution of duties, decision-making priorities within the Board, the Board’s meeting procedures and the Chairman’s responsibilities. In addition, the Board has issued a finance policy, information policy and written instructions regarding the allocation of responsibilities between the Board and the President.

The Board monitors the President’s work through continu-ous efforts to follow up operations during the year, assumes responsibility to ensure that the organization, management and guidelines for administration of the company’s business are based on established goals and that satisfactory internal controls have been established. The Board is also responsible for development and ensuring compliance with the compa-ny’s strategies through plans and goals, decisions regarding acquisitions and divestments of business operations, major investments and remuneration to the President.

In accordance with its working procedures, the Board shall meet five times per year and also whenever the situation so requires. Six meetings of the Board were held during 2005. The Board focused special attention on strategic, financial and accounting issues during the year. Furthermore, at every Board meeting, presentations were made regarding the busi-ness development of Fastighets AB L E Lundberg and L E Lun-dberg Kapitalförvaltning, as well as the portfolio companies, Holmen, Hufvudstaden, Cardo, NCC and Industrivärden.

Attendance at Board meetings during the year was ex-tremely high, as shown in the table below.

Feb 23 Apr 7 Apr 7 May 31 Aug 30 Nov 23Gunilla Berg x x x x x xLennart Bylock x x x x x xTom Hedelius x x x x x xFredrik Lundberg x x x x x xSten Peterson x x x x x xBengt Pettersson x x x x x xPer Welin x x x x x xChrister Zetterberg x x x - x x

The Group’s CFO participates in Board meetings, as does the Board’s secretary, who is an independent lawyer. Other senior executives of the company also participate in Board meetings to present special issues or whenever deemed ap-propriate.

Audit CommitteeThe Board has decided not to establish an Audit Commit-tee. Instead, the Board of Directors fulfills the responsibilities otherwise assigned by the Code to an audit committee. This structure functions satisfactorily considering the company’s relatively small Board of Directors and provides the entire Board with full insight into and opportunities to assume an active role in these important issues. During 2005, accord-ingly, the Board monitored the system for internal control and financial reporting. This supervision is intended to ensure the efficiency of the operations, their compliance with laws and regulations and the accuracy of the financial reporting. The Board has reviewed and evaluated the procedures for finan-cial accounting and reporting and followed up with evalu-ations of the work performed by the external auditors, their qualifications and independence. The Board also provides Group management with identification and evaluations of the

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primary risks in the operations and ensures that management focuses on efforts to address these risks. During 2005, the Board conducted two reviews with and received reports from the company’s external auditors. The reports by the auditors did not necessitate any special actions by the Board.

Remuneration to the BoardFees paid to the elected members of the Board are established by the Annual General Meeting (Annual General Meet-ing) based on motions submitted by the company’s largest shareholders. For the period extending from the 2005 Annual General Meeting to the 2006 Annual General Meeting, the Chairman received a fee of SEK 300,000. Other Board mem-bers, with the exception of the President, received total remu-neration amounting to SEK 900,000, divided as SEK 150,000 each. No other remuneration was paid to any Members of the Board.

Remuneration to the President and senior executivesQuestions concerning remuneration and other terms of em-ployment for the President are managed by two Board mem-bers, now comprising the Chairman and Lennart Bylock. All decisions regarding these questions are made by the Board. Remuneration and other terms of employment for other senior executives are negotiated and agreed upon in consultation with the President. The Board believes that the appropriate preparations and distribution of skills have been made with regard to remuneration and has not found reason to introduce any changes despite their lack of full compliance with the Code’s rules.

Reporting and controlAs described under “Audit Committee,” the entire Board monitors the quality of financial reporting through instructions to the President and requirements that have been established with regard to the contents of the reports concerning finan-cial conditions that are continuously provided to the Board. The Board reviews and approves financial reports, such as the year-end report and the annual report, and has delegated to executive management the responsibility to secure the contents of press releases with a financial content and pres-entation material in conjunction with meetings with media, owners and financial institutions.

Corporate managementThe President manages and ensures that business operations are conducted in compliance with the Swedish Companies Act, other laws and regulations, pertinent rules for stock market companies, the Articles of Association and the Board’s internal control instruments, and in accordance with the objectives and strategies established by the Board. In consul-tation with the Chairman of the Board, the President prepares required information and decision-making documentation prior to Board meetings, presents the issues and provides justi-fication for motions.

President and CEO Fredrik Lundberg, born 1951, has degrees in engineering and business administration and is a Doctor of Economics and a Doctor of Engineering. Fredrik Lundberg is the Chairman of Cardo, Holmen and Hufvudsta-den and a Board member of Handelsbanken, Industrivärden and NCC. Through direct ownership and companies, Fredrik Lundberg holds 32,250,047 shares in the company.

For a more detailed presentation of the President and other senior executives, reference is made to page 76.

RemunerationAt the 2005 Annual General Meeting, the Board of Direc-tors presented the principles that apply for remuneration to corporate management and other personnel. In the future, the Board also intends to render decisions regarding the principles for remuneration and other terms of employment for corporate management and to inform shareholders of these principles at Annual General Meetings. Accordingly, the Code’s rule in this context will not be applied. The reason for deviation is that compliance with the Code’s rule might lead to ambiguities concerning the Board’s responsibility to appoint a President and to ensure that the President fulfills his responsibilities, and the President’s corresponding responsibil-ity with regard to his colleagues in corporate management. If the Annual General Meeting were to establish concrete rules for remuneration, it would limit the Board’s and President’s freedom of action, which might create certain difficulties in new situations not foreseen when the Annual General Meeting passed its resolution. If the Annual General Meeting passes a resolution regarding principles that are not concrete and do not limit the Board’s and President’s freedom of action, the Annual General Meeting’s resolution is meaningless.

Present remuneration levels to the President and other senior executives are shown on page 43. The company has no outstanding share or share-related incentive programs.

Active OwnershipL E Lundbergbergföretagen AB is an active owner of its port-folio companies. Lundbergs is represented in each of these companies through one or more Presidents, Executive Vice Presidents or Board members in Lundbergs. Active ownership is also exercised through representation on the Nomination Committees of the portfolio companies.

Internal auditThe company has a simple legal and operating structure and a carefully formulated control and internal audit system. The Board monitors the company’s evaluations of its internal con-trol through contacts with the company’s auditors and other means. In view of the information presented above, the Board has decided not to establish a special internal audit function.

AuditorsAuthorized Public Accountants Bo Ribers and Hans Wil-helmsson were re-elected as the company’s auditors at the

Corporate governance report

2003 Annual General Meeting, with Carl Lindgren and Hans Åkervall as deputy auditors, all of KPMG, for a mandate pe-riod of four years. At the 2005 Annual General Meeting, Kjell Bidenäs of KPMG was elected as a new authorized auditor; he replaced Hans Wilhelmsson, who retired upon reaching pension age. Other audit assignments managed by Bo Ribers include NCC, Hufvudstaden and Ångpanneföreningen. Kjell Bidenäs also serves as auditor for Hyresbostäder in Nor-rköping and Enics Sweden.

Examinations of internal procedures and control systems are start during the second quarter and continue throughout the year. The six-month interim report is subject to an audit review. The examination and audit of the year-end accounts and annual report are conducted during January-February. The auditors participate in the Annual General Meeting to describe and present the audit work and their observations.

In addition to the audit assignment, Lundbergs has also consulted KMPG in questions related to taxes and the consoli-dated accounts. The amounts of remuneration paid to KPMG for audit services over the past three years are presented in the Notes to the 2005 Annual Report. In its capacity as auditors for Lundbergs and its subsidiaries, KPMG is obliged to verify its independence before deciding to conduct other assign-ments.

Articles of AssociationThe Articles of Association include established directives concerning the company’s business operations, the number of Board members and auditors, instructions for announcements to attend the Annual General Meeting, business for discussion at the Annual General Meeting and where the Annual General Meeting should be held. For more information about the cur-rent Articles of Association, which were adopted on August 9, 2000, reference is made to the company’s website, www.lundbergs.se.

Internal controlThe Code stipulates that the Board shall release a report de-scribing the internal control structure with regard to financial reporting and how well it functioned during the preceding year. The company’s auditors shall also review the report. Lundbergs’ Board of Directors has chosen to comply with a declaration by the Swedish Corporate Governance Board issued on December 15, 2005, which states that it would be sufficient in 2005 for the Board to limit its corporate govern-ance report on internal control to a description of the internal control structure, without any statements about how well it had functioned and without review by the auditors.

Internal control was an important part of corporate govern-ance even before the new Code was introduced. The Board’s responsibility for internal control is included in the Swedish Companies Act, and the internal control with regard to finan-cial reporting is covered by the Board’s reporting instructions to the President. Lundbergs’ financial reporting complies with

the laws and regulations that apply to companies listed on the Stockholm Stock Exchange. In addition to external rules and recommendations, internal instructions also apply, as well as directives and systems and internal role and responsibil-ity divisions intended to provide good internal control in the financial reporting procedures. Consolidated financial reports are prepared quarterly by the Group. Operating results are also monitored on a monthly basis and supplemented with analyses and comments.

The finance and accounting function and controllers with functional responsibility for accounting, reporting and analy-ses of financial development are at the Group level.

The audit consists of a statutory annual audit of Lundbergs’ annual report, a statutory audit of the Parent Company and all subsidiaries, an audit of the internal reports and an audit of the annual accounts. Reviews of the internal control are used to support this work. The auditors also conduct a general examination of Lundbergs’ six-month report.

The internal control is reconciled within Lundbergs to ensure compliance with the Code. This entails reviews of how the work is structured, current procedures and instructions. The work is expected to create increased knowledge and awareness, clearly defined instructions and organization with regard to internal control.

The work follows COSO’s guidelines for smaller listed companies with regard to internal control of financial report-ing. COSO divides the work into five segments:

• Control environment• Risk evaluation• Control activities• Information and communications• Follow-up

There are a combined total of 26 principles within each segment. Lundbergs does not have a separate audit function (internal audit). The Board has deemed that the operations are not subject to special circumstances, or other conditions, that motivate the establishment of such a function.

The internal control is managed in a similar manner within the publicly traded subsidiaries Holmen and Hufvudstaden. The Boards of these companies have direct responsibility for preparing a report of their internal control.

InformationLundbergs’ information to shareholders and other interested parties is provided via the annual report, year-end and interim reports, press releases and the company’s website, www.lundbergs.se. The website also includes financial reports and press releases for the past year, as well as information concerning corporate governance. Information released by the company complies with an information policy established by the Board of Directors.

Internal control 73

Board of directors

Lennart BylockBorn 1940Elected to the Board 1997Chairman of Swede Ship Marine ABBoard member of the Swedish Nature and Culture FoundationNumber of shares (incl. companies): 40,000

Tom HedeliusBorn 1939MBA, Honorary Doctor of EconomicsElected to the Board 2004Chairman of Industrivärden, Bergman & Beving and Anders Sandrew FoundationDeputy Chairman of Addtech, Lagercrantz Group and the Jan Wallanders and Tom Hedelius FoundationBoard member of SCA and Volvo, among other companiesHonorary Chairman of HandelsbankenNumber of shares: 1,000

Bengt PetterssonBorn 1938Licentiate in EngineeringElected to the Board 1999Chairman of BabyBjörnBoard member of Cardo, Econova and HolmenNumber of shares: 1,000

Per WelinBorn 1936MBA, Licentiate in EngineeringChairman of the BoardElected to the Board 1990. Board member of AutolivNumber of shares (incl. companies): 10,300

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Gunilla BergBorn 1960MBACFO of SAS GroupElected to the Board 2004Board member of Alfa Laval

Fredrik LundbergBorn 1951MBA, Doctor of EconomicsPresident and Chief Executive Officer of LundbergsElected to the Board 1975Chairman of Cardo, Holmen and HufvudstadenBoard member of Handelsbanken, Industrivärden and NCC Number of shares (including companies): 32,250,047

Sten PetersonBorn 1956MBAPresident of Byggnads AB Karlsson & WingesjöElected to the Board 2001Board member of Fastighets AB LE Lundberg, among other companiesNumber of shares: 4,000.

Christer ZetterbergBorn 1941Elected to the Board 1990Chairman of Mekonomen AB and Nike Hydraulics ABBoard member of D Carnegie & Co, Boo Forssjö AB, Micronic Laser Systems and Swede Ship Marine AB, among other companiesMember of the Swedish Academy of Engineering SciencesNumber of shares: 10,000

AuditorsBo Ribers, Authorized Public Accountant, KPMG. Born 1942. Elected 1998. Re-elected 2003. Kjell Bidenäs, Authorized Public Accountant, KPMG. Born 1960. Elected 2005.

DEPUTY AUDITORS

Carl Lindgren, Authorized Public Accountant, KPMG. Born 1958. Elected 1998. Re-elected 2003. Hans Åkervall, Authorized Public Accountant, KPMG. Born 1953. Elected 1994. Re-elected 2030.

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L E Lundbergföretagen AB

Senior executives

Michael GrundbergBorn 1961, employed since 2002Portfolio Manager

Ulf LundahlBorn 1952, employed since 2004Executive Vice President and Deputy CEO.Number of shares: 10,000

Claes BoustedtBorn 1962, employed since 1991Executive Vice President, President of L E Lundberg Kapitalförvaltning AB

Fredrik LundbergBorn 1951, employed since 1977President and Chief Executive OfficerNumber of shares (including companies): 32,250,047

Bernt-Olof JalknerBorn 1942, employed since 1989Executive Vice President Administration, Chief Financial Officer

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Fastighets AB L E Lundberg

Lars JohanssonBorn 1966, employed since 1991Head of Administration and Business Control

Louise LundbergBorn 1979, employed since 2005Assistant to the President Number of shares: 4,644,301

Peter WhassBorn 1954, employed since 1989President

Erik RydströmBorn 1975, employed since 2001Regional Manager, StockholmNumber of shares: 200

Johan LadenbergBorn 1966, employed since 2005Head of Rental and Property Administration

Roger EkströmBorn 1961, employed since 2001Executive Vice President, Regional Manager, Eastern Region, Fastighets AB L E LundbergInformation Manager, L E Lundbergföretagen AB

Dag SundqvistBorn 1945, employed since 1968Regional Manager, Western SwedenNumber of shares: 600

Ingvar NordénBorn 1943, employed since 1992Executive Vice President, Head of Development PropertiesNumber of shares: 700 The number of shares pertains to L E Lundbergföretagen AB

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78 Addresses

L E Lundbergföretagen AB (publ)

Corp Reg No: 556056-8817Registred headquarters: StockholmPO Box 14048, SE-104 40 Stockholm, SwedenStreet address: Hovslagargatan 5 BTel +46-8-463 06 00, Fax +46-8-611 66 09E-mail: lundbergs@lundbergs.se

Fastighets AB L E Lundberg (publ)

Corp Reg No: 556049-0483SE-601 85 Norrköping, SwedenStreet address: S:t Persgatan 105Tel: +46-11-21 65 00Fax: +46-11-10 44 17, Fax: +46-11-21 65 65 E-mail: lundbergs@lundbergs.se

www.lundbergs.seOn Lundbergs’ website, you will find general information about the company, financial information and the current share price.

Financial informationThe following financial reports will be published in Swedish and English on our website, www.lundbergs.se:

May 29, 2006 Interim Report January-March 2006August 29, 2006 Interim Report January-June 2006November 29, 2006 Interim Report January-September 2006February 2007 Year-end Report for 2006

The Annual Report will be sent to shareholders who have notified VPC that they wish to receive it.

Design and production: Anfang Reklambyrå, NorrköpingText: LundbergsPrinting and reproduction: Ekotryck Redners ABPaper: Cover Invercote Creato Matt 300 g; contents Galleri Art Silk 150 g, Maxi Offset 120 g.Photographers: Jesús Umbría page 6, Jäger Arén pages 8, 20, Rolf Andersson pages 8, 22, Martin Bogren page 24, Ola Kjelbye page 9, Bruno Ehrs page 26, Stewen Quigley, Q Image pages 9, 27, Indutrade pages 9, 28, Sofia Paunovic page 16, Nino Monastra page 8, Dag Sundberg: pages 4, 74-77.Translation: The Bugli Company, StockholmPrinting date: March 27, 2006