Linamar Business Report FY2006(FY ended Dec. 2006)

Business Highlights

Financial overview

in million Canadian dollars
FY2006 FY2005 Rate of change (%)

Business Activities

Sales 2,262.1 2,161.4 +4.7 See below 1)
Operating Earnings 158.4 176.0 -10.0 See below 2)

1) Sales for the year have increased 100.7million CAD or 4.7%, to 2,262.1million CAD, compared to 2,161.4million CAD in 2005.
Sales growth for Powertrain/Driveline was modest at 21.9million CAD, or 1.2%. Sales were affected by a number of factors, most notably the significant extent of plant shutdowns and production reductions by North American original equipment manufacturers ("OEMs") commencing in the third quarter of 2006, increased pricing pressure from these same customers and the maturation or re-sourcing of some contracts, offset by a net increase in medium/heavy duty truck sales for the year reflecting the substantial pre-buy activity in the first half of 2006, the ramping up of 6-speed transmission production (although at a slower than expected rate), and strong growth in Europe.

2) Operating earnings declined 17.6million CAD year over year, or 10%. Strong gross margin growth in Industrial, applied to robust sales increases reflecting an increased market share of an overall growth market, led to operating earnings for this group in 2006 of 59.7million CAD, an increase of 21.2million CAD(55%) over 2005. Powertrain/Driveline experienced significant pressure in 2006 on operating earnings, which were lower year over year by 38.8million CAD(28.2%). This was due to non-variable cost burdens in North America associated with OEM shutdowns/reduced volumes and slower than expected ramp-ups particularly in 6-speed transmission, ongoing start-up costs in Asia-Pacific, pricing and other productivity givebacks, and asset impairment charges, somewhat offset by improved results in Europe.

Geographical Segment Sales
- Canadian geographic segment sales showed modest growth of 14.1million CAD year over year, to reach a level of 1,672.8million CAD for the year ended December 31, 2006. Powertrain/Driveline sales in Canada were slightly down overall due to a combination of production volume declines, increased pricing pressure and a strengthened Canadian dollar, somewhat offset by strong pre-buy of medium/heavy duty trucks in the first half of 2006. Strong market demand for aerial work platforms through fleet replacements and reconditioning services and increased market share resulted in strong sales growth in Canada for Industrial.
A substantial portion of the company's property, plant and equipment (68%, 599.1million CAD) continues to be located in Canada. This reflects the 25 manufacturing facilities located in Ontario, 22 of which support the capital-intensive Powertrain/ Driveline segment.
- The U.S. geographic segment has enjoyed a 15.0% increase in sales, reaching 192.6million CAD during the year, an increase of 25.1million CAD over 2005. Sales to the U.S. customers of Skyjack have been driven by market demand and an increased market share. Sales have remained steady for McLaren Performance Technologies Inc., the testing and engineering
development business acquired by the company in late 2003. This is offset by a decline at the company's engine plant in Kentucky as sales demand for cylinder heads, bedplates, and other heavy duty truck volumes declined.
- Sales in the Asia Pacific geographic group remain insignificant at 3.5million CAD during this start-up phase.
- Mexican sales continue to improve, reaching 186.5million CAD during 2006, a 30.1% increase or 43.1million CAD over 2005. Strong new and growing programs continue to improve sales results in Mexico. The programs are diverse and include 4-speed transmission for light vehicle, liners for medium and heavy duty truck and high feature camshaft supporting a variety of platforms.
- Sales in Europe increased 17.3million CAD or 9.1% to 206.7million CAD in 2006. The increase is primarily due to a camshaft program launched in late 2005 for a German automaker utilizing its industry leading innovative technology and a substantial cylinder head and block program.

Environmental Activities

-The Company has established an Environment Committee of senior management to oversee the Company’s environmental programs and to ensure that it complies with applicable environmental laws. As well, the Company has regular environmental compliance audits performed to check that wastes are disposed of in accordance with such laws.


R&D Structure
- Linamar acquired McLaren Performance Technologies in 2003 to integrate the team with Linamar's Operating Group as an internal advanced product and process development resource. In 2005, McLaren Performance Technologies Division developed a new mission statement and organizational structure to focus on delivering innovative cost-effective products in support of the Linamar Group strategies and goals. In early January 2006, Linamar announced the establishment of the Linamar Automotive Customer Center that combined the Detroit-based sales team with McLaren Performance Technologies to support the Group. Throughout 2006, McLaren Performance Technologies Division will focus on delivering their mandate, which is to offer support in the design, testing and analysis of engine transmission and chassis systems.

Investment Activities

- In May 2006, the Company and the Ontario government announced an investment partnership in people and technology development, specifically in support of the development, adaptation and commercialization of cutting edge machining, manufacturing and environmental technologies in the production of powertrain and driveline components and systems. On February 9, 2007 the company and the Ontario government formalized this investment agreement. The agreement provides for a conditional grant of up to 44.5million CAD and is dependent upon the company satisfying various program investment criteria and achieving a cumulative job target over the term of the agreement. (The term of the agreement is January 14, 2005 through January 14, 2010.)

- In February 2007, the Company announced its public purchase offer for the balance of the outstanding shares of its consolidated subsidiary Linamar Hungary Nyrt. The company currently owns 58.63% of Linamar Hungary Nyrt, which is a public company listed on the Budapest Stock Exchange. The offer is valued at 3,003 Huf (18.00 CAD) per share, for the
cumulative value of 63.9million CAD for the residual holdings, and expires 60 days after approval by local regulatory authorities. The transaction had been completed prior to December 31, 2006.