Financial overview

(in million SEK)	FY2007	FY2006	Rate of change	Remarks
Sales	7,940	7,890	0.6%	-
Operating income	302	390	(22.6%)
Sales by divisions
Commercial Vehicle Systems	4,529	4,765	(5.0%)	See below (1)
Hydraulic systems	1,467	1,331	10.2%	(2)
Garphyttan Wire	1,095	1,049	4.4%	(3)
Traction systems	848	745	13.8%	(4)

(1) Commercial Vehicle Systems
The Commercial Vehicle Systems (CVS) Division was adversely affected by the sharp decline in North America and noted a sales decrease of 5% to SEK 4,529 m (4,765) in 2007. Strong sales growth in Europe and Asia, combined with new products, partially limited the effects of the sales decline in North America.
Operating income, excluding restructuring costs, amounted to SEK 166 m (232). The Division窶冱 poorer operating income was due to the lower volumes in North America, particularly for the Friction Products business unit. Rising material costs, which gained their full impact in 2007, a weaker US dollar and costs related to workforce cutbacks in North America also had an adverse impact on earnings.
In 2007, the operations involving disc brakes made a negative contribution of nearly SEK 100 m, due to the small volumes involved and the fact that cost targets were not met. Increased volumes and actions to reduce the costs will reduce this negative contribution in 2008.

(2) Hydraulic systems
Adjusted for changes in exchange rates, Hydraulic Systems' sales rose 16% to SEK 1 467 m (1,331) in 2007. The factors underlying the higher sales were the acquisition of the Chinese company Runguang Hydraulics and the ever-increasing volumes of the Alfdex system.
Operating income totaled SEK 88 m (90) for 2007, due to a weaker USD and more sluggish North American market.
The Division partly succeeded in offsetting the marked decline in the North American market for hydraulic products and heavy diesel engines with new sales to both existing and completely new customers.
In Europe, the strong economy generated considerable demand for Haldex products. The Division managed to meet this demand thanks to investments that increased production capacity in the German production unit in Hof and to productivity improvements.

(3) Garphyttan Wire
The Division's sales rose to SEK 1 095 m (1,049), an increase of 4 percent. Adjusted for movements in exchange rates, sales rose 7 percent. The increase was attributable primarily to rising material prices, which were passed on to the customers.
Operating income totaled SEK 46 m (55). Earnings during the first six months were adversely affected by production disruptions in the Garphyttan facility, due primarily to problems with deliveries from a supplier. Also during the year, earnings were negatively impacted by inventory exposure to nickel, the price of which fluctuated considerably.

(4) Traction systems
Sales increased by 14 percent to SEK 848 m (745). The increase was mainly related to series deliveries to Landrover and to the new VW model, Tiguan.
Operating income amounting to SEK 50 m (48) was charged with start-up cost for production of the new generation of couplings (Generation IV), delivery of which commenced during the third quarter of 2007, and costs connected to preparations for deliveries from the new plant in Mexico. Operating margin amounted to 5.9% (6.5).


Contracts
-During 2007, Haldex received an order from the Ford Group concerning Ford窶冱 new car model, the Cougar/Kuga, which will be equipped with the Haldex Generation IV system. The order is worth SEK 400 m over a five-year period.

-Volkswagen窶冱 new car model, the VW Tiguan, which was launched at the International Automobile Exhibition in Frankfurt in September, will use Generation IV of Haldex窶冱 four-wheel drive systems. Series production began in late 2007 and the order is expected to be worth SEK 1,250 m over a five-year period.

-At the end of 2007, Haldex also received an order from the Korean carmaker Hyundai-KIA Motors for a prototype installation of an electronic four-wheel drive system based on the fourth generation of couplings and the XWD electronic differential brakes.

-Haldex systems featured on the new SAAB 9-3 vehicle line with All-Wheel Drive (AWD), introduced as Cross Wheel Drive (XWD) and launched to mark the automakers 60th anniversary. The Company will supply SAAB Automobile with an AWD-system, based on the fourth generation of Haldex Limited Slip Coupling and the all new Haldex Limited Slip Differential (Haldex XWD) developed from the Haldex product platform of limited slip differentials. The Haldex coupling and Haldex XWD will be manufactured and supplied from a new Haldex production facility in Guanajuato, Mexico. (From a press release on June 12)


Restructuring
-During the year, the Company took a number of steps to meet the difficult market situation in North America in 2007.
A decision was made at the end of the year to divest the production of drum-brake linings for the North American market at the Friction Products business unit窶冱 plant in Prattville, Alabama, USA, and to outsource production to sub-suppliers, primarily in Mexico, China and India, during the first quarter of 2008. Various strategic alternatives are being evaluated for the plant窶冱 operations involving lining products for disc brakes, which mainly focus on the North American OEM market.
In addition, the Division窶冱 plant in Paris, Tennessee, USA, was closed in early 2007. This unit primarily manufactured compressors and assembled certain other products within the Air Management business unit. Most of the plant窶冱 production was transferred to China. About one fourth of the production was sold or phased out.
Furthermore, major production cutbacks were implemented.

R&D Expenditures

(in million SEK)	FY2007	FY2006	FY2005
Product development costs	335	349	343

Product Developments
Fifth generation four-wheel drive system
-Development of the fifth generation cost-effective, four-wheel drive system is now in progress in cooperation with several vehicle manufacturers. Two prototype installations are being tested during the winter of 2008 and production is expected to begin in 2011.

Controllable differential slip
-The Company has developed a system with a controllable differential slip that improves the vehicle窶冱 traction and stability when maneuvering at high speeds.

Haldex Dual Torque Drive
-The Company is also working with the next technology generation, a system for torque vectoring, known as Haldex Dual Torque Drive, which offers significant improvements with regard to vehicle dynamics, compared with traditional four-wheel drive systems.

Safety
ModulX
-Haldex has developed ModulX, a modular system for compressed-air-based disc brakes that can be adapted for different requirements. The new system offers customers simpler adaptation, fewer variations, fewer spare parts and lower maintenance costs. For Haldex, it entails more effective development, since most of the modules can be used in future generations of disc brake systems. The market reception for ModulX has been highly favorable and the results include two large orders from Scania and Volvo.

Fixed Caliper Dual Disc
-The Company has been working on developing the next generation of disc brakes, called Fixed Caliper Dual Disc, which are based on a unique and patented technology. The solution combines a fixed caliper and two movable disc brakes, which is the opposite of traditional disc brakes. The system offers several advantages including improved performance with lower volume and weight, longer service life and easier spare parts maintenance. The new brake system has been tested extensively on trucks and trailers in Europe and the US. Preliminary series production and deliveries of Fixed Caliper Dual Disc will start during 2008.

ModulAir
-The Company is also continuing its development of ModulAir, a modular-based range of products with integrated electronics for intelligent air drying and air distribution. ModulAir offers advantages by combining functions normally situated in several different parts of the vehicle. Furthermore, costs will be lower and the product can be adapted easily to meet the specific requirements of various vehicle manufacturers.

New generation of electronic brake system
-The Company introduced a new generation of its electronic brake system in 2007. The system provides greater functionality and, in addition to brake adjustment, also includes electronic stability control (ESC), intelligent control of lift axles (ILAS) and suspension control of the trailer chassis (Colas).

Capital expenditures

(in million SEK)	FY2007	FY2006	FY2005
Commercial Vehicle Systems	259	228	191
Hydraulic Systems	89	61	57
Garphyttan Wire	20	75	77
Traction Systems	95	55	33
Group total	463	420	357

Breakdown by geographic area

(in million SEK)	FY2007	FY2006
North America	94	107
Europe	302	235
Asia and The Middle East	58	74
South America	9	4
Group total	463	420

Overseas investment
-Manufacturing volumes in the Company窶冱 new production facility in Suzhou outside Shanghai, China, increased gradually in 2007. The plant produces automatic brake adjusters, brake cylinders and disc brakes and assembles ABS systems for the Asian market and brake components for the Company窶冱 production units in other parts of the world. During the year, the Company established a marketing and sales organization in order to meet the forthcoming demand. During the year, the Company received an order worth approximately SEK 20 m from CIMC, China窶冱 leading manufacturer of trailers. Other key customers in the Chinese market are Yutong, Dongfeng and Fuwa Axle.
In April, new legislation for automatic brake adjustment for commercial vehicles took effect in India. The new legislation gave rise to strong demand for the Company窶冱 automatic brake adjusters during the year. The brake adjustors used previously required regular manual adjustment of the interplay between the braking surface and brake drum.
The Company窶冱 automatic brake adjustors make braking smoother and safer, while reducing braking distances and keeping maintenance costs down. During 2007, Haldex India began deliveries to such customers as Tata Motors and Ashok Leyland. The new legislation will result in deliveries approaching a level of about one million brake adjustors per year.

-In connection with the introduction of the fourth generation of AWD systems, which are being produced for the VW Tiguan, an investment was made in a new assembly line at the production plant in Landskrona. The production plant in Irapuato, Mexico, was completed according to plan in 2007 and production started at the end of 2007. The plant is currently manufacturing four-wheel drive couplings for General Motors following an earlier order in the amount of SEK 2 billion--the Company窶冱 largest contract to date.