Interim Report 2011/12 Q2

Lagercrantz Group’s net revenue for the first six months (1 April-30 September 2011) of the 2011/12 financial year amounted to MSEK 1,094 (948), equivalent to an increase by 15 percent. Organic growth was 7 percent and 8 percent measured in local currency. Revenue grew by 9 percent to MSEK 539 (494) during the second quarter (1 July-30 September 2011), with organic growth accounting for 5 percent thereof.

Demand during the six-month period was good. Good growth in demand was recorded for the second quarter as well, compared to the year before. The rate of growth was somewhat lower than during the first quarter, which can be explained by a slightly hesitant mood in parts of the Group’s markets, likely caused by certain customers preparing for lower order bookings as a consequence of the current financial and political uncertainty. This pattern was noted towards the end of the period in certain export-oriented industrial sectors where the Group is active. By area, demand was good during the quarter compared to the previous year in division Electronics and in the software area within division Communications, while it was stable in the other areas.

Operating profit for the first six months amounted to MSEK 92 (61) and the operating profit margin increased to 8.4 percent (6.4), not including a one-time item of MSEK –2 during the second quarter relating to a provision for a potential cost in a legal dispute. The reported operating profit amounted to MSEK 90, equivalent to an operating margin of 8.2 percent. The earnings improvement is explained by higher revenue, improved gross margin and a sharp focus on costs. Businesses acquired during the past year also contributed to the improvement.

During the second quarter, operating profit increased to MSEK 47 (35), not including non-recurring items. The operating margin was 8.7 percent (7.1), which is the highest margin during a quarter to date. Foreign exchange effects in the operating result amounted to MSEK –2 (–3) during the first six months, and to MSEK 0 (–3) during the second quarter.

Profit after finance items for the first six months amounted to MSEK 84 (60), including the above mentioned one-time item. The net of finance items was impacted by foreign exchange effects of MSEK 1 (3), MSEK 1 (2) of which during the second quarter.

Profit after taxes amounted to MSEK 63 (45) for the first six months of the year, equivalent to earnings per share after dilution of SEK 2.81 (2.05). Earnings per share after dilution for the most recent twelve-month period amounted to SEK 5.36, compared to SEK 4.61 for the 2010/11financial year.

The return on capital employed for the most recent twelve-month period was 21 percent, compared to 15 percent during the corresponding year-ago period. The corresponding figures for return on equity were 22 and 15 percent, respectively.

Equity per share amounted to SEK 25.70, compared to SEK 24.60 at the beginning of the financial year. The equity ratio was 43 percent compared to 42 percent at the beginning of the financial year. A dividend was paid during the period in the amount of MSEK 50, equivalent to SEK 2.25 per share.

At the end of the period the net financial liability amounted to MSEK 243, including a pension liability of MSEK 50; the levels were unchanged from the beginning of the year. The Group’s net debt equity ratio was 0.4.

Cash flow from operating activities amounted to MSEK 45 (–14) during the first six months of the financial year. Capital investments in non-current assets amounted to MSEK 8 (7), gross. No shares were repurchased during the financial year.

Electronics

Net revenue for the quarter increased by 10 percent to MSEK 152 (138). Overall, the businesses in the Nordic countries showed strong sales growth, while the business in Germany experienced some decline in sales compared to the previous year. Businesses acquired during the past year also contributed to the increase in revenue.

Demand during the second quarter was good compared to the previous year, especially in systems and solutions sales for embedded electronics. Stable demand was experienced compared to the first quarter of the financial year.

Operating profit for the quarter amounted to MSEK 10 (5), equivalent to an operating margin of 6.6 percent (3.6). The gradual improvement in margin for the division is a result of efforts to raise the value added of the companies’ sales, improved efficiency and a phasing out of lower-margin products.

Mechatronics

Net revenue for the quarter increased by 10 percent to MSEK 218 (199). Increased revenue was especially pronounced in the businesses in the area of niche production, while the revenue was stable for our own product companies compared to the preceding year. Businesses acquired during past year also contributed to the increase in revenue.

Demand was stable during the quarter compared to the preceding year. Compared to the first quarter of the financial year, a measure of cautiousness was noted among certain customers, resulting in somewhat weaker demand. This was seen towards the end of the period among some export-oriented industrial customers, who have lowered their rate of demand somewhat, albeit from high levels.

Operating profit for the quarter amounted to MSEK 29 (23), which is equivalent to an operating margin of 13.3 percent (11.6). This margin is the highest to date for the division during a single quarter.

Communications

Net revenue for the first quarter increased by 8 percent to MSEK 169 (157). A strong sales trend was noted in the areas of software and access, while the level was stable in the area of digital image transmission.

Market demand during the quarter compared to the preceding year was strong in the software area and stable in other areas. Compared to the first quarter this year, stable demand was noted in the division’s business areas.

Operating profit for the quarter amounted to MSEK 11 (11), equivalent to an operating margin of 6.5 percent (7.0).

Parent Company and consolidation items

The Parent Company’s internal net revenue for the first six months of the financial year amounted to MSEK 14 (12) and profit after finance items was MSEK 156 (23). This result includes exchange rate adjustments on intra-Group lending in the amount of MSEK 2 (-1), and dividends from subsidiaries in the amount of MSEK 168 (20). Changes in pension assumptions affected the result by MSEK –1. Investments in non-current assets were made in an amount of MSEK 0 (0), net. Of the Parent Company’s committed credit facility of MSEK 400, MSEK 139 (189) was utilised at the end of the period. The Parent Company held liquid funds in the amount of MSEK 0 (0). The Parent Company’s equity ratio stood at 62 percent (56). Among other consolidation items for the second quarter is found a one-time item in the amount of MSEK 2 relating to a provision for potential costs in connection with a legal dispute.

Employees

At the end of the period the number of employees in the Group was 738, which can be compared to 731 at the beginning of the financial year.

Share capital

The share capital at the end of the period amounted to MSEK 48.9. The distribution on classes of shares is as follows:

Lagercrantz holds 977,000 class B shares in treasury, which is equivalent to 4.2 percent of the number of shares outstanding, and 3.0 percent of the votes in Lagercrantz. The average acquisition cost of the repurchased shares amounts to SEK 25.57 per share. Shares held in treasury cover, inter alia, the Company’s obligation under outstanding option programmes, where a total of 685,000 options have been acquired by managers and members of senior management (awards 2008, 2009 and 2010) with a strike price of SEK 36.80 , SEK 29.70 and SEK 41.00, respectively. The strike price for the 2009 and 2010 programmes has been adjusted to account for the dividend paid during the year. After the end of the period 180,000 options with a strike price of SEK 57.20 were issued by the Group and acquired by managers and members of senior management. The quotient value per share is SEK 2.11.

Accounting policies

The Interim Report for the Group has been prepared in accordance with IAS 34 Interim Financial Reporting. The interim report for the Parent Company has been prepared in accordance with the Swedish Annual Accounts Act and the Swedish Securities Market Act, which is in accordance with the provisions of RFR 2 Accounting for legal entities. For the Group and the Parent Company the same accounting policies and calculation methods have been applied as in the most recent Annual Report.

PRI Pensionsgaranti [a provider of credit insurance and administrative services for occupational pension provisions] has decided to update its life expectancy assumptions, which means that companies with a pension liability per ITP 2 [a pension agreement for private-sector salaried employees] under own management, will have an increase in their pension liability by about 7 percent in a legal entity.

Lagercrantz Group’s assumptions are based on the Swedish Financial Supervisory Authority’s regulations on life expectancy assumptions in the calculation of pension liability according to IAS 19. This means that the pension liability at the Group level does not change due to PRI’s amended assumptions. However, the Parent Company applies the Swedish Act on Safeguarding Pension Obligations when calculating defined benefits pension plans instead of applying IAS 19. The Parent Company’s pension liability rose by MSEK 1 as a result of amended life expectancy assumptions.

Related party disclosures

Transactions between Lagercrantz and related parties that have had a significant impact on the Group’s financial position and profit have not occurred.

Events after the end of the period

No events of significance for the Company have occurred after the balance sheet date of 30 September 2011.

Risks and uncertainty factors

The most important risk factors for the Group are the state of the economy, structural changes in the market, supplier and customer dependence, the competitive situation and foreign exchange trends. At present there is uncertainty due to fiscal problems in many part of the world. Until now, this uncertainty has mainly affected the financial markets and it remains unclear what the real economic effects will be. In view of the uncertain situation, the Group has adopted a cautious stance with respect to costs and has increased its vigilance in assessing changes in the world around us. The most important risk factors for the Group are the state of the economy, structural changes in the market, supplier and customer dependence, the competitive situation and foreign exchange trends. In other respects reference is made to the 2010/11 Annual Report. The Parent Company is affected by the above mentioned risks and uncertainty factors by virtue of its function as owner of its subsidiaries.

Affirmation

The Board of Directors and the President and CEO are of the opinion that this Semi-annual Report provides a true and fair picture of the Company’s and the Group’s business operations, financial position and results, and describes significant risks and uncertainty factors facing the Company and the Group.

Stockholm, 8 November 2011

Anders BörjessonTom HedeliusPirkko Alitalo

ChairmanVice ChairmanDirector

Roger BergqvistLennart SjölundJörgen Wigh

DirectorDirectorPresident, CEO and

Director

This report has not been subject to review by the Company’s auditor.