During the second quarter sales increased 7.3% to SEK 433.1 (403.7) m. Operating profit amounted to SEK 24.1 (-47.6) m; operating margin was 5.6% (-11.8%). Profit after tax was SEK 15.8 (-35.8) m or SEK 1.62 (-3.72) per share after dilution. Cash flow was SEK -15.4 (10.9) m.

Progress in the first half-year
The Nordic market for EMS services continued its robust progress in the first half-year, with the demand for product modification and production pursuant to RoHS directives being contributors to the positive progress.

Signs of the electronics components market overheating were already apparent early in the year,
through increased delivery lead-times and limited access to some components. Accordingly, to safeguard its customers' needs, NOTE increased its component stocks in the period.

As previously reported, development activities intended to ensure NOTE remains its customers' first
choice, co-ordinate the group's units and to build an even stronger NOTE, are underway. Consequently, a centralised Lean Management function was established in the second quarter. Its activities are intended to create a competitive edge through continuous improvement in the cost, quality and delivery reliability segments.

To enhance NOTE's sourcing know-how in low-cost regions, a number of specialist positions have been created in NOTE Gdansk. NOTE has also consolidated its production collaboration with subcontractors in Central Europe, with the aim of rationalising the transfer of volume production to units outside Sweden.

The AGM in April resolved to issue warrants corresponding to 200.000 shares within the auspices of an incentive plan for the CEO and other senior executives. This plan may result in maximum dilution of 2.1%. Pricing is on market terms, and the plan was fully subscribed in May. NOTE has no other securities-based incentive plans at present.

In March, NOTE Lund, which has produced PCBs for the CERN project ALICE. received the ALICE Industrial Award for its good collaboration, high innovation and high quality philosophy.
After several years' collaboration, Kanmed, which develops sophisticated medical technology equipment. recognised NOTE Torsby as its supplier of the year, the citation reading: "NOTE delivers on time with high quality and offers good customer care."

Financial position and liquidity
The combination of sustained volume expansion and some stockpiling of electronics components resulted in working capital increasing by about 6% since year-end. Thus, cash flow for the first half-year was limited to SEK 8.3 (-25.1) m, or SEK 0.86 (-2.61) per share.
The equity/asset ratio consolidated by 1.2 percentage points on year-end to 26.5%. Liquidity remained healthy. At the end of the period, available liquid funds including unused credit facilities were SEK 72.1 (59.6) m.

Investments
Investments in tangible fixed assets were SEK 9.7 (16.2) m, or 1.2% (2.2%) of sales. Investments related mainly to production and measurement equipment, as well as IT systems. Depreciation and amortisation in the period was SEK 14.1 (15.7) m. Firm demand and the start-up of a prototype manufacturing facility on the Norwegian market are expected to result in a slightly increased rate of investment in the latter half-year.

Outlook
After restructuring and write-downs in the previous year, NOTE has posted four quarters of volume growth and stable earnings performance. Sales in the previous 12-month period were over SEK 1.6 billion, with a profit margin before tax approaching 5%. In this period, the return on operating capital was approximately 20%.

Given the first half-year profit margin strengthening and healthy order backlog at the end of the period, NOTE anticipates the second half-year 2006 providing continued stable volume and profit performance.

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