Meda AB (publ): Year-End 2005 Report.

STOCKHOLM, Sweden -- Meda AB (STO:MEDAA) Annual accounts for 2005

--Group sales reached SEK 2,870 million (793).

--Operating profit, excluding restructuring costs, increased to SEK 525.3 million (132.9).

--Q4 included restructuring costs of SEK 176 million for the integration of Viatris.

--Operating profit, including restructuring costs, increased to SEK 349.0 million (132.9).

--Profit after tax rose to SEK 143.5 million (93.6).

--Profit per share (including the sold operation) reached SEK 1.75 (1.45).

--After the split and the new share issue, dividend per share is proposed to be SEK 0.50

Highlights

--By Q4, major parts of the restructuring to integrate Viatris had already occurred.

--The new share issue of SEK 2,508 million was oversubscribed.

--Bank financing of EUR 575 million was syndicated through international banks.

--Parlodel, mostly prescribed by specialists, will be acquired from Novartis.

--A debenture of SEK 700 million is issued for continued expansion.

SALES

The Meda Group's sales for all of 2005 totalled SEK 2,870 million (793). The Viatris pharmaceutical company, which was acquired in 2005, contributed sales of SEK 1,432 million from August to December. Sales, excluding Viatris, totalled SEK 1,438 million, representing an 82% increase. Translation effects on sales were marginal.

Sales for the Group's two business areas (all Viatris sales included
in Pharma) were:
SEK million Jan-Dec 2005 Jan-Dec 2004 Index*
Pharma 2,748 685 401
Medical Device 122 107 114
Total 2,870 793 361

*Compared with the same period of 2004.

As mentioned above, sales, excluding Viatris products, totalled SEK 1,438 million (793). In the Pharma business area, Cibacen and Cibadrex, cardiovascular products, which were acquired during 2005, and Cyklokapron, an antifibrinolytic, accounted for SEK 523 million of the sales increase. Among other medications, Relifex (osteoarthrosis), Lederspan (osteoarthrosis and arthritis) and Zanidip (hypertension) demonstrated the most significant growth.

Sales in the Medical Devices business area continued to grow, increasing 14% to SEK 122 million (107).

Sales of products in the Viatris portfolio totalled SEK 1,432 million between August and December. Viatris has considerable sales of allergy and asthma products, which are season-dependent. Sales of Novolizer products increased 96% to more than SEK 240 million for all of 2005 - after launch of Novolizer budesonide 200 mcg in many European countries and of Novolizer formoterol on the German market. Over a short period, these products have captured market shares of about 20% on several key European markets. Major products, such as Betadine and Tramadol, continued to show a healthy increase, while sales of Azelastine and Allergospasmin, allergy medications, declined because of a mild allergy season in 2005.

PROFIT

In 2005, consolidated profits quadrupled to SEK 525.3 million (132.9) - excluding restructuring costs, which stood at SEK 176.3 million due to integration of Viatris. Various results-related factors are discussed in more detail under separate headings. In light of the magnitude of the Viatris acquisition, comparisons with the same period in 2004 are not relevant.

Restructuring costs

Shortly after the acquisition of Viatris, the Group's new executive team prepared a restructuring plan to quickly rationalise and consolidate the new company structure and to take advantage of synergies. By Q4, major parts of the plan had already been implemented, as reflected by non-recurring restructuring costs that affect profits. These costs reached SEK 176.3 million; see the following table for clarification of restructuring effects on 2005 profit.

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SEK millionExcludingRestructuring Reported restructuring costsprofit/loss costs Net sales2,869.902,869.90 Cost of goods sold-1,177.20-17-1,194.20 Gross profit/loss1,692.70-171,675.70

Selling expenses-623.7-45.7-669.4 Medical and business development costs-339-28.4-367.4 Administration costs-204.7-85.2-289.9 Operating profit/loss525.3-176.3349 *T *T

Administration costs comprise the largest share of the restructuring plan, accounting for almost half of the total restructuring costs, or SEK 85.2 million. These costs arise mainly from rationalisation and from discontinuation of administration functions at Viatris' former headquarters in Germany.

Non-recurring costs for eliminating overlapping resources on certain markets, as well as the rest of sales organisation administration amounts to SEK 45.7 million.

Costs for rationalising the development function in Germany amounts to SEK 28.4 million.

Restructuring costs in production amounts to SEK 17.0 million.

Operating profit/loss

Consolidated operating profit, excluding restructuring costs for all of 2005 increased to SEK 525.3 million (132.9), resulting in an 18.3% (16.8%) operating margin. If restructuring costs are included, operating profit for the same period reaches SEK 349.0 million (132.9). Operating expenses for the year totalled SEK 1,326.7 million (259.8), with amortisation of intangible rights accounting for SEK 198.5 million and restructuring costs accounting for SEK 176.3 million.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2005, excluding restructuring costs, reached SEK 766.0 million (182.8). With restructuring costs included, EBITDA for the same period totalled SEK 589.7 million (182.8).

Financial items

For all of 2005, the Group's net financial loss stood at SEK 207.4 million (-14.9). The net financial loss for Q4 was SEK 84.5 million, compared with SEK 97.2 million for Q3. Meda's indebtedness to banks and credit institutions was reduced in November by using the entire new share issue proceeds of SEK 2.5 billion to amortise the bridge loan that initially financed the Viatris acquisition. On 31 December, debts to banks and credit institutions totalled SEK 4,990.5 million. Consolidated profit for all of 2005, after financial items, totalled SEK 141.6 million (118.0), including restructuring costs.

Net profit

The Group's tax expenses for 2005 totalled SEK 39.9 million (30.8), representing a tax rate of 28.2% (26.1).

Net profit from retained operations (excluding the sold Parallel Trading operation) stood at SEK 101.7 million (87.2) for 2005. Net profit, after tax, including the sold operation totalled SEK 143.5 million (93.6).

Net profit per share from retained operations was SEK 1.24 (1.35), and net profit per share, including the sold operation was SEK 1.75 (1.45).

FINANCIAL POSITION

For all of 2005, cash flow from operations (excluding the sold operation) totalled SEK 374.2 million (147.1).

Group investments for 2005 reached SEK 6.314.7 million (338.0). The effect on cash flow from the Viatris acquisition totalled SEK 5,252 million. Sale of the Parallel Trading business area generated an SEK 71 million increase in liquid assets. In January, the Group acquired Cibacen and Cibadrex in Europe from Novartis, a Swiss pharma company, for SEK 941 million. In February, Meda acquired Imovane on certain European markets from sanofi-aventis for SEK 90 million.

In 2005, cash flow from the financing operation was SEK 6,188.9 million. During the financial year, two new share issues, with preferential rights, raised SEK 554.4 million and SEK 2,494.9 million, respectively, after issue costs. In addition, loan financing in the net amount of SEK 3,146.7 million was arranged. In 2005, warrant holders subscribed for shares worth SEK 13.2 million; key persons subscribed for new warrants worth SEK 4.6 million.

At the end of December 2005, the Group had cash and cash equivalents worth SEK 331.4 million compared to SEK 60.8 million at the year's start. In addition, confirmed credit facilities amounted to SEK 532.5 million. In 2005, interest-bearing liabilities increased to SEK 4,990.5 million, (432.9). At the end of December 2005, net debt stood at SEK 5,260.8, compared to SEK 402.9 million at the year's start. The equity/assets ratio was 32.7% compared to 42.8% at the year's start.

After the most recent stock issue, equity increased to SEK 3,759.6 million compared to SEK 545.6 million at the year's start. This represents SEK 35.98 (12.36) per share.

CONTRACTS AND KEY EVENTS

--INTEGRATION OF VIATRIS

As mentioned earlier, shortly after the Viatris acquisition, the Group's new executive team developed a restructuring plan to quickly rationalise and consolidate the new operating structure. The objective of the integration of the two companies into a common structure was to take advantage of synergies - to cut costs and boost revenue. By Q4, major parts of the plan had already been implemented, for example:

--Establishing a new Group executive team and a new organisational structure.

--Having all subsidiaries adopt a uniform corporate image under the Meda name.

--Establishing a common sales organisation under joint management and merging Meda's and Viatris' local operations in France, Germany, Italy, and the UK.

--The number of employees will be reduced by about 120 full-time positions.

As a result of this integration, Q4 profits were affected by non-recurring restructuring costs of SEK 176.3 million. This represents the majority of the costs of the restructuring plan.

--OVERSUBSCRIBED, PREFERENTIAL-RIGHTS NEW SHARE ISSUE OF SEK 2,508 MILLION

Using subscription rights, 41,628,926 shares were subscribed for during Meda's new share issues. This represents 99.61% of the shares offered - including subscribed shares not based on subscription rights. The issue was over-subscribed by 14%. Before issue costs, proceeds totalled SEK 2,508 million.

The stock issue increased the number of shares in Meda by 41,791,743 shares, and share capital by SEK 83,583,486. After the share issues, there were a total of 104,479,358 shares in Meda; share capital stood at SEK 208,958,716.

--MEDA SECURES BANK FINANCING OF EUR 575 MILLION

In December, Meda concluded an agreement with a banking consortium headed by SEB Merchant Banking, for a five-year line of credit of EUR 575 million (allowing borrowing in a number of currencies). The credit line refinances Meda's existing credit arrangements, including the balance of the bridge loan that Meda concluded when acquiring Viatris. The syndication of the line of credit was successful, and the credit was oversubscribed. The average interest rate level for outstanding loans under this facility was 4.0% at the end of 2005.

In addition to SEB Merchant Banking, DnB NOR Bank, ForeningsSparbanken, and Danske Bank are participating in this credit arrangement, as mandated lead arrangers, with ABN AMRO as an arranger, and HSH Nordbank and the Royal Bank of Scotland as co-arrangers, in addition to Commerzbank, Mizuho, Natexis Banques Populaires, and the Norinchukin Bank, as lead managers.

--WARRANT PROGRAMME

Meda's 17 October EGM unanimously authorised the board to issue a promissory note with detachable warrants for new subscription of A shares (warrant program for key persons). The company took out a subordinated debenture for a nominal SEK 1000 through issuance of a promissory note with 3,000,000 detachable warrants for new subscription of shares. With deviation from shareholders' preferential rights, Scanmeda AB, Meda's subsidiary, shall be able to subscribe for the promissory note, and then Scanmeda AB shall offer executives in the Meda Group an opportunity to buy the warrants. The purchase price per warrant shall be equal to the market value for warrants, as per the Black & Scholes model for valuation. Each promissory note with a detachable warrant entitles the holder to subscribe for one new share in the company at a nominal price of SEK 2, which is comparable to SEK 150. The new share issue's subscription period starts on 27 February 2006 and ends on 26 February 2008. With full subscription of shares in the above-specified preferential rights issue, the dilution effect from total exercise of warrants is comparable to about 2.9% of the share capital and votes.

KEY EVENTS AFTER THE BALANCE SHEET DATE

--ACQUISITION OF PARLODEL

Meda entered into an agreement with Novartis, a Swiss Pharma company, for acquisition of the European rights to the Parlodel product. Parlodel is a well established drug mostly prescribed by specialists. The product is a dopamine agonist and prolactin inhibitor, and Meda intends to use the target group synergies with other products in the portfolio, such as Cyklokapron and Selegelin.

The purchase price was USD 47.3 million, and the transfer date is set for 1 March 2006. In 2005, Parlodel sales was around SEK 130 million. The gross margin exceeds the average of gross margin for Meda's product portfolio. The most important markets for Parlodel are the major European markets, where Meda can now use its broad marketing organisation.

--DECISION TO ISSUE DEBENTURES

Meda's board took a decision to issue debentures of SEK 700 million to finance the company's continued expansion. This loan is subordinated to Meda's other bank loans, and has a term of five years, with an interest rate equal to the 5-year Midswap, plus 4% a year.

--MEDA STARTS A HUNGARIAN MARKETING COMPANY

Meda decided to start a wholly owned marketing company to conduct business on the Hungarian market. At present, sales of Meda's products total EUR 5 million, through licensees and distributors on the Hungarian market. This is considered a good basis for Meda to start its own organisation.

--ORGANISATION

Hans-Jurgen Kromp was appointed to the Group's executive team and will be in charge of Group Services.

The new Group executive team consists of:

Anders Lonner, CEO. Anders Lonner is 60 years old and has an M.S. in Political Science.

Dr Jorg-Thomas Dierks, COO. Jorg-Thomas Dierks is 45 years old and a doctor. He was previously the COO at Viatris, and before that, senior VP of world-wide commercial operations at Asta-Medica.

Anders Larnholt, VP Business Development and Investor Relations. Anders Larnholt is 33 years old and holds M.S. degrees in engineering and business administration. Previously, he worked for Credit Suisse First Boston. He's been with Meda since 2000.

Hans-Jurgen Kromp, VP Group Services. Hans-Jurgen Kromp is 53 years old and a solicitor. Earlier, he served as general counsel for Asta Medica and Viatris; before that he was head of Legal at Sandoz and Novartis.

Henrik Stenqvist, CFO. Henrik Stenqvist is 38 years old and holds an MBA. Previously CFO of subsidiaries at AstraZeneca. He joined Meda in 2003.

Marten Osterlund, VP Scientific Affairs. Marten Osterlund is 48 years old and holds a Ph D. in molecular biology from Uppsala University. He has been a researcher at the Pasteur Institute in Paris and has experience from development companies, including holding an executive position at Karo-Bio. He joined Meda in 2005.

--OUTLOOK

Meda expects to be able to use significant synergies to cut costs and boost revenue. In addition, the company intends to pursue an active acquisition strategy and continue to strengthen its position as a pan-European pharma company.

As indicated in Meda's share issue prospectus in September 2005, the profitability goal for the company is to reach an EBITDA margin of at least 25% by 2007.

--DIVIDEND

The board of directors proposes a dividend of SEK 0.50 per share. Note: the newly issued shares are also entitled to a dividend. Consequently, the total amount distributed will increase by 108%.

--ANNUAL GENERAL MEETING AND ANNUAL REPORT

Meda's AGM will be held on Thursday, 4 May 2006 at 6 PM in the company's office: Pipers vag 2A, Solna, Sweden.

The annual report will be issued between 18 and 20 April 2006, will be available on the company's web site, and will be distributed to all shareholders.

ACCOUNTING PRINCIPLES

GROUP

This interim report complies with the Swedish Financial Accounting Standard (RR 31) and with the International Accounting Standard (IAS) 34.

Starting on 1 January 2005, Meda's financial reports are prepared as per the International Financial Reporting Standards (IFRS); 1 January 2004 was the date of transition to the IFRS. All financial information after this date was restated to comply with the IFRS.

According to an EU decision in 2002, stock-exchange-listed companies must prepare their consolidated financial statements according to accounting principles established by the International Accounting Standards Board (IASB). These principles are called the International Financial Reporting Standards and the International Accounting Standards (IFRS and IAS); the IAS were established before 2002. IFRS transition effects on Meda's profit/loss and financial position were described in Meda's 2004 year-end report and 2004 annual report. The IFRS and IAS, which must be applied starting in 2005, are EU Commission-approved standards.

Restatement of income statements, balance sheets, equity, and key data for 2004 (as per the IFRS) are reported in forthcoming sections.

Effect on the opening, 1 January 2004 balance sheet is SEK 0.

GOODWILL AMORTISATION

Goodwill amortisation is prohibited as per IFRS 3. Instead, write-down tests must be done at least once a year. Meda did write-down tests on 31 December 2004 and 31 December 2005. As per these tests, there is no need for write-downs; brought-back goodwill amortisation for 2004 totalled SEK 8.5 million.

MARKET'S MEASUREMENT OF FOREIGN-EXCHANGE-DERIVATIVE HEDGING ITEMS

As per the IFRS, all derivatives are continuously valued. Actual value changes are immediately reported in the income statement. On 31 December 2005, market value was SEK 2.0 (0.4) million for outstanding foreign-exchange-derivative hedging items.

DISCONTINUING AN OPERATION

Operations, which are being discontinued, are reported separately in the income and balance sheet statements starting at the time when it's highly likely that a sale will occur within one year (as per IFRS 5: Fixed assets held for sale and discontinued operations). So the parallel trading operation is reported separately under "Discontinued operations".

OPENING BALANCE SHEET AS PER THE IFRS

In general, accounting principles applied on the opening balance must agree with each IFRS rule that applies at the time of reporting. Several exceptions from total retroactive application are allowed. On the opening balance, as per the IFRS, Meda applied transition rules like this:

--Employee benefits (IAS 19): introduction of IAS 19 is not considered a transition effect, because RR29 already has been applied from 1 January 2004. RR29 and IAS 19 are generally aligned. Accumulated actuarial profits and losses for pension plans were set to zero (0) at the time of transition and completely reported as pension liability and equity.

--Equity compensation benefits (IFRS2): the recommendation will be applied to plans that have an allocation date starting on 7 November 2002 and onward and that have an earning date of 1 January 2005 or later. Meda's previous plan doesn't fall within these dates, so it need not be restated.

--Financial instruments (IAS 39): reporting and valuation will be applied from 1 January 2004.

--Restatement differences in relation to investments in foreign operations should be reported (as per IAS 21) as a separate item under equity. If foreign operations are sold, then accumulated restatement differences should be reported as part of the profit/loss of the disposals. Meda chose to set the accumulated restatement differences to zero (0) as of 1 January 2004, as per transition provisions in IFRS 1.

PARENT COMPANY

Starting 1 January 2005, the parent company applies RR32. Earlier, it applied RR1-29. This change means that as of 1 January 2005, the parent company reports all derivative contracts at actual value as described above, although this change did not lead to significant changes in the parent company's profit/loss and position. The parent's company's reporting principles are aligned (applicable parts) with the Group's principles - except when it comes to leasing, pensions, and deferred tax on untaxed reserves. The parent company reports all leasing contracts as per operational contract rules. It does not report pensions as per IAS 19; instead, the parent company follows FAR's recommendation no. 4 (FAR is the institute for the accounting profession in Sweden). The parent company does not separately report deferred tax on untaxed reserves. It reports shares in subsidiaries at acquisition value - after deduction for possible write-downs, as per the Annual Accounts Act.

FORTHCOMING INTERIM REPORTS FOR 2006

January - March Thursday, 4 May

January - June Thursday, 24 August

January - September Thursday, 2 November

Stockholm, 23 February 2006

Anders Lonner

CEO

Meda's auditors did not review this report.

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