Annual Report • Apr 4, 2014
Annual Report
Open in ViewerOpens in native device viewer
The vision of a brighter future
Report 42
45 CORPORATE GOVERNANCE
| Introduction by the Chairman of the Board | 46 |
|---|---|
| Corporate Governance Report 2013 | 47 |
| Board of Directors and Auditors | 52 |
| President and Group management | 54 |
| Board of Directors' report on internal control | 57 |
| Auditor's statement on the | |
| Corporate Governance Report | 58 |
| Board of Directors' Report | 60 |
|---|---|
| Consolidated cash fl ows | 72 |
| Comments on consolidated cash-fl ows | 73 |
| Consolidated comprehensive income | 74 |
| Comments on consolidated | |
| comprehensive income | 75 |
| Consolidated fi nancial position | 78 |
| Comments on consolidated | |
| fi nancial position | 80 |
| Changes in consolidated equity | 81 |
| Comments on changes | |
| in consolidated equity | 83 |
| Parent company cash fl ows | 84 |
| Parent company income | 84 |
| Parent company fi nancial position | 85 |
| Changes in parent company equity | 86 |
| Notes to the fi nancial statements | 87 |
| Accounting principles | 87 |
| Objectives, policies and processes | |
| for managing capital | 96 |
| Financial risks | 97 |
| Operational risks | 101 |
| Notes | 104 |
| Proposed disposition of earnings | 134 |
| Auditor's report | 135 |
| Ten-year overview | 136 |
| Defi nitions | 138 |
| Financial information | 139 |
| Annual General Meeting | 139 |
A source of shining light when experts look into their crystal balls to predict future energy supply. In the next ten years the demand for natural gas is expected to increase by 30 per cent. Within 25 years we will probably be using more gas than oil or coal. This ignites a clear flame of hope for our planet – for gas is the cleanest fossil fuel in both CO2 emissions and its content of sulphur and heavy metals. Alfa Laval's know-how is playing a key role in this development. Our equipment, systems and service are vital links in the long chain that stretches from exploration via production and processing to the transportation of natural gas.
Pure Performance. Energy. Environment. Marine. Mechanical engineering. Pharmaceuticals. Chemicals. You name the industry. Alfa Laval is helping all of them to purify and refine their processes and products. Time and time again. We are hard at work in more than 100 countries with our expertise and support. Helping to create better, more comfortable living conditions for all mankind. That is our burning ambition.
Alfa Laval is a world-leading supplier of products and solutions in the key technologies of heat transfer, separation and fluid handling. The company's equipment is used to heat, cool, separate and transport products in industries that produce food, beverages, fuel, chemicals, pharmaceuticals, starch, sugar and ethanol. They are also used aboard vessels, in power plants, in the engineering industry, for treating sludge and wastewater, for comfort heating and cooling, and much more.
More than 30 percent of the world market 25 to 30 percent of the world market 10 to 12 percent of the world market
Most industrial processes need some sort of solution for heat transfer. Alfa Laval's offering includes heat exchangers that optimize customers' energy consumption, cut costs and reduce the impact on the environment.
Read more on page 25.
Alfa Laval's separators and decanters can be used in many areas of application to separate liquids from one another, solid particles from liquids, and particles and liquids from gases. The offering also includes belt filter presses and membrane filters.
Read more on page 26.
Alfa Laval offers pumps and valves for industries with stringent hygiene requirements, such as the food and pharmaceutical industries.
Read more on page 27.
Alfa Laval's worldwide sales and aftermarket organization helps customers in some 100 countries to optimize their processes. Alfa Laval has 16,282 employees, the majority of whom are located in Sweden (2,160), China (2,700), Denmark (1,740), USA (1,837), India (1,455) and France (902). The company also has 34 major production units spread across Europe (17), Asia (9), the US (6) and Latin America (2).
Invoicing growth, % Operating margin, % Return on capital employed, %
The goal is to grow an average of at least 8 percent annually measured over a business cycle.
The goal is to have an operating margin of 15 percent measured over a business cycle.
The goal is to have a return on capital employed of at least 25 percent.
Alfa Laval has three sales divisions – Equipment, Process Technology and Marine & Diesel – as well as one division known as Operations, which is responsible for production, procurement and logistics. The three sales divisions have separate business models designed to meet specific customer requirements and purchasing habits, which ultimately enables Alfa Laval to fulfil its business concept: "To optimize the performance of customers' processes, time and time again." Sales of products based on the company's three key technologies, including heat exchangers, separators, decanters, pumps and valves, are carried out by all three divisions.
Equipment is characterized by a fast-moving business, with components sold to customers with recurring requirements and well-defined needs through various sales channels.
The division comprises four segments: Industrial Equipment, Sanitary, OEM and Service.
Read more on page 30.
Process Technology sells customized solutions and systems directly to end customers through the Group's own sales companies and contractors.
The division comprises four segments: Process Industry, Energy & Environment, Food Technology and Service.
Read more on page 32.
Marine & Diesel offers components, modules, systems and service for customers in the marine and offshore markets and land-based diesel power.
The division comprises three segments: Marine & Diesel Equipment, Marine & Offshore Systems and Service.
Read more on page 34.
Operations is responsible for the Group's production-related procurement, as well as its manufacturing, distribution and logistics. Having a centralized, coordinated and global supply chain is crucial to ensuring reliable access to the company's products worldwide.
Read more on page 36.
Order intake in Alfa Laval's top ten markets 2013.
| Amounts in SEK million unless otherwise stated | +/- %6) | 2013 | 2012 | 2011 | 2010 | 2009 |
|---|---|---|---|---|---|---|
| Order intake | 0 | 30,335 | 30,339 | 28,671 | 23,869 | 21,539 |
| Net sales | 0 | 29,934 | 29,813 | 28,652 | 24,720 | 26,039 |
| Adjusted EBITDA 1) | 0 | 5,363 | 5,381 | 5,736 | 5,107 | 4,976 |
| Adjusted EBITA 2) | 0 | 4,914 | 4,934 | 5,287 | 4,682 | 4,585 |
| Operating margin (adjusted EBITA 2)), % | 16.4 | 16.5 | 18.5 | 18.9 | 17.6 | |
| Profit after financial items | -8 | 4,172 | 4,529 | 4,676 | 4,364 | 3,760 |
| Return on capital employed, % | 26.4 | 27.4 | 31.3 | 37.4 | 33.6 | |
| Return on shareholders' equity, % | 20.4 | 22.9 | 22.9 | 24.4 | 24.5 | |
| Earnings per share, SEK | -5 | 7.22 | 7.64 | 7.68 | 7.34 | 6.42 |
| Dividend per share, SEK | 7 | 3.75 3) | 3.50 | 3.25 | 3.00 | 2.50 |
| Equity per share, SEK | 12 | 38.53 | 34.46 | 36.10 | 32.30 | 28.98 |
| Free cash flow per share, SEK 4) | 7.81 | 0.78 | -4.93 | 6.38 | 6.46 | |
| Equity ratio, % | 46.3 | 41.3 | 43.9 | 50 | 46.7 | |
| Debt/equity ratio, % | 16 | 30 | 22 | -4 | 4 | |
| Number of employees 5) | -1 | 16,308 | 16,419 | 16,064 | 12,618 | 11,390 |
1) Adjusted EBITDA – Operating income before depreciation, amortization of goodwill and amortization of other surplus values, adjusted for items affecting comparability.
2) Adjusted EBITA – Operating income before amortization of goodwill and other surplus values, adjusted for items affecting comparability.
3) Board proposal to the Annual General Meeting.
4) Free cash flow is the sum of cash flow from operating and investing activities.
5) Number of employees at year-end.
6) Percentage change between 2012 and 2013.
Order intake totalled SEK 30,335 million in 2013, com pared with SEK 21,539 million in 2009. Order intake rose 4 percent* in 2013 compared with 2012. * Excluding exchange-rate variations.
Alfa Laval generated free cash flow amounting to SEK 3 275 million (326) in 2013.
Adjusted EBITA amounted to SEK 4,914 million in 2013, compared with SEK 4,934 million in 2012.
Adjusted EBITA Operating margin
2013 was a year that was characterized by continued uncertainty in the global economy. However, we saw accelerating demand from the shipbuilding industry at the same time as there was a continued favorable trend in areas related to oil and gas. At year-end, order intake and sales had each increased by 4 percent, excluding currency effects. Including currency effects, order intake and invoicing were unchanged, amounting to SEK 30.3 and SEK 29.9 billion, respectively.
The operating margin was 16.4 percent (16.5). Despite negative currency effects and continued investments in future initiatives, we were able to maintain an unchanged operating margin, thanks to our previously implemented costcutting program.
From a geographic perspective, our performance varied. The US strengthened its position as Alfa Laval's largest market through acquisitions, with shale gas extraction and the subsequent reindustrialization of the process industry contributing to this trend. Our order intake in China displayed a broad, solid increase due to the recovery of the shipbuilding industry and the comprehensive expansion of our sales and service organization in the central region of the country in recent years. Growth in Germany was favourable thanks to the country's positive economic trend. South Korea maintained its fourth-place position due to an upturn in the shipbuilding industry, which offset the decline reported among Korean contracting companies. Solid, broad demand in Russia resulted in order intake remaining at a record level.
During 2013, various investments in increased capacity and productivity were completed at a number of highly specialized plants in Sweden and France. Investments were also carried out to streamline the supply chain and thus boost the company's competitiveness and shorten lead times.
Investments in research and development remains important to us since new and refined products are fundamental to profitable growth. Several exciting products were launched during the year, including T35 – part of the next generation of large-scale, gasketed heat exchangers designed for the marine and process industries. The product family, which includes several unique innovations and patents, has been very well received by the market. PureDry, which was launched in 2012, also achieved broad acceptance during the year. The product, which is the most important innovation in high-speed separation in many years, enables the recovery of
waste oil aboard ships and thus has the potential to generate major savings. In total, we invested SEK 732 million in research and development, an increase of 3.5 percent compared with 2012 on a like-for-like basis. In parallel, we also invested in a new marine testing and training center in Aalborg, Denmark. The center offers an opportunity to experience an advanced ship simulation, thanks to the design of the premises themselves which are constructed to resemble an engine room aboard a commercial vessel. The center will enable us to test our products individually, as well as assessing their functionality when integrated. In addition to providing a strong platform for continued research and development, the center offers excellent customer training opportunities. Overall, this investment should be seen as a confirmation of our belief in the marine market.
The prioritized areas in the Process Technology Division include energy, the environment and an
increased presence in fast-growing markets. The division had an unchanged order intake after experiencing extremely strong growth in the preceding year. Demand in the area of oil and gas exploration was strong, with major investments made in offshore extraction, particularly in the North Sea and off the west coast of Australia. Production in North America increased rapidly as a result of improved methods for extracting oil and gas from shale formations. The abundant supply of inexpensive gas as both a commodity and a form of energy is also resulting in the reindustrialization of the US process industry, which is benefitting Alfa Laval. As a result of a number of complementary acquisitions in recent years, the division has expanded its product offering to the oil and gas industry. Over the past year, the US order intake from this sector amounted to approximately SEK 1 billion. At the same time, the aftermarket displayed strong growth, driven by our increasing installed base and our focus on expanding our geographic presence in recent years.
The priority in the Equipment Division is to increase the company's market presence in a cost-efficient manner by establishing addtional sales channels, as well as expanding its presence in the aftermarket. This is an ongoing effort that also includes the gradual roll-out of our e-commerce platform Alfa Laval Anytime. The division had an unchanged order intake overall, but noted growth in demand from the food and pharmaceuticals industries. At the same time, our newly developed products contributed to a sharp increase in demand from OEM customers and the aftermarket business experienced favourable growth.
The main priorities in the Marine & Diesel Division are the environment and energy efficiency. Our recenently launched environmental products PureSOx and PureDry have attracted considerable interest. The Pure SOx exhaust gas cleaning system based on scrubber technology grew siginificantly and several major orders were booked, while the PureDry oil recovery system achieved broad acceptance among shipowners. Many shipowners are now also prioritizing heat recovery from exhaust gases and the application potential of this technology is growing rapidly. Following a weak start to the year, demand from the shipbuilding industry increased and favourable growth was reported for the full year, while the aftermarket business remained unchanged, excluding acquisitions, as a result of the impact of low freight rates on many shipowners. Nevertheless, freight rates trended upwards toward year-end, which is a positive sign.
Since 2005, we have increased the number of employees in our service organization, as well as the number of service centers, by more than 50 percent, at the same time as our sales rose by more than 80 percent. Despite this sharp increase, we believe that the aftermarket still offers considerable potential. To provide an internal signal of our increased focus on the aftermarket, we changed the name of the Parts & Service segment to Service, which now comprises "Parts" and "Service operations." The main goal is to boost the market share of our installed base by assuming clearer ownership and a more proactive approach. We will intensify our efforts to expand our "service operations" with respect to man-hours with the aim of protecting our installed base and capitalizing on growth opportunities. To achieve this goal, we must continue refining our service offering and investing in the skills development of our service personnel. From a medium and long-term perspective, Service is expected to make a significant contribution to our profitability and growth.
During the final few days of 2013, the share price climbed to record-high levels. Over the full year, the share price rose 22 percent, compared with an increase of 12 percent for the NASDAQ OMX Stockholm Industrials Index. Alfa Laval's market capitalization at yearend amounted to approximately SEK 69 billion. Our share continued to attract considerable interest, with slightly more than 36,000 shareholders at year-end and some 20 analysts tracking Alfa Laval on a regular basis.
Alfa Laval's goal is to be an attractive employer with motivated and committed employees, thus creating a foundation for our continued success. Ultimately, the development of the company goes hand-in-hand with the development of our employees – in other words, when our employees grow, so does the company.
Our annual employee attitude survey, which encompasses all employees, is a powerful tool for developing all areas of our organization. Professional management is crucial for the success of the company and its employee satisfaction. The results of the survey provide each work group with guidance on how to improve the leadership and overall performance of the group.
With 16,000 employees spread across several continents, a sound corporate culture is the glue that holds the company together. Accordingly, we are making a concerted effort to communicate and instill Alfa Laval's core values in all of our employees.
When Alfa Laval's Business Principles were updated in 2012, we adamantly stated that they must be put into practice if we are to achieve our vision of helping to create better everyday conditions for people.
For many of our employees, these challenges are part of their ongoing work. With a product portfolio designed to save energy, protect the environment and optimize the use of natural resources, it is only natural that the employees in our research and development department or those in sales and service, for example, are involved in sustainability issues on a daily basis. Behind the scenes, however, many other employees are also making a difference: our logistics experts work to reduce the company's CO2 emissions from transportation; our purchasing staff discuss and agree on improvements that should be made to the working conditions of our suppliers; our production managers implement projects to save energy and water at our production sites; and our HR department ensures that Alfa Laval offers its employees a workplace that is free from discrimination. However, this list could be siginicantly longer.
Several of the industries represented among Alfa Laval's customers have worked to establish standard procedures for responsible supply chain management. In 2013, Alfa Laval became more active in these joint industry initiatives, which I believe will provide us with greater momentum when it comes to implementing practical improvements.
I would like to conclude by extending my warm and sincere thanks to all of our employees for your commitment and determination in contributing to the continued success of Alfa Laval.
Lund, February 2014
Lars Renström President and Chief Executive Officer
Demand for Alfa Laval's products and services is naturally driven by individual customer requirements. However, other more general external factors also influence – and are expected to continue influencing – the demand and need for products in the areas of heat transfer, separation and fluid handling. Alfa Laval takes a proactive approach to understanding and analyzing these external changes as well as the underlying dynamics, in order to identify existing and potential future requirements and respond to these requirements by having a presence in the right markets and offering the right products. The following description provides an overview of four structural changes that are impacting demand for the company's products, as well as examples of Alfa Laval's efforts to capitalize on the opportunities arising.
According to the International Energy Agency, the world's energy needs are expected to grow by approximately 30 percent by 2035, primarily driven by increased demand in non-OECD countries. In China alone, demand is expected to increase by 60 percent during this period. This development is expected to require global investments of USD 37 trillion, of which non-OECD countries are expected to account for 61 percent. At the same time, increasing energy prices are forcing industrial companies to review their processes and make them more energy efficient, thereby reducing costs.
As environmental problems increase, new, stricter regulations are introduced to reduce society's environmental impact. Take the marine industry, where more stringent legislative regulations are gradually being introduced, for example with regard to the amount of sulphur permitted in the exhaust gas of ships. To meet these demands, shipowners can choose between changing to a more expensive, low-sulphur fuel or investing in an exhaust gas cleaning solution.
Alfa Laval's products are currently used in everything from oil and gas exploration to oil refinement and power production. In light of the recent US investments in shale gas, intended to enable energy independence, Alfa Laval has expan-
ded its presence in the country, as well as its product portfolio, in order to increase its exposure to a sector deemed to have significant potential. In parallel, the company is actively working to show its customers in a number of industries the energy and cost-savings that can be achieved by switching from traditional shell-and-tube technology to Alfa Laval's compact plate heat exchangers. In other words, Alfa Laval is participating in both the expansion of energy extraction and the initiatives being carried out by individual companies to utilize the energy already being produced in a more efficient manner.
Alfa Laval has developed a product that enables shipowners to continue using heavy oil for fuel while at the same time meeting the legislative requirements. This product, known as Alfa Laval Pure SOx, reduces the sulphur content in the exhaust gases to the legally required level. Since heavy oil is cheaper than lowsulphur fuel, this investment pays off in one to two years.
Read more about Alfa Laval's offering of products for the environmental, energy, food and marine industries:
www.alfalaval.com/industries
People in the world's faster-growing economies have gradually achieved a better position. According to statistics from the World Bank, gross national income per capita in the BRIC countries increased three to fivefold between 2003 and 2012. Along with a stronger economy, particularly for the poorest people in society, follows increased demand for better food, such as vegetable oil. At the same time, accelerated urbanization and the increased presence of women in the workforce is resulting in greater demand for everything from processed and semi-processed food to complete food stores.
Food has been a focus area for Alfa Laval since 1883. Heat exchangers, separators, pumps and valves for hygienic applications are sold through the Sanitary and Food Technology segments to the global food, beverage and pharmaceutical industries. At the same time Industrial Equipment delivers heat exchangers for use in cooling chains. The company's product range is being developed on a continuous basis, and its production operations are gradually being expanded in fast-growing regions in order to meet increasing demand. In recent years, Alfa Laval has, for example, established local production units for air heat exchangers – which are used in cold food-storage rooms – in all BRIC countries.
According to statistics from the World Trade Organization, international trade has grown by an annual average of 5.4 percent over the past 20 years. This growth is the result of an increasingly globalized world where it is not uncommon to find raw materials in one country, production in another and consumers in yet another. Although the growth rate has slowed somewhat in recent years, forecasts indicate continued growth, which will entail a greater need for transportation solutions, with shipping being the most cost-effective alternative.
Alfa Laval has been delivering equipment to the marine sector for decades, and its products are currently found aboard about 75 percent of the global ocean-going fleet. The company's products have traditionally been used in engine rooms, including separators
for cleaning fuel and lubricants, and heat exchangers for heating fuel, cooling engines and generating freshwater. The product portfolio has gradually been expanded through the development of new, proprietary products, as well as the acquisition of prominent companies such as Aalborg Industries. As the industry's focus on the environment has intensified, Alfa Laval has expanded its offering to include environmental solutions, such as systems for treating ballast water and reducing the sulphur content in ships' exhaust gas.
In 2013, invoicing rose 4.1* percent, with organic growth accounting for 1.2 percent and acquisitions for 2.9 percent. The compound annual growth over the past ten-year period is 11.5 percent.
The operating margin for 2013 was 16.4 percent, compared with 16.5 for full-year 2012.
The return on capital employed for 2013 was 26.4 percent.
*Excluding exchange-rate variations
To "help create better everyday conditions for people" by offering efficient and environmentally responsible products and solutions for water treatment, energy production and food production.
Based on its three key technologies – heat transfer, separation and fluid handling – Alfa Laval offers products and solutions that "optimize the performance of our customers' processes, time and time again." In other words, Alfa Laval aims to help its customers become more productive, energy-efficient and competitive.
Alfa Laval's operations are governed not only by the company's business concept, but also by the financial goals established with regard to growth, profitability and return. By achieving or exceeding these goals, Alfa Laval creates the necessary scope for its continued development, as well as generating increased value for its shareholders in the form of an annual dividend and by boosting the value of the company.
The goal is to have an average annual growth rate of at least 8 percent measured over a business cycle, with organic growth accounting for 4 to 5 percentage points and acquisitions for 3 to 4 percentage points. This goal was established based on the company's growth over a period of ten years and an assessment of its future prospects.
The goal is to have an operating margin (adjusted EBITA) of 15 percent measured over a business cycle. The profitability goal was established based on historical margins and the company's growth ambitions.
The goal is to have a return on capital employed of at least 25 percent. This level was set taking into account the relatively low level of capital tied up in operating activities.
In addition to the Group's financial goals, the Board of Directors has established benchmark values for three key financial ratios, which further specify the framework and goals for the operation of the company.
In the long term, the debt/equity ratio, meaning the capital the company borrows in relation to the carrying amount of shareholders' equity, is to be less than 75 percent. Although the ratio may exceed 100 percent in connection with major acquisitions, this should be viewed as merely temporary, since cash flow and earnings are expected to offset this effect.
The benchmark value states that 2.0 percent of sales should go to investments. Given the investments and capacity expansion carried out in recent years, this investment level is deemed sufficient to create the scope for replacement investments and an expansion of capacity in line with the organic growth goal for the Group's existing core products.
Cash flow from operating activities is to amount to 10 percent of sales, including investments in fixed assets. This value is lower than the goal for the operating margin, since organic growth normally requires an increase in working capital. In addition, taxes are paid in an amount corresponding to approximately 28 percent of earnings before tax.
In addition to its financial goals, Alfa Laval has a number of non-financial goals, including a reduction in water consumption, increased energy efficiency, a reduction in the use of restricted "grey-list" chemicals and a reduction in greenhouse gas emissions from freight transportation and travel.
For more information about these goals and other sustainability initiatives, visit: www.alfalaval.com/about-us/sustainability
Debt/equity ratio, % Investments, %* Cash flow from current operations, %*
The debt/equity ratio at year-end 2013 was 16 percent. Investments in 2013 amounted to 1.7 percent. In 2013, cash flow from operating activities amounted to 12.5 percent.**
In order to achieve its vision, implement its business concept and attain its growth, profitability and capital utilization goals, Alfa Laval has established a number of strategic priorities. These include strategies for expanding the Group's product offering and market presence – mainly organically, but also through acquisitions – as well as strategies for increased efficiency.
Alfa Laval's existing products in its three key areas provide a foundation for the company's continued profitable growth, since the high quality and energy efficiency of these products are becoming increasingly important criteria for customers. At the same time, the company is investing in research and development in order to respond to changing customer needs with new products and improved versions of existing products. Identifying new areas of application for existing products and key technologies is another important means of achieving profitable growth. Alfa Laval also strengthens its offering by adding new products through acquisitions, both supplementary products in its three key technologies and new products that complement the company's offering in application areas where it is already active.
showing its customers in various energyintensive sectors the energy and cost-savings that can be achieved by switching technology.
Having a local presence is crucial to Alfa Laval's operations in terms of both sales and production. This entails having a strong geographic presence in areas with good growth potential with regard to demand and favorable operational conditions – and these considerations are assessed on a continuous basis. The main goal is to identify areas where the company can expand its presence organically – either in terms of breadth by entering new geographic areas or in terms of depth by further expanding the Group's presence in existing countries and regions with strong potential demand. Another way to quickly improve the Group's presence is to carry out acquisitions. In some areas however, the best way to improve the Group's presence is to add new sales channels. Alfa Laval's e-commerce solution also offers a cost-effective way to serve a large number of customers in a variety of geographic regions.
out in various countries over the past two years and provides a cost-efficient way of bringing the Group's component-based offering to various markets.
Several basic steps must be taken in order to ensure profitability and a favorable return. The first, which pertains to procurement and production, is to decide which products Alfa Laval should produce itself and which products should be purchased from suppliers. In terms of logistics, Alfa Laval must figure out how to meet its customers' services requirements, while at the same time ensuring an efficient allocation of capital. The Group must also establish business models for its sales divisions and consider the breadth of its offering.
– Alfa Laval conducts continuous reviews to determine which products the Group should produce itself and which products should be purchased from suppliers. These are fundamental decisions when it comes to achieving a favorable return. One example of this is district heating stations, which were previously produced by the Group in Ronneby, Sweden, but – following a review – were deemed more suitable for purchase from suppliers.
Between 2009 and 2013, Alfa Laval acquired 20 companies with combined sales of SEK 7,540 million, corresponding to an average annual growth of SEK 1,508 million.
| 2009 | |||
|---|---|---|---|
| ACQUISITION | REASON | SALES, SEK MILLION* | |
| P&S Multibrand | Channel | 200 | |
| P&S Multibrand | Channel | 100 | |
| Onnuri, South Korea | Channel/geography | 150 | |
| HES, Germany | Product | 85 | |
| PHE, Brazil | Geography | 45 | |
| LHE, South Korea | Channel/geography | 750 | |
| Additional 12 percent of the share capital in Alfa Laval India. (Total holding 89 percent) |
Geography | Did not affect sales |
|
| DIVESTMENTS | REASON | SALES, SEK MILLION* | |
| – | – | – | |
| 2010 | |||
| ACQUISITION | REASON | SALES, SEK MILLION* | |
| Champ Products Inc., USA | Product | 100 | |
| Service company, USA | Channel | 100 | |
| Astepo S.r.l., Italy | Product | 70 | |
| Si Fang, China (65 percent) | Channel | 150 | |
| Definox, France | Channel | 200 | |
| Olmi S.p.A, Italy | Product | 700 | |
| DIVESTMENTS | REASON | SALES, SEK MILLION* | |
| – | – | – | |
| 2011 | |||
| ACQUISITION | REASON | SALES, SEK MILLION* | |
| P&S Multibrand | Channel | 100 | |
| Aalborg Industries A/S, Denmark | Product | 3,300 | |
| DIVESTMENTS | REASON | SALES, SEK MILLION* | |
| – | – | – | |
| 2012 | |||
| ACQUISITION | REASON | SALES, SEK MILLION* | |
| Additional 8.5 percent of the share capital in Alfa Laval India. (Total holding 97.5 percent) |
Geography | Did not affect sales |
|
| Vortex Systems, USA | Product | 100 | |
| Ashbrook Simon-Hartley, USA | Product | 500 | |
| Gamajet Cleaning Systems, USA | Product/geography | 75 | |
| Air Cooled Exchangers, LLC, USA | Product/geography | 350** | |
| DIVESTMENTS | REASON | SALES, SEK MILLION* | |
| – | – | – | |
| 2013 | |||
| ACQUISITION | REASON | SALES, SEK MILLION* | |
| Gas combustion unit | Product | 40*** | |
| Niagara Blower Company | Product | 425 | |
| DIVESTMENTS | REASON | SALES, SEK MILLION* | |
| – | – | – |
* Refers to sales for the year preceding the acquisition or divestment.
** Sales in 2012.
*** Expected sales for 2013 on the acquisition date.
Alfa Laval experienced a strong stock market trend in 2013. After a sluggish start, the Alfa Laval share climbed 22 percent during the year, nearly double the increase reported for the OMX Stockholm Industrials Index, which rose 12 percent. The OMX Stockholm Industrials Index comprises industrial companies on the OMX Nordic Exchange Stockholm. Including the dividend of SEK 3.50 per share, the total return for the Alfa Laval share was 25 percent.
The Alfa Laval share ended 2013 at SEK 165.00 (135.30). The highest price listed for the share was SEK 167.00 in late December and the lowest price was SEK 133.00 in late June. Alfa Laval's market capitalization at year-end was SEK 69.2 billion (56.8).
The Alfa Laval share is listed on NASDAQ OMX Stockholm and is included in the large cap segment in Stockholm and the Nordic region. The share is also included in a number of other indexes in Sweden and abroad, including the OMXN40 Index, which comprises 40 companies with the largest market capitalization and most-traded shares in the Nordic region, as well as the OMXS30 Index, which includes 30 companies with the most-traded shares in Stockholm.
Since Alfa Laval was relisted on the OMX Nordic Exchange Stockholm on May 17, 2002, the company's share, including reinvested dividends, has generated a yield of 814 percent. Measured over the full listing period, the average annual yield amounts to 19.6 percent, compared with an average annual yield of 6.0 percent for the SIX
Return Index during the same period.
Alfa Laval's share is not traded exclusively on NASDAQ OMX Exchange Stockholm, but also on BATS Chi-X, BOAT, Turquoise and Burgundy, to name a few of the largest alternative marketplaces. The NASDAQ OMX Exchange Stockholm was once again dominant in 2013, accounting for 41 percent (40) of all shares traded. The liquidity of the Alfa Laval share is favorable and 690 (927) million shares in the company were traded in 2013 at a combined value of SEK 101 billion (119), including all alternative marketplaces. This corresponds to a turnover rate of 1.6 (2.2) times the total number of shares outstanding. During the year, an average of 5,516 (7,060) share transactions were completed in Alfa Laval shares per day.
The Board of Directors' goal is to regularly propose a dividend that reflects the Group's performance, financial status, and current and expected capital requirements. Taking into account the Group's cash-generating capacity, the goal is to pay a dividend of between 40 and 50 percent of net profit over a business cycle, adjusted for surplus value. For 2013, the Board has proposed that the Annual General Meeting approve a dividend of SEK 3.75 (3.50). The proposed dividend corresponds to 45.8 percent (41.7) of net profit, adjusted for surplus value.
The par value at year-end was SEK 2.84 (2.84) per share. All shares carry equal voting rights and equal right to the company's assets. Alfa Laval has no options outstanding that could create a dilution effect for shareholders. At the Annual General Meeting on April 23, 2013, the Board was granted a mandate to repurchase shares in the company, if the Board deems this to be suitable, up to the next Annual General Meeting. The mandate pertained to the repurchase of up to 5 percent of the shares outstanding for the purpose of cancelling the repurchased shares and reducing the share capital. The repurchase would be made through purchases on the NASDAQ OMX Exchange Stockholm.
Alfa Laval made no repurchases during the year or after the 2013 Annual General Meeting. As of March 19, 2013, when the notice of the Annual General Meeting was issued to the shareholders, the number of repurchased shares held in treasury was zero. Accordingly, the total number of shares during the year was unchanged at 419,456,315.
At year-end 2013, Alfa Laval had 36,212 (34,629) shareholders. A net total of 1,582 (decrease: 1,938) new shareholders were added during the year. The ten largest shareholders controlled 54.6 percent (51.3) of the shares at year-end 2013. The single largest shareholder was Tetra Laval B.V., whose holding remained unchanged at 26.1 percent. The ownership structure remained relatively stable, despite a reweighting among certain institutions.
| No. of shares | Holding, % | |
|---|---|---|
| Financial companies | 108,619,843 | 25.90 |
| Other financial companies | 25,376,512 | 6.05 |
| Social insurance funds | 12,142,733 | 2.89 |
| Government | 1,094,939 | 0.26 |
| Municipal sector | 103,028 | 0.02 |
| Trade organizations | 5,674,028 | 1.35 |
| Other Swedish legal entities | 8,688,691 | 2.07 |
| Shareholders domiciled abroad (legal entities and individuals) |
228,984,411 | 54.59 |
| Swedish individuals | 24,649,781 | 5.88 |
| Uncategorized legal entities | 4,122,349 | 0.98 |
Source: Euroclear
| No. of shares | Capital/Voting rights, % |
Change in holding in 2013, percen tage points |
|
|---|---|---|---|
| Tetra Laval BV | 109,487,736 | 26.1 | +/-0 |
| Swedbank Robur Funds | 26,843,371 | 6.4 | 2.4 |
| Alecta | 26,486,000 | 6.3 | -0.4 |
| Foundation Asset Management AB |
25,100,000 | 6.0 | +/-0 |
| AMF Insurance and Funds | 16,618,270 | 4.0 | 0.6 |
| Nordea Investment Funds | 9,153,983 | 2.2 | 1.5 |
| Fourth Swedish Pension Insurance Fund |
4,368,874 | 1.0 | +/-0 |
| First Swedish Pension Insurance Fund |
3,996,638 | 1.0 | -0.4 |
| Handelsbanken Funds | 3,722,564 | 0.9 | -0.2 |
| Folksam | 3,060,992 | 0.7 | +/-0 |
| Total ten largest shareholders |
228,838,428 | 54.6 |
* The table is adjusted for custodian banks. Were they to be included, they would represent a holding of 4.3 %.
Source: Euroclear
| No. of share holders |
No. of share holders, % |
No. of shares |
Holding, % |
|
|---|---|---|---|---|
| 1 – 500 | 24,515 | 67.7 | 4,096,164 | 1.0 |
| 501 – 1,000 | 5,149 | 14.2 | 4,313,384 | 1.0 |
| 1,001 – 5,000 | 4,793 | 13.2 | 11,182,886 | 2.7 |
| 5,001 – 10,000 | 713 | 2.0 | 5,308,731 | 1.3 |
| 10,001 – 20,000 | 361 | 1.0 | 5,371,052 | 1.3 |
| 20,001 – 50,000 | 267 | 0.7 | 8,502,324 | 2.0 |
| 50,001 – | 414 | 1.1 | 380,682,774 | 90.7 |
| Total number of |
shareholders 36,212
Source: Euroclear
| 2013 | 2012 | 2011 | 2010 | 2009 | |
|---|---|---|---|---|---|
| Share price at year-end, SEK | 165.00 | 135.30 | 130.30 | 141.70 | 99.00 |
| Highest paid, SEK | 167.00 | 146.50 | 147.70 | 142.60 | 100.20 |
| Lowest paid, SEK | 133.00 | 110.40 | 101.40 | 94.95 | 55.00 |
| Shareholders' equity, SEK | 38.53 | 34.46 | 36.10 | 32.40 | 29.00 |
| Earnings per share | 7.22 | 7.64 | 7.68 | 7.34 | 6.42 |
| Dividend, SEK | 3.751) | 3.50 | 3.25 | 3.00 | 2.50 |
| Free cash flow, SEK 2) | 7.81 | 0.78 | -4.93 | 6.38 | 6.46 |
| Price change during the year, % | +22 | +4 | -8 | +43 | +47 |
| Dividend as % of EPS, % | 51.9 | 45.8 | 42.3 | 40.9 | 38.9 |
| Direct return, % 3) | 2.27 | 2.59 | 2.5 | 2.1 | 2.5 |
| Share price/shareholders' | |||||
| equity, multiple | 4.3 | 3.9 | 3.6 | 4.4 | 3.4 |
| P/E ratio 4) | 23 | 18 | 17 | 19 | 15 |
| No. of shareholders | 36,212 | 34,629 | 36,567 | 33,565 | 33,780 |
Source: OMX Nordic Exchange Stockholm
0
1
2
3
36
4
1) Board proposal to the Annual General Meeting.
09 10 11 12 13
38.6
*Board proposal to the Annual General Meeting
2,50 3,00 3,25 3,50
37.4
2) Free cash flow is the sum of cash flow from operating and investing activities.
3) Measured as proposed dividend in relation to closing price on last trading day.
0
20
40
3,75*
45.8
60
4) Closing price on last trading day in relation to earnings per share.
41.7
Source: Euroclear
Source: Euroclear
To achieve profitable growth, it is crucial to identify new market demands and transform them into new products faster than the competition – this requires continuous investments in research and development. Such investments can result in everything from minor adjustments to existing products to the development of new equipment to meet existing and future requirements.
The benchmark value for Alfa Laval, which has been characterized by innovation and invention since it was founded in the 1880s, states that the company should invest approximately 2.5 percent of its annual sales in order to further strengthen its product portfolio. This work results in some 35 to 40 new products each year, an optimal level for ensuring that the company receives the greatest possible return on every investment it makes in research and development. To maintain a sense of momentum and energy in the organization, continuous assessments are carried out. It is important to monitor how quickly an individual product reaches the market, as well as the time it takes for that product to become profitable. The company also continuously monitors the proportion of total sales derived from products introduced within the past five years.
New products must naturally be protected to ensure that the company's investments generate revenues. Alfa Laval's patent division works actively to protect and defend Alfa Laval's technologies and products around the world. At year-end, Alfa Laval held more than 2,000 patents.
Customers in different industries have different demands. Some may impose safety requirements – in other words, require that the product in question can withstand a certain process – which is important, for example, in petrochemical and refinery operations, while others may need a product that meets strict hygiene standards and effectively eliminates all risks of contamination, which is crucial in the food and pharmaceutical industries. Customers are generally also looking for high-quality products that can optimize their processes for several problem-free years and be upgraded when necessary. Thanks to its investments in research and development,
Alfa Laval is at the forefront in all of these areas and delivers products that can improve the performance of customers' processes, thereby strengthening their competitiveness – today and tomorrow. By successfully applying this strategy from the start, Alfa Laval has earned a top position among companies in the areas of heat transfer, separation and fluid handling. Customers know what they are getting when they choose Alfa Laval – high-performance, quality products with a long service life.
Alfa Laval invested SEK 732 million (707) in research and development in 2013, corresponding to 2.4 percent (2.4) of sales.
The latest addition to Alfa Laval's Diabon heat exchanger portfolio, designed for the steel and chemical industry, is the largest unit ever built. Like the other sizes in the product portfolio, the Diabon S15 is able to withstand corrosive environments. Diabon graphite material offers exceptional corrosion resistance at up to 200°C. This new, larger version more than doubles the flow rate and can therefore replace shell-and-tube or block heat exchangers while providing all the benefits of a plate heat exchanger, such as maximum heat recovery, minimal downtime and low maintenance costs, all of which contribute to low operating costs.
New series of high-speed separators Four new separators were launched to strengthen Alfa Laval's competitiveness: PAPX 10 for palm oil, VNPX 310 for beverages and herbal extract applications in China, VO 10 for vegetable oil, primarily in India, and VO 20 for vegetable oil, primarily in China. These new separators are unique in that they were developed to compete in pre-defined application areas in price-sensitive markets. Alfa Laval developed the separators to meet the needs of the middle price segment without compromising on quality and reliability.
Unique diaphragm valve – Premium UltraPure Alfa Laval has developed a new diaphragm valve offering improved performance. Ideal for use in sterile and ultra-hygienic processes, this reliable valve provides a higher flow rate and lower pressure drop than traditional diaphragm valves. The innovative design makes it easy to install and service, and helps to cut energy costs. The new valve offers lower maintenance costs, doubles the flow rate and helps customers reduce their total operating costs.
Appearances aren't everything. It's what is inside that counts.
A plate heat exchanger may seem like a fairly simple piece of equipment. Plates, a frame, bolts and rubber gaskets – is it really all that complicated and advanced?
The short answer is "Yes!" To understand its full value, you must first understand exactly what a plate heat exchanger does. Because what you don't see when you look at an Alfa Laval plate heat exchanger is the quality and reliability it offers: thin plates that provide unsurpassed efficiency during the heat transfer process, which in turn saves energy and reduces the impact on the environment; specific plate patterns designed to optimize processes; and a long service life that contributes to a low cost of ownership and thus helps maximize the customer's profitability.
So take another look. There is a lot hiding under the surface.
Download our app, use your smartphone to scan the picture on the page to the right and step into an entirely new dimension.
For more information, visit www.alfalaval.com/insights
Pakistan | Karachi Tap water triumph
Alfa Laval technology turns seawater into fresh potable water in Karachi, Pakistan. Seawater is heated to evaporation and condensed into freshwater using Alfa Laval titanium plate heat exchangers. Minerals are then added to make potable water for distribution to the city.
Use the INSIGHTS app to discover the advantages of using Alfa Laval's gasketed plate heat exchangers.
Scan one of the images above using your mobile device. When an image is displayed, click on your unit to read the full story.
24 Nyckelteknologier
Alfa Laval's operations are based on three key technologies for heat transfer, separation and fluid handling, which are of decisive importance for many industrial processes. In 2013, heat transfer products accounted for 53 percent (54) of sales, separation products for 22 percent (22) and fluid handling products for 11 percent (10). Alfa Laval is the global leader in all three technology areas.
25
Alfa Laval has been active in the field of heat transfer since 1931, when the company started to supply pasteurizing equipment for the dairy industry. Today, the company can supply heat exchangers that optimize energy use for heating, cooling, refrigeration, ventilation, evaporation and condensation. The offering comprises heat exchangers for applications that range from use in environments with lower pressures and temperatures to environments that require the handling of aggressive fluids at high and variable pressures and temperatures. Most industrial processes need some form of solution for heat transfer. Accordingly, Alfa Laval's customers can be found in such widely diverse industries as the chemical, food, oil, gas and power production, marine, construction and many, many more.
Air heat exchangers offer the most efficient method of transferring heat between air and liquid. They consist of a series of tubes threaded through corrugated lamellas. Fans force the air between the lamellas, while liquid (water or a cooling medium) flows in the tubes. The range includes air-cooled condensers, air-cooled liquid coolers, dry coolers, and unit coolers for commercial use, as well as industrial cooling, refrigeration and air-conditioning. They are used in applications ranging from industrial cold stores to power plants, industrial processes, breweries, dairies, office properties, etc.
A heat exchanger transfers heating or cooling, usually from one fluid to another, but also between various gases. These products are of vital importance in ensuring the efficiency of
the customer's entire manufacturing process. Compact plate heat exchangers, the main product in Alfa Laval's offering, can offer the customer a very efficient energy utilization, which cuts costs and reduces the environmental impact. Their efficiency stems from their
construction, plate heat exchangers are made up of a series of plates assembled closely to each other. Between the plates, there are two channels containing media at different temperatures. These pass on either side of the plates and in opposite directions to each other. Heating or cooling is then transferred via the plates and the temperatures balanced. Different types of plate heat exchangers have been designed to withstand various forms of pressure and a range of temperatures.
Alfa Laval has a niche range of shell-andtube heat exchangers, specially designed for applications in the food and pharmaceutical industries, as well as for cooling, but also for applications in the petrochemical, power, oil and gas, process and marine industries. A shell-and-tube heat exchanger is made up of a shell containing a bundle of tubes. The primary liquid (cooling medium) flows through the tubes, while the secondary liquid (normally water) flows through the shell around the tubes to enable heat to be transferred from one liquid to the other. Thanks to their robust configuration, shelland-tube heat exchangers can withstand extremely high pressure and temperatures.
OSAKA (Japan)
A thermal fluid system is a closed system that permits the heating medium – synthetic oil – to circulate in a coiled heating surface. The surface then gathers the heat that is produced, either from waste steam or through a combustion process, and this heat is
transferred to the synthetic oil, enabling it to remain in liquid form. Thermal fluid systems are generally used to generate heat for oil tanks, separators and systems for heating fuel. Other typical applications include delivering heat to steam generators, tank cleaning systems and the central heating of a vessel. These systems are also used to heat various types of cargo being transported, such as bitumen, oil-based products and chemicals.
A boiler is a closed vessel containing thin tubes. The larger the boiler, the more tubes it contains. The technology is extremely common onboard vessels but can also be utilized for industrial applications. Alfa Laval's product range includes two different types of boilers, in which the tubes are heated in different ways: one uses waste heat from the engine exhaust, while the other, which mainly operates when the engine is turned off, utilizes heat from an oil burner. The heat from the tubes is used, in turn, to heat and vaporize the water in the container, generating steam that can then be used for a number of processes, including heating, cooling, cleaning, generating electricity or producing hot water for people onboard a vessel.
Ever since Alfa Laval was established in 1883; separation technology has been a central part of operations. The technology is used to separate different liquids from each other and solid particles from liquids. The technology can also be used to separate particles and liquids from gases.
Decanter centrifuges are normally based on horizontal separation technology, which works at a speed of 5,000 revolutions per minute. They are used to separate large particles and are thus commonly used in such applications as the dewatering of sludge in wastewater treatment plants, olive oil production, distilleries and handling drilling mud in conjunction with oil extraction.
Presses intended for the dewatering of municipal and industrial wastewater. This separation technology was added through the acquisition of Ashbrook Simon-Hartley and is a complement to our decanters.
High-speed separators have many areas of application, including the treatment of fuel and lubricating oils onboard vessels, the processing of vegetable oil, the production of pharmaceuticals, milk, beer, wine, juice and other beverages, and in the chemical and oil and gas industry. They have high rotation speeds and can rotate as quickly as 12,000 revolutions per minute. They are generally mounted vertically and are used primarily for separating liquids from one other.
Another separation technology offered by Alfa Laval is membrane filtration, which is an established solution for separating very small particles.
25 to 30 percent of the world market
Transporting and regulating fluids in an efficient, safe and hygienic manner are crucial to processes in many industries. Alfa Laval focuses on fluid handling in industries with stringent hygiene requirements, such as the food and pharmaceutical industries. The company's pumps, valves and installation material are used in such applications as the production of beverages, dairy products, food, pharmaceutical products, and health and personal care products, in other words, in environments where any risk of contamination is precluded. Alfa Laval also offers equipment for tank cleaning.
Pumps drive the flow of liquids during a process and valves are used to guide and direct the flow by opening and closing. For hygienic applications, Alfa Laval mainly offers centrifugal, liquid ring and rotary lobe pumps. The most common types of valves include control valves, constant-pressure valves, butterfly valves and diaphragm valves.
Alfa Laval offers hygienic tank equipment primarily designed for use in the food and pharmaceutical industries. The company's range includes everything from mixers to cleaning equipment. Alfa Laval's mixers work well on both high and low-viscosity liquids, ranging from milk, wine and juice to yoghurt, desserts and fruit drinks. There is even a mixer that offers mixing of liquids and cleaning of the tank afterwards.
GEA (Germany) SPX/APV/ WAUKESHA CHERRY BURRELL (USA) FRISTAM (Germany)
Alfa Laval's organization is rooted in its business concept: to optimize the performance of customers' processes, time and time again. To achieve this goal, the company's structure must be based on an understanding of its customers' needs and processes, which hinges on the specialist expertise of its employees. Combined with insight into how customers conduct procurement and purchasing, this expertise serves as the foundation for Alfa Laval's sales organization and its three divisions: Equipment, Process Technology and Marine & Diesel.
Share of Group's order intake 46% Aftermarket's share of the division 29% Read more on pages 32–33.
The division offers products, solutions and systems in the areas of energy, the environment and safety for customers in the marine and offshore markets and landbased diesel power.
Sales are conducted through the Group's own sales organization directly to shipowners, shipyards, manufacturers of diesel engines and offshore customers. The offering includes 16 main product groups comprising components, modules, adapted systems, boilers, separators, heat exchangers, inert gas systems, freshwater generators, exhaust gas cleaning systems, heat recovery systems and ballast water treatment systems.
The Group has a shared supply chain that serves all three sales divisions. Known as the Operations Division, this centralized unit is responsible for production-related procurement, manufacturing and distribution. Time, cost, quality and sustainability are guiding concepts for this division, since optimal supply chain performance is one of many critical steps in delivering products that in turn can help optimize the performance of customers' processes, time and time again. Final delivery should include the right product with the right quality and the right documentation at the right time. Combined with the sales divisions, Operations helps Alfa Laval achieve its business concept. Read more on pages 36–37.
The division's customers are characterized by a well-defined and regularly recurring need for Alfa Laval's products. In most cases, sales are conducted through system builders and contracting companies, as well as dealers, agents and distributors – direct sales to end-users are limited. The Equipment Division continuously increases its number of sales channels, since it is strategically important that its products are available through many channels worldwide. Given that its business model focuses on availability, it is natural that the division also strives to further develop and strengthen the Group's e-commerce offering.
" While the division as a whole saw unchanged demand, a number of areas considered to be of strategic importance for our future development displayed a very positive trend."
President, Equipment Division
Sales comprise heat exchangers for district heating and cooling, air conditioning of plants, offices and shopping malls, and cooling and freezing solutions for the food, beverage and pharmaceutical industries, as well as supermarkets. In addition, the segment's customers are active in the manufacturing industries to which Alfa Laval sells heat exchangers and separators for temperature regulation and/or cleaning of liquids to enable their reuse, thus lowering operating costs and protecting the environment.
Activity levels in the construction industry, energy price trends, the need for energy-efficient solutions, the shift toward demand for more environmentally friendly cooling media, environmental legislation, industry capacity utilization, commodity and energy price trends, increased environmental focus and expansion of power supply.
Alfa Laval's products are used to produce liquid and viscous foods, pharmaceuticals and hygiene products. Customers are active in the beverage, dairy, food and biotechnology industries, all of which have stringent requirements in terms of hygiene and safety.
Changes in consumption habits as a result of urbanization in growing economies, the development of new medicines, improved standard of living, demographic changes, the need for energy-efficient solutions and expanded food production.
2013 2011 + 2012 + =
Operations
Customers in this segment include manufacturers of airconditioning systems, air compressors, heat pumps, air dryers and gas boilers. Among other products, Alfa Laval sells brazed plate heat exchangers, which are later integrated into customers' end-products.
Increased focus on the environment, the need for energy-efficient solutions, government subsidies and energy price trends.
Share of division's order intake 11%
Order intake Change in order intake
Customers are active in all of the division's segments, with the exception of OEM. The aftermarket is a priority area and the overall strategy is to further develop and expand the spare parts and service operations. Read more on pages 38–39.
+
The industrial capacity utilization rate and growth in the installed base.
2013 2011 + 2012 +
This division serves customers that require customized solutions to enhance the efficiency of their processes or boost their capacity. Sales are mainly conducted through the Group's own sales companies and contractors, and are made directly to customers. Alfa Laval combines expertise in its key technologies with solid knowledge about customer processes, and offers package solutions that cover everything from individual products to systems, complete solutions and efficient customer service.
range and application know-how – and gas
1 Sweden 1% 2 Other EU 20% 3 Other Europe 11% 4 North America 25% 5 Latin America 11% 6 Asia 28% 7 Other 4%
5
6
1
7
2
4
3
" Investments in the gas sector continued, not least in North America. The division secured several major heat exchanger orders for gas – based on the strength of our product range and application know-how."
President, Process Technology Division
hence increased its overall share of the allimportant oil and gas area during the year.
2011
+
Alfa Laval's products are used for manufacturing petrochemical products, plastics, polymers, metals, minerals, biofuels, pharmaceuticals, starch, paper and sugar.
Global market prices for raw materials, such as sugar, ethanol, corn, oil and steel, energy price trends, environmental legislation, the need for energy-efficient solutions, the need for productivity enhancements, demand for fuel and a technological shift.
2013
-
2012
+
Order intake
Share of division's order intake 25%
Change in order intake
Alfa Laval Alfa Laval supplies process solutions for the beverage and food industries. Among other applications, the Group's solutions are used in the production of beer, wine, juice, fruit concentrates, food ingredients, milk proteins, sugars, semiprocessed foods, vegetable/olive oil, and meat and fish proteins.
Demographic changes, population growth, improved standard of living, changes in consumption patterns, increased focus on healthy food, subsidies and raw material price trends.
Order intake
Share of division's order intake 17%
Change in order intake
2012 2013
2011 - + +
Customers are active in all of the division's segments. The aftermarket is a priority area and the overall strategy is to develop and expand the spare parts and service business, which offers customer value, brings customers closer to Alfa Laval and is less sensitive to variations in the business cycle. By creating continuous customer contacts, the division facilitates new sales. Read more on pages 38–39.
The general activity level in various industries, the need to upgrade older equipment, an increased need for efficiency and the need for service and spare parts to prevent unplanned stoppages and minimize the time necessary for planned stoppages.
Order intake
Share of division's order intake 29%
Change in order intake
2012 2013 = +
The division has a wide and varied range of products in the areas of energy, the environment and safety for customers in the marine industry, manufacturers of diesel engines and offshore customers. Sales are conducted through the Group's own sales organization directly to customers. The offering, which includes sales of 16 main product groups, comprises components, modules and adapted systems, such as boilers, separators, heat exchangers, inert gas systems, freshwater generators, exhaust gas cleaning systems, heat recovery systems and ballast water treatment systems. In addition, the division has a well-developed aftermarket organization.
" The division saw positive effects from the recovery of ship contracting. At the same time demand grew for the two main applications within our environmental offering – ballast water treatment and exhaust gas cleaning."
President, Marine & Diesel Division
increased activity and orders were boosted by the introduction of the third-generation PureBallast, which was well-received in the market. The PureSOx scrubber for exhaust gas cleaning also achieved customer acceptance, leading to repeat orders for both new installations and retrofits.
The segment supplies shipowners, shipyards and manufacturers of diesel engines with a wide range of products in the areas of energy, the environment and power. The product portfolio includes separators, heat exchangers, freshwater generators, tank cleaning equipment, ballast water treatment systems and much more.
Marine: Global transport requirements, consolidation in the shipbuilding industry, government initiatives to support local shipyards, environmental legislation and a focus on energy efficiency.
Diesel: The need for electricity in remote locations, global energy demand, the need for power reserves, for example, for nuclear power plants and wind farms.
| Order intake | Share of division's order intake | 35% | Change in order intake | = - + 2013 2012 2011 |
|
|---|---|---|---|---|---|
| -- | -------------- | ---------------------------------- | ----- | ------------------------ | ------------------------------------- |
Supplies customers in the marine industry and offshore sector with a number of components, modules and adapted systems aimed at optimizing their processes, saving energy and reducing emissions. The offering includes boilers, inert gas systems, exhaust gas cleaning systems and thermal fluid systems.
Global transport requirements, governmental initiatives to support local shipyards, environmental legislation, increased focus on energy efficiency, safety regulations for transporting flammable cargoes, increased energy demand leading to investments in offshore oil and gas exploration, and offshore drilling technology improvements.
Order intake
Share of division's order intake 27%
2013 +
Has a wide offering for the division's customers comprising spare parts, service, repairs, upgrades and replacement products. The network is well-developed and ready to help customers whenever and wherever they need assistance. Read more on pages 38–39.
Increased trade and capacity utilization in the global shipping fleet.
Order intake
Change in order intake 2012 2011 2013 = + Share of division's order intake 38% =
Operations is the joint Group unit responsible for production-related procurement, manufacturing, logistics and distribution. Sustainability, efficiency, quality and productivity are guiding concepts for this division, since optimal supply chain performance is one of many critical steps in delivering products that in turn can help optimize the performance of customers' processes, time and time again. Final delivery should be made with short lead times and include the right product with the right quality and the right documentation at the right time. Combined with the sales divisions, Operations thus helps Alfa Laval achieve its business concept.
Procurement Manufacturing Distribution/Logistics
Production-related procurement, which includes everything from rubber gaskets and stainless steel to electronics, is managed by a specific unit within the Operations division. Since direct materials comprise about 70 percent of the cost of goods sold, it is critical that the Group's purchasing volumes are consolidated as this provides an edge in negotiations with sub-suppliers. However, the Group's relationships with its sub-suppliers are about much more than simply cost. Other key factors that must be considered include punctual deliveries, lead times and quality, as well as the supplier's compliance with Alfa Laval's Business Principles with respect to health, safety, the environment and ethics. The procurement unit has an ongoing program for developing work plans, methods and frameworks to be used during the procurement process to ensure that the selected suppliers enable Alfa Laval to meet customer expectations in terms of cost, quality and delivery time. Continuous activities are also carried out to develop the supplier base, identify the areas of expertise needed in the organization and determine how to manage various issues, such as fluctuating purchasing volumes. The ongoing, proactive work of the procurement organization contributes to Alfa Laval's competitiveness in several ways.
Steel, nickel, copper, aluminum and titanium are the primary metals used by Alfa Laval. Accordingly, the company works proactively to reduce the effects of price fluctuations, which can have a major impact on the Group as a whole. This is accomplished in several ways. One alternative involves signing longterm delivery commitments with the company's suppliers, extending for six to 12 months at fixed prices; another alternative is to implement price adjustments or include price clauses in customer contracts. In the Process Technology Division, which has a large proportion of contract-based sales, Alfa Laval produces
to order and uses advance payments from customers to cover its material purchases. For more information about raw material prices, refer to the section on operational risks on page 101.
With a global production chain, it is important that all individual production units are standardized, meaning that all units are alike regardless of their location. This concept also simplifies the process of establishing new production units. Several target parameters have also been implemented, including efficiency, production, quality and environmental targets. These apply for the entire supply chain and are not exclusive to the Group's manufacturing operations. However, as part of its efforts to achieve its production targets, Alfa Laval continuously enhances its manufacturing processes, including everything from the Group's various manufacturing technologies to long-term investments in expertise.
Alfa Laval operates 34 major production units, spread across Europe, Asia, the US and Latin America. Production is based on manufacturing technology, product group and size, not on the final application of the product. This means that some units, for example, specialize in large-scale separators, while others manufacture small and medium-sized units. Several factors explain Alfa Laval's global spread, including the gradual relocation of the Group's production operations to low-cost countries. The main reason, however, is the benefits to be gained by responding to local demand with local production, since global shipping is costly, time-consuming and less environmentally friendly.
Alfa Laval's products can reduce customers' energy and water consumption, thereby helping to mitigate the environmental impact of their processes. Alfa Laval also makes a concerted internal effort to ensure that its own operations are as energy-smart, clean and
efficient as possible. This environmental work is led by the line organization in order to ensure it is treated as part of the Group's daily operations, thus enabling a long-term approach. Part of the Group's environmental initiatives includes certification in accordance with the ISO 14001 environmental management system. At year-end, 93 percent (86) of the total delivery value came from certified production sites. For more information about sustainability, read our GRI report online at www.alfalaval.com.
Having a shared organization that manages the Group's overall transport needs enables Alfa Laval to create sufficient volumes to gain an edge during negotiations. Centralized management provides a higher service level and simplifies the Group's work to limit the environmental impact of its transportation operations. A concerted effort is being made to reduce the amount of carbon emissions from transportation: the goal is to achieve an annual reduction of 3 percent by 2015. One way to achieve this goal is to reduce the proportion of airfreight and instead ship more goods by sea. In 2013, 26 percent (28) of the Group's goods were shipped by sea, 67 percent (65) by road and 7 percent (7) by air.
Distribution and logistics are about more than just transportation. These areas also include processes for order handling, inventory management, stock picking and invoicing. Alfa Laval's eight distribution centers – three central and five regional – located in the US, Sweden, Denmark, China, Singapore, Japan and India serve as the hub for these activities. The distribution centers ensure delivery reliability, as well as monitoring the demand for spare parts and managing inventories and deliveries. In 2013, a new center was established in China in response to the growth potential noted by Alfa Laval in the country. One positive effect is that this center is expected to reduce the need for global transportation and thus bring Alfa Laval one step closer to achieving its environmental goals.
When customers purchase equipment from Alfa Laval, they receive high-quality products with a long service life. In addition, they also receive a high level of operational reliability and favorable operating finances. Customers who also invest in proper care in the form of genuine replacement parts, maintenance and upgrades gain a peace of mind that lasts throughout the service life of the product.
Traditionally, Alfa Laval has sold more spare parts than service. However, the Group's large installed base offers built-in potential to expand its service operations. To reflect these opportunities, the organization changed its name to Service during the year. This name change represents the favorable growth opportunities Alfa Laval sees in the area, with a maintained focus on spare parts.
The organization will face a number of challenges as it shifts its focus toward service operations, since the process of selling services is more abstract than selling physical products. This process requires sales personnel and service engineers with in-depth knowledge of customer processes and an ability to clearly show the customer the value of Alfa Laval's offering. In other words, the organization must demonstrate to customers in practical terms how the offering can optimize the efficiency and performance of their processes.
Together, Alfa Laval's more than 100 service centers form a global network. The individual units have a local focus and well-trained, experienced service engineers, supported by a central group of process specialists. A great deal of work can be carried out at the customer's premises, but a service center is never far away when major repairs or reconditioning is needed. This proximity to the customer is a clear advantage, particularly when customers need immediate help. As a "glocal" company, Alfa Laval has the ability to offer what the customer wants in terms of content, time and location – in other words, the right product and service offering, at the right time and in the right place. In 2013, the service network was further expanded and several new service centers were added in such locations as Asia.
In the aftermarket business, demand is governed by the work environment of the product, as well as by the customer's operations, needs and requirements. A demand for spare parts and service may arise just a few months after installation or after several years – this all depends on the environment in which the product is employed and the intensity with which it is used. Another key factor is whether the customer is large enough to handle maintenance and service itself or whether it has a small organization with limited resources that therefore must purchase spare parts and service. Since each customer is unique, Alfa Laval's offering is broad and includes both spare parts, available worldwide, and service agreements customized to meet each customer's unique needs. These agreements are flexible and can include everything from basic maintenance and cleaning to
upgrades, inspections, online monitoring, round-the-clock technical support seven days a week, monitoring of spare parts consumption and complete maintenance plans.
Investing in service and spare parts from Alfa Laval generates value for the customer, since the installed products then are given optimal conditions for a long, problem-free service life. Naturally, there are also benefits for Alfa Laval. The Service business is not only profitable, but also less sensitive to economic trends and thus has a stabilizing effect on invoicing. It is also an important component of the Group's efforts to identify new customer requirements and needs, which can then be translated into new products with the help of the research and development organization. Last but not least, the organization's frequent customer contacts create opportunities for additional new sales. All in all, this makes the Group's Service operations an attractive and prioritized area for Alfa Laval. The goal is to achieve continued growth and development in terms of both location and content.
For more information about Alfa Laval's Service offering, visit www.alfalaval.com/service-and-support
Fewer stops Budget service costs Short payback time Improved performance
Service centers Installed base
service centers to meet customer demand worldwide.
Large and mature installed base that needs to be maintained and renewed. At year-end 2013, Alfa Laval had 106 Installed base that is growing rapidly.
26.8%
A combination of fast-growing markets and established niche applications.
Share of Group's order intake, % 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 09 10 11 12 13 6,106 6,799 7,486 8,023 8,144
Value of the aftermarket relative to new sales
Alfa Laval has established financial goals for growth and profitability and a business plan that focuses on "optimizing the performance of customers' processes, time and time again." To achieve the business plan and meet its financial goals, the Group has implemented a number of strategies. One of the most important strategies pertains to Alfa Laval's employees and is based on the clear link between a thriving company and employees who grow and develop. The HR function's efforts to support the company and its employees are crucial. Alfa Laval employees should feel secure knowing that the company has a strong focus on health and safety, favorable working conditions, equal access to various career paths and personal development opportunities. So how is this achieved?
The first and most important step is to comply with local legislation and regulations, as well as Alfa Laval's Business Principles, which prohibit discrimination, support freedom of association, respect human rights, prohibit child labor and stipulate that Alfa Laval is to offer a healthy and safe workplace. Alfa Laval's Business Principles are available on the company's intranet and managers are responsible for introducing them to all new employees and making sure they are correctly understood. For many people, these are considered non-negotiable rights. However, Alfa Laval is also active in markets and countries where its Business Principles are more far-reaching than the local legislation.
No employee within Alfa Laval may be discriminated against on the basis of race, gender, religion, sexual orientation, political or union affiliation, age, nationality or disability. On the contrary, the ambition is to employ people from a variety of backgrounds since cooperation between people with different genders, nationalities, ages, sexual orientation, experience and opinions contributes to increased creativity and fresh ideas, which is important in an innovative company such as Alfa Laval. To achieve a favorable composition of employees, Alfa Laval uses an open internal recruiting process. All available positions are published on the company's intranet and all employees are welcome to apply. This approach broadens the base of applicants and promotes mobility and diversity, two key concepts that characterize the company's recruitment, employee development and managerial appointments. All employees should feel they have career paths open to them – this is particularly important in a company represented by 85 nationalities and crucial to Alfa Laval's goal fulfilment.
The proportion of female employees in Alfa Laval is 19.0 percent and the proportion of women in the group of managers reporting directly to Group management is 17.3 percent. To increase this percentage, the company is working to expand its recruitment base for female managers by employing a higher percentage of female graduates.
The company offers several opportunities for employee development, including the Alfa Laval Academy, which provides training in three faculties. The Group also offers independent study opportunities via Internetbased modules that can be followed in a real-time group setting or independently at the individual employee's own pace. Alfa Laval aims to create and maintain a stimulating work environment that offers ample development opportunities for each employee. To achieve its business concept of "optimizing the performance of customers' processes," the Group must first optimize its own operations. With a firmly rooted performance culture, Alfa Laval aims to offer continuous training opportunities in the areas it considers to be top priorities for the Group. This also ensures that the company has the right expertise in the right place, thus boosting the quality and efficiency for both its processes and products. Naturally, development opportunities are not, by definition, linked to a particular course or training module. All employees who are open to change are wel-
come to apply for new positions and, within the framework of their duties, gain an opportunity to learn something new.
Alfa Laval's goal fulfilment in the areas of profitability and growth is measured on a continuous basis and published in each of its interim reports. Insight into how employees rate the company is gained on a yearly basis through a global, Group-wide employee survey known as Compass. Approximately 94 percent of the company's employees participated in the most recent survey, which was in line with the previous year. The results indicated an employee satisfaction index level of 78, a stable outcome compared to 2012.
Alfa Laval's goal is to have a workplace that is free from accidents and work-related illnesses. To support its efforts to improve safety, the Group has established an Occupational Health and Safety program (OHS), which aims to make safety issues part of the company's daily operations. All units are expected to develop and implement long-term health and safety plans. This process begins with an analysis to identify existing risks and any improvement measures required to prevent and minimize these risks. Employees also receive training related to legislation, regulations and Alfa Laval's internal guidelines as part of their daily work.
Alfa Laval has established several goals pertaining to health and safety. Learn more about the results for 2013 in the Group's GRI report, which is available in the sustainability section at:
www.alfalaval.com
Average number of employees Sales per employee, SEK million Employees per region
The outcomes for 2009 and 2010 were affected by the financial crisis and the outcome for 2011 by the acquisition of Aalborg Industries and the euro crisis. Aalborg Industries has lower sales per employee than Alfa Laval.
"From the time we first published our Business Principles in 2003 and again when we updated them in 2012, we have committed ourselves to transforming them into better everyday conditions for people.
Many employees have been directly involved in this challenge as a part of their regular jobs. Our products save energy, protect the environment and optimize the use of natural resources, and it is natural that our research and development, sales and service personnel are engaged in sustainability concerns every day.
But behind the scenes, many other employees are making a difference: our logistics experts work to reduce our transportation carbon footprint; our purchasing staff discuss and agree on improvements that should be made to the working conditions at our suppliers' facilities; our production management team implements energy and
water-saving projects at our plants; our human resource specialists ensure we have a discrimination-free workplace; the list goes on.
Several of the industries that we serve, such as the consumer goods, chemical and marine industries, have been working to adopt standard practices for managing supply chains in a responsible manner. During 2013, Alfa Laval became more involved in these joint industry initiatives, which I believe will give us even greater momentum when it comes to implementing practical improvements."
Lars Renström
Alfa Laval's Business Principles form the basis for the company's work on sustainability.
Respect for human rights is fundamental
High ethical standards guide our conduct
Optimising the use of natural resources is our business
Our commitment to open dialogue builds trust
This Sustainability Report focuses on the highlights of our work in implementing the Business Principles during 2013. Detailed statistics relating to these highlights and other sustainability initiatives can be can be found on www.alfalaval.com, in the 2013 Business Principles Progress Report and the data-rich Global Reporting Initiative Report (GRI).
In 2012, Alfa Laval updated its Business Principles to incorporate the United Nations Guiding Principles on Business and Human Rights and the latest revision of the OECD Guidelines for Multi-National Enterprises. We were not alone in this change; many of our largest multi-national customers are also working hard to adhere to these guidelines. Alfa Laval units are subject to several customer audits each year, with an increasing focus on social, human rights and environmental performance, as well as technical assessment.
Major companies in several industries have joined together to develop common processes to drive responsible supply chains. One of the most established networks is Aim-Progress, within the consumer goods industry. This forum includes many of the largest brand names found in supermarkets around the world. In another example, several leading chemical companies have formed Together for Sustainability.
Alfa Laval supports these initiatives because, although many of these companies have a significant influence on their own, a common industrial sector "voice" has an even greater impact when it comes to implementing improvements that affect the lives of people working in the supply chain. In 2013, a number of major shipowners and the International Marine Purchasing Association (IMPA) launched a new initiative with the goal of achieving an effective, responsible supply chain management system for the industry. Alfa Laval was one of the pilot companies audited by the shipowners, and in recognition of our sustainability performance, we were invited to become a member of the Advisory Board of the initiative.
In major developing economies where statutory enforcement of labor standards is still inadequate, our own responsible supply chain initiatives have identified an unacceptably slow rate of improvement at some suppliers. Despite their commitment to make improvements to the health, safety and working conditions of their workers, as a part of their business relationship with Alfa Laval, their progress has been disappointing. Although we have been working with these issues for several years, we realized that we needed to strengthen our own organization and dedicate more resources to support change in these suppliers. We will provide more training and guidance to enable them to achieve the standards that we demand and their employees should expect. In tandem, we must make it clearer that if they fail to progress quickly, they will lose Alfa Laval's business.
High ethical standards guide our conduct The Business Integrity section of our Business Principles covers: Legal Compliance; Conflict of Interests; Political Contributions; Anti-Bribery and Anti-Corruption (ABAC); Fair Competition; and Governance.
Alfa Laval's Commercial Ethics Council was formed in 2012 and is chaired by the
CEO. Its scope includes export control matters, Group policies on general compliance (including ABAC), the Fair Competition Policy, as well as guidance on the commercial implications of the Business Principles.
Eliminating bribery and corruption is essential for the continued development of international fair trade. Alfa Laval has conducted intensive training, internal auditing and reporting on this issue in recent years and this paragraph of the Business Principles was strengthened in 2012. During 2013, a review of the ABAC risk assessment and associated processes was initiated, including the roll-out of a new ABAC risk assessment methodology to all sales units.
Details on Alfa Laval's sustainability performance are published in the company's Progress Reports and GRI Reports, available in the sustainability section of www.alfalaval.com. Historically, most of the responses to these reports have come from SRI analysts and investors, as well as students. However, in 2013, we started to see more demand from customers for similar information.
In the past, non-financial data has been collected and managed at the corporate level, but the need to communicate this information to customers through various data exchanges has introduced new challenges with regard to both the systems used, as well as the people reporting the data. In response, we strengthened our resources during the year to handle these evolving demands.
In July 2010, the US Congress agreed to apply commercial pressure to help stop
human rights abuses in the conflict-ridden areas in and around the Democratic Republic of the Congo. They did this by including a requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act directing the U.S. Securities and Exchange Commission (SEC) to promulgate rules requiring certain reporting companies to disclose whether the sources of conflict minerals (those needed to produce tin, tantalum, tungsten and gold) in their product offerings are "conflict-free."
Alfa Laval supports the SEC's rules and is committed to having a conflict-free supply chain. When conflict minerals are used in our products, our goal is to conduct due diligence of the supply chain to ensure they come from conflict-free sources. Alfa Laval will collaborate with and disclose this information to our customers who are required, or who have voluntarily decided, to comply with the SEC's rules. Consequently, Alfa Laval has formed a project team, headed by a full-time project leader, to ensure that we comply with this transparency requirement.
(Baseline 2011, Period 2012-2015. Applicable for the 23 sites that together accounted for 85 percent of our manufacturing energy consumption in 2011.):
In the first two years of this target period, we focused on starting projects at our largest manufacturing sites, units of a size that justifies allocating people and money to make tangible progress in reducing energy, water and chemical use. Once successful outcomes are demonstrated, the knowledge gained will be used to "copy and paste" the solutions into other relevant, but smaller sites.
Since the start of the target period, 11 energy-saving projects have been completed and nine projects have been initiated at larger
sites with higher energy consumption.
We have also completed a project to measure and calculate the water footprint of the five sites with the highest water consumption. In this project, we determined the exact use of water and thus identified projects that could make significant impact. Our processes are not generally water-intensive but we still expect there to be a limited number of sites where we can "copy and paste" the solutions to achieve the overall goal.
Restricted ("grey") chemicals are legally permitted but associated with potentially hazardous environmental or health risks. Many are found in cleaning solutions, paints, and other surface treatment applications. Analysis of the most common usage of "grey" chemicals has led to projects focused on replacing some solvents used in painting processes and cleaning operations. Once successful, these projects can be extended to several sites. In some cases, however, we will need detailed performance tests before we can have a realistic dialog with customers who specify existing paint finishes.
Greenhouse gas emissions from freight are mainly from air transportation. We analyze the weight and distance of all air freight shipments every month to help pinpoint projects that can reduce the need for air freight and replace it with surface transportation. Demand for airfreight is driven by customer requests or when an order is accepted below the normal lead time for the product. It can also be a way to recover lost time if there has been a delay in production. Many logistics projects have been carried out to improve the underlying day-to-day operations, but achievement of the overall goal can be impeded by a few large, heavy orders that have to be airfreighted to meet customer requirements.
Numerical information illustrating our achievements during 2013 is available in the GRI Report, published in the sustainability section of
www.alfalaval.com
| Introduction by the Chairman of the Board | 46 |
|---|---|
| Corporate Governance Report 2013 | 47 |
| Introduction | 47 |
| Share and ownership structure | 48 |
| Annual General Meeting | 48 |
| Annual General Meeting for the 2012 fiscal year |
48 |
| Nominating Committee | 48 |
| Board of Directors | 49 |
| Committees | 51 |
| The company's auditors | 51 |
| Remuneration to auditors | 51 |
| Board of Directors and auditors | 52 |
| President and Group management | 54 |
| Areas of responsibility | 56 |
| Group management meetings in 2013 | 56 |
| Remuneration to senior executives, pensions and severance pay/termination of employment |
56 |
| Board of Directors' report on internal control | 57 |
| Control environment | 57 |
| Risk assessment | 57 |
| Control structures | 57 |
| Information and communication | 58 |
| Follow-up | 58 |
| Auditor's statement on the | |
| Corporate Governance Report | 58 |
Corporate governance encompasses the set of processes, laws and regulations that impact a company's management, administration and internal control, as well as the relationships between the numerous stakeholders involved, the division of responsibility within the organization and the company's goals and objectives. Stakeholders may include shareholders, management, the Board of Directors, employees, customers, creditors, suppliers, government authorities and society as a whole. Sound corporate governance combined with transparency enables these stakeholders to assess whether the company is being governed in a rational manner in compliance with relevant laws and regulations, and to ensure that the administration of the company takes the best interests of its shareholders into consideration.
At Alfa Laval, we have tried to go one step further by basing the company's corporate governance on our four Business Principles, which were established in 2003. The aim of these principles is to continuously improve Alfa Laval's social, environmental and ethical behavior, as well as its transparency. The Business Principles are based on the OECD Guidelines for Multi-National Enterprises and the UN Global Compact, which in many instances are more ambitious than the minimal legal requirements. We also have several long-standing policies that specify how the various activities that take place within our business operations are to be managed. To further clarify these policies, we have implemented Group-wide instructions, which are available on the company's intranet. These instructions were compiled to enable the Group to follow
up on the implementation of – and compliance with – various regulations, which takes place in the form of an annual review during which all managers are responsible for evaluating and implementing any instructions that are relevant to their individual areas.
Since the shareholders have delegated responsibility for the management of the company to us, the goal of this report is to demonstrate that the company's operations are characterized by rigorous governance and control. The report also describes the actions and interaction of various bodies, as well as the structures in place to ensure sound corporate governance. These areas are highly prioritized, as are our efforts to ensure that our communication is transparent, thereby enabling our various stakeholders to form an opinion of Alfa Laval.
During 2013, the work of the Board focused on a number of areas, such as acquisitions, ongoing financial and operational performance, and other areas considered critical to our long-term success. These areas included the Service operations, the construction of a testing center in Aalborg, Denmark, and the development of the Group's offering for the oil and gas sector. Driven by the link between the latter and trends in the US, the Board visited Alfa Laval's US headquarters in Richmond, Virginia. While there, we were able to further improve our understanding of Alfa Laval's offering and the Group's potential in the country, which the company should strive to capitalize on. Work on our environmental policy continued, with an ongoing focus on less resource-intensive products, energy and water-efficient production processes, and reducing the amount of restricted "grey-list" chemicals used in our operations. Other prioritized areas included our environmental management system and reporting, as well as the challenges encountered during the process of integrating acquired units into our established environmental initiatives. Last but not least, we continued to implement our Business Principles in order to ensure that Alfa Laval is governed in a long-term sustainable manner that takes the interests of the company's shareholders to heart.
Lund, February 2014
Anders Narvinger Chairman of the Board
This report is intended to provide various stakeholders with a foundation on which to base their view of Alfa Laval and its governance. It describes the regulations, guidelines, legislation and policies to which Alfa Laval is subject, the division of responsibility within the company and the actions and interaction of the Group's three decision-making bodies – the Annual General Meeting, the Board of Directors and the President.
Alfa Laval is to be governed in a manner that is sustainable from a long-term perspective taking its shareholders, employees, customers, suppliers and other stakeholders into consideration. This requires clear goals, guidelines and strategies, as well as business principles that are continuously put into practice rather than just being pretty words.
To "help create better everyday conditions for people" by offering efficient and environmentally responsible products and solutions in the three key technologies of heat transfer, separation and fluid handling.
Based on its three key technologies, Alfa Laval offers products and solutions that "optimize the performance of customers' processes, time and time again." In reality, this involves helping customers become more productive, energy-efficient and competitive.
Alfa Laval is a result-oriented company with clear financial goals. Its operations are governed not only by its business concept, but also by the financial goals established
with regard to growth, profitability and return. By achieving or even exceeding these goals, Alfa Laval creates the necessary scope for its continued development in line with its strategic priorities. A favorable result also generates value for the Group's shareholders in the form of an annual dividend and by boosting the value of the company.
In order to achieve its vision, fulfill its business concept and attain its financial goals, Alfa Laval has established a number of strategic priorities. These include strategies for expanding the Group's product offering and market presence – mainly organically, but also through acquisitions – as well as strategies for increased efficiency. Read more on pages 12–15.
Equally as important as achieving goals and fulfilling the Group's business concept are the actions of the company and its employees along the way. As a public company, Alfa Laval's corporate governance is subject to a number of laws and regulations, the most important of which include the Swedish Companies Act, the Swedish Annual Accounts Act, the rules of the stock exchange and the Swedish
Corporate Governance Code (the "Code"). Alfa Laval also follows a number of internal regulations, including governing documents, such as guidelines and instructions, as well as procedures for control and risk management. The work of the Board and the President is governed by formal work plans.
In addition to these regulations, Alfa Laval has established four Business Principles that reflect the company's ambitions in terms of the actions and interaction of the company and its employees with respect to the environment, human rights, ethics and transparency. All Alfa Laval employees are expected to be familiar with these principles and use them as a basis for their own actions. A brief description of the four Business Principles is provided below. The full principles can be downloaded at www.alfalaval.com.
Alfa Laval's Corporate Governance Report for 2013 has been reviewed by the company's auditors.
The registered name of the company is Alfa Laval AB (publ) and the registered office of the Board of Directors shall be in Lund Municipality in Sweden. The company's share capital shall amount to not less than SEK 745,000,000 and not more than SEK 2,980,000,000. The number of shares shall be not less than 298,000,000 and not more than 1,192,000,000. The fiscal year is the calendar year. The objective of the company's operations is to, directly or through subsidiaries and joint venture companies in and outside Sweden, develop, manufacture and sell equipment and installations, primarily in the areas of separation, heat transfer and fluid handling, and to administer fixed and movable property, and other related operations. The Articles of Association do not include any limitations regarding the number of votes a shareholder can cast at an Annual General Meeting. Nor does it include any specific rules regarding the appointment and dismissal of Board members or changes in the Articles of Association.
The currently prevailing Articles of Association were adopted at the Annual General Meeting on April 20, 2009 and are available in their entirety on Alfa Laval's website:
www.alfalaval.com
At December 31, 2013, Alfa Laval had 419,456,315 shares outstanding, allocated among 36,212 shareholders according to Euroclear Sweden's shareholders' register. Each share corresponds to one vote. Tetra Laval was the largest owner, with 26.1 percent of the shares in Alfa Laval at year-end, and the only owner with a stake larger than 10 percent. The second largest owner was Swedbank Robur Fonder with 6.4 percent, followed by Alecta Pensionsförsäkring with a holding of 6.3 percent. Legal entities accounted for about 94 percent of holdings, while individuals accounted for the remainder. From a geographic perspective, the following countries were represented by the five largest shareholders: Sweden, the Netherlands, the UK, the US and Luxembourg. For more information about Alfa Laval's share and ownership structure, refer to the Share section on pages 16 and 17.
The Annual General Meeting is Alfa Laval's highest decision-making body in which all shareholders are entitled to participate and each share entitles its holder to one vote. The majority of proposals addressed at the Annual General Meeting are decided by a simple majority. However, certain points require a qualified majority; these include resolutions to amend the company's Articles of Association or resolutions to buy back shares. The Annual General Meeting is to be held annually within six months of the close of the fiscal year in either Lund or Stockholm. Normally, the Annual General Meeting takes place in late April or early May in Lund. The date and location is announced by the publication date for the interim report for the third quarter, the latest.
To be entitled to participate and vote in the Annual General Meeting, shareholders must be registered in the shareholders' register maintained by Euroclear Sweden AB. Any shareholder who is unable to attend in person, may participate through a proxy with a power of attorney. Shareholders with nomineeregistered shares must have the shares temporarily registered under their own name. The Annual General Meeting is held in Swedish and all documentation is available in Swedish and English. Alfa Laval endeavors to ensure that all Board members participate, as well as, in so far as it is possible, all members of the Group management. The company's auditors are always present.
The Annual General Meeting for the 2012 fiscal year was held at Färs och Frosta Sparbank Arena in Lund on April 23, 2013. The Annual General Meeting was attended by 414 people, including shareholders, proxies, assistants, guests and officials – representing 59.9 percent of the total number of shares and votes. Both of the company's external auditors attended, as did all Board members elected by the Annual General Meeting. Chairman of the Board Anders Narvinger was elected as the Meeting Chairman. The resolutions passed at the Annual General Meeting included the following:
Hägglund, Anders Narvinger, Finn Rausing, Jörn Rausing, Lars Renström and Ulla Litzén, and to elect Ulf Wiinberg as a new Board member. In addition, a resolution was passed in favor of the Nominating Committee's proposal for auditors. Authorized public accountants Staffan Landén and Håkan Olsson Reising were re-elected for the coming year. In addition, auditors Johan Thuresson and Karoline Tedevall were reelected as deputy auditors for the company.
Work of the Nominating Committee The Nominating Committee prepares and submits proposals regarding candidates for Board members and, if applicable, auditors. The supporting documentation utilized by the Nominating Committee for its work includes the annual evaluation of the work of the Board, which is initiated by the Chairman of the Board. Other key factors to be considered, against the background of the company's strategy, include the type of competence required. The Nominating Committee can call upon the assistance of external resources in its search for suitable candidates and can also conduct interviews with individual Board members. Its duties also comprise the submission of motions in respect of remuneration to the Board and members of the Board committees.
The composition of the Nominating Committee is determined in accordance with the process approved by the Annual
| Name | Representing | Shareholding in Alfa Laval, %* |
|---|---|---|
| Finn Rausing | Tetra Laval | 26.10 |
| Jan Andersson | Swedbank Robur Fonder | 6.55 |
| Ramsay Brufer | Alecta | 6.43 |
| Claes Dahlbäck | Foundation Asset Management | 5.98 |
| Lars-Åke Bokenberger | AMF Pension | 3.26 |
* As of September 30, 2013.
Shareholders wishing to submit proposals to the Nominating Committee prior to the Annual General Meeting may contact Alfa Laval's Board Chairman Anders Narvinger, or one of the owner representatives.
Contact may also take place directly via e-mail at [email protected]
General Meeting. In practice, this means that Alfa Laval's Chairman of the Board contacts representatives of the company's largest shareholders at the end of the third quarter and requests that they each appoint one member of the Nominating Committee. The Nominating Committee may then decide whether or not to include the Chairman of the Board or other Board members. Once the composition of the Nominating Committee has been established, an announcement is made in a press release, the third-quarter interim report and on Alfa Laval's website. Ahead of the 2014 Annual General Meeting, the composition of the Nominating Committee was announced on October 15, 2013 and in Alfa Laval's third-quarter interim report, which was published on October 29.
The following individuals comprise the Nominating Committee for the 2014 Annual General Meeting: Finn Rausing (appointed by Tetra Laval,) Jan Andersson (appointed by Swedbank Robur Fonder), Ramsay Brufer (appointed by Alecta), Claes Dahlbäck (appointed by Foundation Asset Management) and Lars-Åke Bokenberger (appointed by AMF Pension).
The holdings of the Nominating Committee represented 48.32 percent of the number of shares outstanding at September 30, 2013. The Chairman of the Board Anders Narvinger was elected as member and secretary, and Finn Rausing was elected as Chairman of the Nominating Committee. Due to Finn Rausing's position as a Board member, his role as Chairman is considered a deviation from the Code. The reason for this deviation is that the Nominating Committee deemed
Finn Rausing to be particularly well-suited to lead the work of the Committee in an effective manner and obtain the best possible results for the company's owners.
The Nominating Committee held two meetings ahead of the 2014 Annual General Meeting and conducted a number of discussions by phone and e-mail. The focus of the Committee's meetings included an assessment of the potential future competence requirements of the Board. The Nominating Committee also discussed the motion to the Annual General Meeting concerning the election of the company's auditors.
The Board bears the ultimate responsibility for the organization and administration of the company. Its work and responsibilities are governed by the Swedish Companies Act, the Swedish Board Representation (Private Sector Employees) Act, the Articles of Association, the Board's own formal work plan, NASDAQ's Rule Book for Issuers and the Swedish Corporate Governance Code. The Board prepares and evaluates Alfa Laval's overall long-term objectives and strategies, which includes establishing business and financial plans, reviewing and approving financial statements, adopting guidelines, making decisions on issues relating to acquisitions and divestments, and deciding on major investments and significant changes to Alfa Laval's organization and operations. The Board also establishes the instructions for the President with respect to the Group's
daily operations and, through the Audit Committee, procures auditing services and maintains ongoing contact with the company's auditors. In addition, the Board works to ensure that the company has a sound internal control function and formalized procedures. The Board also appoints the President and, through the Remuneration Committee, determines salaries and remuneration for the President and senior executives.
The Board of Directors is to comprise a minimum of four and maximum of ten members, with a maximum of four deputy members. At present, the Board comprises nine members and no deputies. The members are elected annually for the period until the conclusion of the next Annual General Meeting and are obligated to dedicate the requisite time and diligence to the assignment, as well as have the necessary knowledge to best look after the interests of the company and its owners. In addition, the trade-union organizations appoint three employee representatives and three deputy employee representatives. Salaried employees in the company are invited to Board meetings as presenters and experts. The company's Chief Financial Officer participates in all meetings and Alfa Laval's Chief Legal Counsel serves as Board Secretary.
All members of the Alfa Laval Board elected by the Annual General Meeting are considered independent of the company, except Lars Renström, who is President and CEO of the company. All members are also considered independent of the company's major shareholders, except Finn Rausing and Jörn Rausing,
Remuneration of Board members and attendance at Board and committee meetings
| Board | Remuneration Committee | Audit Committee | |||||
|---|---|---|---|---|---|---|---|
| Name | Present | Remuneration | Present | Remuneration | Present | Remuneration | |
| Appointed by the Annual | |||||||
| General Meeting | Anders Narvinger | 11 | 1,175,000 | 3 | 50,000 | ||
| Gunilla Berg | 9 | 460,000 | 5 | 100,000 | |||
| Arne Frank | 10 | 460,000 | |||||
| Björn Hägglund | 11 | 460,000 | 3 | 50,000 | |||
| Ulla Litzén | 11 | 460,000 | 5 | 100,000 | |||
| Finn Rausing | 10 | 460,000 | 5 | 150,000 | |||
| Jörn Rausing | 11 | 460,000 | 3 | 50,000 | |||
| Lars Renström | 11 | ||||||
| Ulf Wiinberg | 7 | 460,000 | |||||
| Total | 4,395,000 | 150,000 | 350,000 | ||||
| Employee representatives | Jan Nilsson | 11 | |||||
| Susanna Norrby | 8 | ||||||
| Bror Garcia Lantz | 11 | ||||||
| Number of meetings |
11 | 3 | 5 |
who cannot be considered independent due to their relation to Tetra Laval, which, on December 31, 2013, owned 26.1 percent of the shares in the company.
The work of the Board is governed by a formal work plan that is determined annually at the statutory meeting held immediately after the Annual General Meeting. This formal work plan describes the Board's work assignments and the division of responsibility between the Board, the committees and the President. It also defines the role of the Chairman of the Board and includes a separate instruction for the company's President regarding the financial reporting to be submitted to the Board to enable ongoing assessment of the financial position.
A total of 11 Board meetings were held in 2013, eight of which were scheduled meetings. Four meetings were held by phone and the
other meetings were held in Lund, Stockholm, Malmö and Richmond (USA).
The normal agenda items addressed at Board meetings include earnings results, order trends, investments and acquisitions. The company's President prepares an agenda for each meeting in consultation with the Chairman of the Board. Board members who wish to discuss a particular matter must inform the Chairman of the Board well in advance, so that the requisite material on which to base decisions can be prepared. Notices of meetings, including the meeting agenda and the requisite information or documentation on which to base decisions, must reach the Board members not later than one week prior to the date of the meeting. Board decisions are made based on open discussions led by the Chairman.
All new Board members receive an extensive introduction program. In addition, each year, a combined training course and field trip
takes place at one of Alfa Laval's facilities. In 2013, the trip had as its destination Alfa Laval's facility in Richmond, Virginia in the US.
The Chairman of the Board ensures that an annual evaluation is conducted of the work of the Board. This is carried out through open discussions and interviews with the individual members. The evaluation focuses on the Board's work methods, its work climate and its access to and need for particular Board competence. The goal is to ensure a well-functioning Board. The evaluation forms part of the supporting documentation for the Nominating Committee when nominating Board members and proposing remuneration levels.
Responsibilities of the Chairman of the Board The Chairman of the Board directs the work of the Board in a manner that ensures it complies with the Swedish Companies Act, the Articles of Association, the formal work
plan of the Board and the Code. In addition, the Chairman must ensure that the work is well organized and conducted efficiently, so that the Board fulfills its tasks. In dialog with the company's President, the Chairman monitors operational developments and is responsible for ensuring that the other members continuously receive all information necessary for the work of the Board to be performed in the most effective manner. The Chairman is responsible for evaluating the Board's work, participates in evaluation and development matters with respect to the Group's senior executives and ensures that the Board's decisions are executed. The Chairman also represents the company in ownership issues.
Remuneration to the Board is determined by the Annual General Meeting based on the motions submitted by the Nominating Committee. The Chairman and members of the Audit Committee and the Remuneration Committee receive supplementary remuneration. No Board member is entitled to pension payments from the company.
Alfa Laval's Articles of Association stipulate that there must be a Remuneration Committee and an Audit Committee that report to the Board. Committee members are appointed from among the Board members for a period of one year.
Among other duties, the Audit Committee is tasked with ensuring compliance with the principles for financial reporting and internal control. The Committee formulates guidelines for the company's financial reporting and followup, and has the right to determine the focus of the internal audit. The Committee also examines the procedures for reporting and financial controls, as well as the work qualifications and independence of the external auditors. For further information regarding the responsibilities of the Audit Committee, refer to "The Board of Directors' report on internal control" on page 57.
Members are appointed annually at the Board's statutory meeting. In 2013, the Committee comprised Finn Rausing (Chairman), Gunilla Berg and Ulla Litzén. Alfa Laval's Chief Legal Counsel served as the Committee's secretary. Five meetings were held in 2013, two of which were conducted by phone. The meetings lasted an average of approximately two hours. The company's Chief Financial Officer, the Head of the Internal Audit Function and the
company's auditors were also present at the meetings. During the year, the following items were dealt with at the Committee meetings: review of the procedures for corporate governance, review and follow-up of the results of the current annual feedback from approximately 200 managers regarding controls, updates regarding new IFRS developments, amendments to the Code and a review of Group provisions and allocations.
The Remuneration Committee is involved in recruitment, appointments, and matters pertaining to other conditions of employment relating to the President or members of Group management. The Committee's assignment is to prepare the guidelines for remuneration to senior executives to be resolved on by the Annual General Meeting and to submit proposals to the Board of Directors regarding salary and employment terms for the President. In addition, the Committee addresses matters on behalf of the Board regarding salary and employment terms for senior executives who report directly to the President.
The Remuneration Committee is appointed annually at the Board's statutory meeting. In 2013, the Committee comprised Anders Narvinger (Chairman), Jörn Rausing and Björn Hägglund. The Remuneration Committee held three meetings, which were attended by all members. A number of phone meetings were also held to address ongoing issues. Separate minutes are taken at all meetings and the contents are distributed to the Board members, except in certain cases when the minutes are noted directly in the corresponding Board minutes. The meetings of the Remuneration Committee included a review and follow-up of the guidelines for remuneration to senior executives, other Group guidelines and international issues pertaining to this area, as well as personnel issues related to the integration of acquired companies. The Committee also reviewed the Group's management development and terms of employment for Group management, as well as addressing the conditions of the Group's incentive program.
The auditors comprise a supervisory body appointed by the Annual General Meeting. Their assignment includes the following: auditing the accounting and financial statements of individual companies, evaluating the accounting policies applied, assessing the administration of company management, reviewing the interim report for the third
quarter and evaluating the overall presentation in the Annual Report. The result of the audit – the Audit Report – is communicated to shareholders in the Annual Report and at the Annual General Meeting. In addition, the auditors present a statement regarding the discharge from liability of the Board of Directors, a statement regarding the adoption of the income statement and balance sheet by the Annual General Meeting and a statement regarding the Corporate Governance Report. The Group must have a minimum of one and maximum of two auditors, with not more than two deputy auditors. An authorized public accountant or registered auditing firm is to be appointed as the company's auditor and, where applicable, as deputy auditor.
At the Annual General Meeting on April 23, 2013, authorized public accountants Staffan Landén and Håkan Olsson Reising were reelected as the company's auditors. In addition, auditors Johan Thuresson and Karoline Tedevall were appointed as the company's deputy auditors. During the year, Håkan Olsson Reising resigned from his appointment prematurely since he was leaving his position at Ernst & Young AB. Deputy auditor Johan Thuresson took over Håkan Olsson Reising's position as the company's auditor.
According to Alfa Laval's assessment, none of these auditors has any relationship to Alfa Laval, or any company related to Alfa Laval, that could affect their independent status in relation to the company. In 2013, the entire Board received reports from the company's external auditors on two occasions. On one occasion, this occurred without the presence of the President or other members of Group management. The Board's Audit Committee received separate reports from the company's external auditors on four occasions.
(Refer to Note 7 on page 109.)
Chairman since 2003.
Formerly President of Teknikföretagen and formerly President and CEO of ABB Sweden. Education: BSc. Eng. from the Faculty of Engineering at Lund University, BSc. Econ from Uppsala University. Chairman of the Board: Coor Service Management AB and
Capio AB. Board member of JM AB, ÅF AB and Pernod Ricard SA. Independent of company and major shareholders. Number of shares in Alfa Laval: 40,000* (40,000**).
Board member since 2004.
Executive Vice President and CFO of the Teracom Group. Former positions include Executive Vice President and CFO of the SAS Group and Executive Vice President and CFO of the KF Group. Education: BSc. Econ from the Stockholm School of Economics. Board member of L E Lundbergföretagen AB and Vattenfall AB. Independent of company and major shareholders. Number of shares in Alfa Laval: 3,400* (3,400**).
Board member since 2005.
Born: 1945.
Former positions include Deputy CEO of Stora Enso. Education: PhD (For.)
Chairman of the Board of SweTree Technologies. Board member of, among others, Bergvik Skog AB, the Knut and Alice Wallenberg Foundation, the UN Global Compact and AB Karl Hedin.
Independent of company and major shareholders. Number of shares in Alfa Laval: 12,000* (12,000**).
Ulla Litzén
Board member since 2006.
Former positions include President of W Capital Management and various executive positions at Investor. Education: BSc. Econ from the Stockholm School of Economics, MBA from the Massachusetts Institute of Technology. Board member of, among others, Atlas Copco AB, Boliden AB, Husqvarna AB, NCC AB and SKF AB. Independent of company and major shareholders. Number of shares in Alfa Laval: 15,600* (15,600**).
Finn Rausing
Board member since 2000.
Education: B.L., MBA from INSEAD. Board member of Tetra Laval Group, De Laval Holding AB, EQT Holdings AB and Swede Ship Marine AB. Independent of company.
Board member since 2013.
President and CEO of H. Lundbeck A/S. Formerly director of Wyeth Pharmaceuticals, EMEA/Canada & BioPharma, and a number of other senior positions in Wyeth.
Board member of the European Federation of Pharmaceutical Industries and Associations (EFPIA), the International Federation of Pharmaceutical Manufacturer Associations (IFPMA) and the Industrial Policy Committee of the Confederation of Danish Industry. Independent of company and major shareholders.
Lars Renström Board member since 2005.
Born: 1951. President and CEO of Alfa Laval. Education: BSc. Eng., BSc. Econ. Chairman of the Board of ASSA ABLOY AB. Board member of Tetra Laval Group. Independent of major shareholders. Number of shares in Alfa Laval: 40,400* (40,400**).
Arne Frank Board member since 2010.
President and CEO of AarhusKarlshamn AB. Education: BSc. Eng. in industrial economics from Linköping Institute of Technology.
Chairman of the Board of Contex Holding A/S Independent of the company and major shareholders. Number of shares in Alfa Laval: 16,000* (16,000**).
Jörn Rausing Board member since 2000.
Born: 1960. Head of Mergers and Acquisitions (M&A) in the Tetra Laval Group. Education: BSc. Econ. Board member of the Tetra Laval Group, Ocado Ltd. and De Laval Holding AB. Independent of company.
Employee representative since 2000.
Employed by Alfa Laval since 1974. Employee representative for the Swedish Metal Workers' Union (IF Metall).
11
Employee representative since 2003.
Employed by Alfa Laval since 1992. Employee representative for the Swedish Association of Graduate Engineers (CF). Number of shares in Alfa Laval: 5,000* (5,000**).
Bror Garcia Lantz
Born: 1965. Employed by Alfa Laval since 1990. Employee representative for the Swedish Union of Clerical and Technical Employees in Industry (Unionen).
Deputy member since 2008.
Born: 1968. Employed by Alfa Laval since 1994. Deputy employee representative for the Swedish Metal Workers' Union (IF Metall).
Deputy member since 2009.
Born: 1961. Employed by Alfa Laval since 1993. Deputy employee representative for the Swedish Metal Workers' Union (IF Metall).
Deputy member since 2005.
Born: 1971. Employed by Alfa Laval since 1989. Deputy employee representative for the Swedish Organization for Managers (Ledarna).
Authorized Public Accountant, Ernst & Young AB.
Auditor for Alfa Laval since 2008. Elected auditor at 2008 Annual General Meeting. Staffan Landén has extensive experience in auditing exchange-listed and internationally active companies. Among other assignments, he is auditor for Capio AB, Papyrus AB, Academedia AB, Rederi AB Transatlantic and Lindab International AB.
Authorized Public Accountant, Ernst & Young AB.
Born: 1961.
Deputy auditor at Alfa Laval from 2000–2011. Elected auditor at 2012 Annual General Meeting. Håkan Olsson Reising has extensive experience in auditing exchange-listed and internationally active companies.
Stepped down at his own request on July 17, 2013.
Authorized Public Accountant, Ernst & Young AB.
Born: 1964 Deputy auditor for Alfa Laval since 2012.
Authorized Public Accountant, Ernst & Young AB.
Born: 1978 Deputy auditor for Alfa Laval since 2012.
President and CEO.
CEO since October 1, 2004. Former positions include President and CEO of Seco Tools AB, Division Manager at Ericsson AB and Atlas Copco AB. Chairman of the Board of ASSA ABLOY AB Board member of Tetra Laval Group. Education: BSc. Eng., BSc. Econ. Number of shares in Alfa Laval: 40,400* (40,400**).
Executive Vice President in charge of the Central and Eastern Europe, Latin America, Middle East and Africa Region.
Employed by Alfa Laval since 1990. Regional manager since January 1, 2013. Previous positions include head of the Mid Europe Region and the Process Industry segment. Education: BSc. Eng. Number of shares: 6,520* (0**).
Senior Vice President, Corporate Communications.
Employed by Alfa Laval since 1999. Senior Vice President, Corporate Communications since 1999. Formerly held such positions as President of Borstahusen Informationsdesign.
Number of shares in Alfa Laval: 66,000* (76,000**).
Thomas Thuresson
Born: 1957. Employed by Alfa Laval since 1988. CFO since 1995. Former assignments include Controller of the Flow business area and Group Controller of the Alfa Laval Group. Board member of PartnerTech AB. Education: BSc. Econ., IMD (BPSE). Number of shares in Alfa Laval: 130,720* (130,800**).
President, Equipment Division. Born: 1960. Employed by Alfa Laval since 1983. President of the Equipment Division since 2009. Previously responsible for the Mid Europe and Nordic Regions and the Process Industry segment. Board member of Nederman AB. Education: MSc. Eng. Number of shares in Alfa Laval: 756* (756**).
Executive Vice President in charge of the Asia, India and Oceania Region.
Executive Vice President in charge of the Western Europe and North America Region.
Born: 1962. Employed by Alfa Laval since 1984. Regional manager since 2011. Prior to this, he served as head of India and the UK. Education: BSc. Eng.
Number of shares in Alfa Laval: 47,552* (47,552**).
President, Operations Division.
Employed by Alfa Laval since 1979. President of the Operations Division since April 2003. Previously in charge of Alfa Laval Manufacturing and Thermal Technology, including research and development, production development, system development and purchasing. Board member of Heatex AB. Education: BSc. Eng. Number of shares in Alfa Laval: 6,588* (6,588**).
President, Process Technology Division.
Employed by Alfa Laval since 1984. Former President of the Equipment Division, head of the Thermal business area and President of Marine & Power. Education: BSc. Econ.
Number of shares in Alfa Laval: 62,744* (72,744**).
President, Marine & Diesel Division.
Employed by Alfa Laval since 1985. President of the Marine & Diesel Division since 2011. Formerly regional manager in charge of the Western Europe and North America Region 2004-2011, the Asia and Latin America Region 2001-2004 and the Eastern Europe and Latin America Region 1999–2001.
Education: B.L., lic.spec. IMD (PED). Number of shares in Alfa Laval: 430,000* (460,000**).
Senior Vice President, Human Resources.
Born: 1963. Employed by Alfa Laval since 2007. Senior Vice President, Human Resources since July 1, 2007. Many years of experience at Volvo Cars, most recently as Head of Group Human Resources. Education: Master of Sociology, Bachelor in Fiscal Law.
The President directs the daily operations and is responsible for ensuring that the Board receives information and the necessary supporting documentation for its decisionmaking purposes. The President is also responsible for ensuring that the company's accounting complies with applicable laws and provisions. In support of sound corporate governance and to ensure that the company's actions follow the requisite ethical guidelines, Alfa Laval also has a number of Business Principles.
The President has the support of the Group management, to which responsibilities and authority are delegated. The members of the Group management are responsible for their respective areas of operation, which comprise divisions or geographic regions,
and collectively for the Group as a whole. Group management comprises the CEO and those individuals who, on the CEO's recommendation, have been appointed by the Board.
The Group management held six meetings in 2013, during which minutes were taken. In addition, quarterly reviews are held of all business developments in the company's divisions and geographic regions, which address such items as the business climate, earnings, earnings projections for the next 12 months and other specific issues affecting the respective business areas. In addition, separate strategy meetings were held that addressed the following areas: the management's proposals concerning future direction with regard to organic growth and growth
through acquisition. The strategic review focused on risks and opportunities in individual segments, application areas and geographic regions, in addition, it contained a review of the consequences of the above on the company's supply chain. Furthermore, a review was performed of the direction for acquisitions with regard to product, technology, channel and location.
The remuneration principles for the President and other members of Group management are determined by the Annual General Meeting. For additional information, see pages 107–109.
Alfa Laval's business control model comprises a matrix in which the Group's divisions and segments are presented vertically, intersecting with the Group's geographic regions, which are presented horizontally. The Operations Division, which is responsible for productionrelated procurement, production, logistics and distribution, serves as a shared supply chain for the sales divisions.
The Board is responsible for ensuring that a sound internal control function is in place to safeguard the company's assets and thus the shareholders' investments. The internal control function must ensure the reliability of Alfa Laval's financial reporting, its compliance with legislation, regulations, applicable accounting policies as well as the company's Business Principles. In turn, the communication of financial information and reporting must be correct, relevant, objective and transparent and be performed simultaneously, to thereby facilitate assessment of the company by its owners and external parties with an interest in the company.
The control environment includes the internal governance instruments set by the Board. A number of policy documents are utilized as governance instruments in the company's daily operations. These are tested annually as well as reviewed and updated on an ongoing basis and encompass such instruments as the Board's formal work plan, the President's instructions, reporting instructions, the company's finance policy, its Business Principles, investment policies and communication policy.
The Board is responsible for ensuring that the company's organizational structure is logical and transparent, with clearly defined roles, responsibilities and processes. In addition, clear processes and formal work plans covering the work of the Board and its committees are in place, with a clear internal distribution of tasks.
The Board has overriding responsibility for financial reporting and, accordingly, must assess the performance and earnings of the operations through a package of reports including results, forecasts and analyses of key indicators. The Board also reviews the company's interim reports and year-end report.
The Board's Audit Committee is tasked with ensuring compliance with the principles for financial reporting and internal control. It follows up the effectiveness of the internal control system and reviews the financial procedures to ensure that the financial information can be traced back to underlying financial systems and that it is in line with legislation and relevant standards. It also examines procedures for reporting and financial controls, as well as addressing the company's financial reports. The Committee monitors, evaluates and discusses significant issues in the areas of accounting and financial reporting. It evaluates and manages information pertaining to disputes
and potential improprieties, as well as assisting management with identifying and evaluating the primary risks that are relevant to the operations in order to ensure that management focuses on managing these risks. The Audit Committee has the right to determine the focus of the internal audit and examines the work of the external auditors, their qualifications and independence. Reports are provided to the Board regarding internal committee meetings and meetings with the internal auditors, the external auditors and various specialists in Group management and its support functions.
The President is subject to instructions issued by the Board and is responsible for ensuring the existence of an effective control environment. The President is also responsible for the ongoing work pertaining to internal control and for ensuring that the company's accounting complies with legislation and that the management of assets is adequately performed.
Group management is responsible for managing and maintaining the internal control systems required to manage significant risks in the company's operating activities. Management is also responsible for clearly ensuring that all employees understand the requirements for and the individual's role in maintaining sound internal control.
The internal auditors report to the CFO and comprise the function that reviews and implements improvements to the internal control function, reports these results to the Audit Committee and proposes plans for the coming six to eight months.
The internal auditors also issue reports from individual audits to the appropriate members of Group management. Procedures are in place for performing regular reviews of the agreed actions to ensure that specific
actions are taken following the internal audit. These are based on a schedule agreed on with the party responsible for the individual activities. The internal audit function comprises two internal auditors, supplemented by internal specialist resources and auditors from the auditing company KPMG. In 2013, 30 internal audits were performed. These encompassed a broad spectrum of functions and areas of inquiry. The scope was determined by the Board and involved examining such aspects as:
Within the framework of the company's operating activities and review functions, procedures are in place for risk assessments pertaining to the financial reporting. These procedures aim to identify and evaluate the risks that may affect internal control. The procedures encompass risk assessments in conjunction with strategic planning, forecasts and acquisition activities, as well as processes for identifying amendments to the accounting policies to ensure that these amendments are accurately reflected in the financial reporting.
The control structures are designed to manage those risks that the Board and management consider to be significant to the business
operations, internal control and financial reporting. The control structures comprise (i) an organization with clearly defined roles that enables an effective, and from an internal control perspective, appropriate division of responsibility, and (ii) specific control activities that enable the identification and timely prevention of risks becoming a reality. Examples of control activities include clearly defined decision-making processes and a policy for decision-making in relation to, for example, investments, agreements, acquisitions and divestments, earnings analyses and other forms of analytical reviews, reconciliations, inventory-taking and automatic controls in the IT systems.
The company's regulations, guidelines and manuals are communicated through several internal channels to ensure sound control. The effectiveness of this communication is monitored continuously to ensure that the information is sufficiently accessible. There are also formal and informal information channels that enable employees to communicate
important information to relevant recipients and ultimately, if necessary, to the Board of Directors. For communication with external parties, a clearly defined policy has been formulated. The aim is to provide the most accurate overview possible and to ensure that all obligations with regard to information are met.
The internal control process is mainly followed up by two bodies: the Audit Committee and the Internal Audit function. The Audit Committee establishes the principles that apply for the company with respect to accounting and financial reporting, and monitors compliance with these regulations. The Audit Committee also meets with the external auditors to obtain information about the focus and scope of the audit and to discuss results and coordination of the external and internal audits. The Audit Committee establishes the direction, scope and time schedules for the internal audit team's work. The internal audit team reports the results of its audits to the Audit Committee and continuously to Group management so that any necessary measures may be taken. The scope of the internal audit includes, among other factors, operational efficiency, compliance with regulations and guidelines, and the quality of financial reporting from the subsidiaries. An annual feedback function is also in place, which is geared toward the company's senior executives. This feedback function is designed to ensure that Alfa Laval's internal instructions and rules are fully implemented. All managers who report directly to Group management are expected to review the guidelines and rules that apply to their respective areas. They must sign and submit a document confirming their understanding of the significance of these guidelines and compliance with these guidelines in their area of responsibility. If there are any deviations compared with the instructions, they must specify what actions they intend to take to ensure compliance. This process also aims to increase transparency and thus facilitate assessments by the external and internal auditors.
Lund, February 2014 Board of Directors
To the annual meeting of the shareholders of Alfa Laval AB (publ), corporate registration number 556587-8054
We have audited the Corporate Governance Report for the year 2013 on pages 46–58. The Board of Directors is responsible for the Corporate Governance Report and for ensuring that it has been prepared in accordance with the Swedish Annual Accounts Act. Our responsibility is to express an opinion on the Corporate Governance Report based on our audit.
We conducted our audit in accordance with
FAR's auditing standard RevU 16: The Auditor's Examination of the Corporate Governance Report. This standard requires that we have planned and performed the audit to obtain reasonable assurance that the Corporate Governance Report is free of material misstatements. An audit includes examining, on a test basis, evidence supporting the information included in the Corporate Governance Report. We believe that our audit procedures provide a reasonable basis for our opinion set out to the right.
In our opinion, a Corporate Governance Report has been prepared and is consistent with the annual accounts and consolidated financial statements.
Lund, March 3, 2014
Staffan Landén Johan Thuresson Authorized Public Accountant Authorized Public Accountant
| Board of Directors' Report | 60 |
|---|---|
| Consolidated cash flows | 72 |
| Comments on consolidated cash-flows | 73 |
| Consolidated comprehensive income | 74 |
| Comments on consolidated comprehensive income |
75 |
| Consolidated financial position | 78 |
| Comments on consolidated financial position |
80 |
| Changes in consolidated equity | 81 |
| Comments on changes | |
| in consolidated equity | 83 |
| Parent company cash flows | 84 |
| Parent company income | 84 |
| Parent company financial position | 85 |
| Changes in parent company equity | 86 |
| Notes to the financial statements | 87 |
| Accounting principles | 87 |
| Objectives, policies and processes | |
| for managing capital | 96 |
| Financial risks | 97 |
| Operational risks | 101 |
| Notes | 104 |
| Proposed disposition of earnings | 134 |
| Auditor's report | 135 |
| Ten-year overview | 136 |
| Definitions | 138 |
The Board of Directors and the President of Alfa Laval AB (publ) hereby submit their annual report for the year of operation January 1, 2013 to December 31, 2013.
The information in this annual report is such information that Alfa Laval AB (publ) must publish in accordance with the Securities Market Act and/or the Financial Instruments Trading Act. The information was made public by publishing the annual report on Alfa Laval's website on April 4, 2014 at 10.00 CET and by sending the printed annual report to the shareholders in week 15, 2014 starting at April 7, 2014.
Alfa Laval AB is a public limited liability company. The seat of the Board is in Lund and the company is registered in Sweden under corporate registration number 556587-8054. The visiting address of the head office is Rudeboksvägen 1 in Lund and the postal address is Box 73, 221 00 Lund, Sweden. Alfa Laval's website is: www.alfalaval.com.
The following parts of the annual report are financial statements: the Board of Directors' Report, the ten-year overview, the consolidated cash flows, the consolidated comprehensive income, the consolidated financial position, the changes in consolidated equity, the parent company cash flows, the parent company income, the parent company financial position, the changes in parent company equity and the notes. All of these have been audited by the auditors.
The Corporate Governance Report, which also has been audited, is to be found on page 45.
Alfa Laval AB (publ) is the parent company of the Alfa Laval Group.
The company had 36,211 (34,629) shareholders on December 31, 2013. The largest owner is Tetra Laval B.V., the Netherlands who owns 26.1 (26.1) percent. Next to the largest owner there are nine institutional investors with ownership in the range of 6.4 to 0.7 percent. These ten largest shareholders own 54.6 (51.4) percent of the shares.
The Alfa Laval Group is engaged in the development, production and sales of products and systems based on three main technologies: separation/filtration, heat transfer and fluid handling.
Alfa Laval's business is divided into three business divisions "Equipment", "Process
Technology" and "Marine & Diesel" that sell to external customers and one division "Other" covering procurement, production and logistics as well as corporate overhead and noncore businesses. These four divisions constitute Alfa Laval's four operating segments.
The three business divisions (operating segments) are in turn split into a number of customer segments. The customers to the Equipment division purchase products whereas the customers to the Process Technology division purchase solutions for processing applications. The customers to the Marine & Diesel division purchase products and solutions for marine and off-shore applications and for diesel power plants. The Equipment division consists of four customer segments: Industrial Equipment, OEM (Original Equipment Manufacturers), Sanitary Equipment and the aftermarket segment Service. The Process Technology division consists of four customer segments: Energy & Environment, Food Technology, Process Industry and the aftermarket segment Service. The Marine & Diesel division consists of three customer segments: Marine & Diesel Equipment, Marine & Offshore Systems and the aftermarket segment Service.
In 2013 Alfa Laval has renamed its three former "Parts & Service" segments to only "Service" in order to emphasize the importance of service and get focus on what is outside parts.
The main factors of risk and uncertainty facing the Group concern the price development of metals, fluctuations in major currencies and the business cycle. For additional information, see the sections on financial and operational risks and the section on critical accounting principles, the section on key sources of estimation uncertainty and the section on judgements under accounting principles.
The full information on the acquisitions is found in Note 16. Below follows a shorter summary of each acquisition during 2013.
On May 29, 2013 Alfa Laval acquired the U.S. based Niagara Blower Company, a manufacturer of energy-efficient niche heat transfer solutions. The company's products are engineered-to-order, and particularly
suited for use in the oil and gas processing industries. They are also used in a wide range of other industries, such as power, food & beverage and pharmaceuticals. Lars Renström, President and CEO of the Alfa Laval Group, comments on the reasons for the acquisition: "The acquisition of Niagara Blower brings in new and complementary heat-transfer products, mainly air-cooled heat exchangers, which further strengthen our offering to the oil and gas processing industries. They strengthen our U.S. portfolio and will gradually also be added to our product offering on a global scale." Niagara Blower Company is located in Buffalo, New York. It generated sales of about SEK 425 million in 2012, with profitability well above the average for the Alfa Laval Group. The intention is to integrate Niagara Blower into the segment Energy & Environment, within the Process Technology Division.
On February 28, 2013 Alfa Laval acquired the assets and technology for a gas combustion unit from the company Snecma (Safran). The product, which will be included in the offering from the Marine & Offshore Systems segment, is expected to generate sales of about SEK 40 million in 2013. Lars Renström, President and CEO of the Alfa Laval Group, comments on the acquisition: "With this acquisition we expand and further strengthen our offer to the growing gas transportation business, a business which typically has high barriers to entry. Few companies can offer this type of safety equipment."
In a press release on September 19, 2011 Alfa Laval communicated its proposal to buy all outstanding shares in its subsidiary Alfa Laval (India) Ltd and seek delisting of the shares from Bombay Stock Exchange Limited and National Stock Exchange of India Limited. The proposal came on the back of regulatory changes in India which requires Alfa Laval (India) Ltd to have a minimum public float of 25 percent or seek delisting. In a reverse book building process that was finalised on February 23, 2012 minority shareholders together holding more than the necessary 50 percent of the public float were willing to sell to Alfa Laval at a price of INR 4,000 per share. Through the acquisition of the 1.03 million shares
Alfa Laval achieved an ownership of 94.5 percent, which enabled Alfa Laval (India) Ltd to delist from both stock exchanges on April 12, 2012. The cost for the acquisition of the shares was SEK 553 million. As a part of the process the remaining minority owners could sell their shares to Alfa Laval for INR 4,000 during the next 12 months. During this period minority owners with an additional 0.68 million shares have sold their shares to Alfa Laval for SEK 340 million, which has increased Alfa Laval's ownership to 98.2 percent. This means that the total acquisition cost was SEK 893 million.
On February 22, 2013 Alfa Laval acquired the remaining minority shares in the company Tranter Solarice GmbH in Germany.
During 2013 a property in Korea that was used by Onnuri has been sold at book value without any effect on profit and loss.
Alfa Laval Aalborg BV has moved to Alfa Laval's offi ce in Breda in the Netherlands in the fi rst half of 2013. The vacated property in Spijkenisse in the Netherlands is to be sold, but it is not expected to be sold within the next year. One small property in France is planned for sale. It is empty and has been for sale for several years. It is not expected to be sold within the next year. Alfa Laval Aalborg's factory in Vietnam is for sale since the Vietnamese company is under closure. It is not expected to be sold within the next year. This means that none of these properties have been re-classifi ed as current assets held for sale. The fair value of the concerned properties exceeds the book value by approximately SEK 5 (4) million.
During 2012 a property in Korea that was used by Onnuri was sold for SEK 21 million with a realised loss of SEK -3 million. In addition to the property that was sold during 2012 Onnuri had an additional property in South Korea that was empty and planned to be sold during the beginning of 2013. Due to this it was re-classifi ed as a current asset held for sale with SEK 9 million.
These disposals are reported as comparison distortion items in Note 8 to the consolidated comprehensive income statement.
Large orders are orders with a value over EUR 5 million. The volume of large orders is an important indicator of the demand situation and is therefore monitored separately within Alfa Laval. A large volume of large orders normally also means a good load in the factories. During 2013 Alfa Laval has
Orders received
Orders received amounted to SEK 30,335 (30,339) million during 2013.
| Order bridge | ||
|---|---|---|
| Consolidated | ||
| SEK millions, unless otherwise stated | 2013 | 2012 |
| Order intake last year | 30,339 | 28,671 |
| Structural change 1) | 2.2% | 1.6% |
| Organic development 2) | 1.6% | 4.7% |
| Currency effects | -3.8% | -0.5% |
| Total | 0.0% | 5.8% |
| Order intake current year | 30,335 | 30,339 |
Orders received from the aftermarket Service constituted 26.8 (26.4) percent of the Group's total orders received for 2013. Excluding currency effects, the order intake for parts and service increased by 5.8 percent during 2013 compared to last year.
Niagara Blower Company at May 29, 2013, Air Cooled Exchangers, LLC (ACE) at December 31, 2012, Gamajet Cleaning Systems Inc at August 23, 2012, Ashbrook Simon-Hartley at August 1, 2012 and Vortex Systems at June 30, 2012.
2)Change excluding acquisition of businesses.
received large orders for more than SEK 2,100 (2,475) million. By quarter it has looked like the following:
During the fi rst quarter 2013 Alfa Laval received large orders for SEK 445 (950) million:
approximately SEK 55 million and delivery is scheduled for 2013.
– An order to supply Alfa Laval PureBallast systems to a leading shipyard in South Korea. The order, booked in the Marine & Diesel Equipment segment, has a value of approximately SEK 50 million. Delivery will start in 2013 and be fi nalized in 2014.
During the second quarter 2013 Alfa Laval received large orders for SEK 310 (600) million:
During the third quarter 2013 Alfa Laval received large orders for SEK 445 (475) million:
Order backlog December 31
The order backlog at December 31, 2013 was SEK 14,568 (14,468) million. Excluding currency effects and adjusted for acquisitions of businesses the order backlog was 3.7 percent higher than the order backlog at the end of 2012.
changers to a petrochemical plant in India. The order is booked in the Process Industry segment and has a value of approximately SEK 185 million. Deliveries are scheduled for 2013 and 2014.
During the fourth quarter 2013 Alfa Laval received large orders for more than SEK 900 (450) million:
agreement Alfa Laval is unable to disclose the value of the order.
Net sales amounted to SEK 29,934 (29,813) million during 2013.
| Sales bridge | ||
|---|---|---|
| Consolidated | ||
| SEK millions, unless otherwise stated | 2013 | 2012 |
| Net sales last year | 29,813 | 28,652 |
| Structural change | 2.9% | 3.5% |
| Organic development | 1.2% | 0.9% |
| Currency effects | -3.7% | -0.3% |
| Total | 0.4% | 4.1% |
| Net sales current year | 29,934 | 29,813 |
Net invoicing relating to Service constituted 26.7 (26.6) percent of the Group's total net invoicing for 2013. Excluding currency effects, the net invoicing for parts and service increased by 5.1 percent during 2013 compared to last year.
Orders received by customer segment 2012
Compared to previous year, at constant rates adjusted for acquisition of businesses.
* New customer segment, no corresponding period last year exists.
EQUIPMENT DIVISION
The Equipment division consists of four customer segments: Industrial Equipment, OEM (Original Equipment Manufacturers), Sanitary Equipment and the aftermarket segment Service.
(all comments are excluding currency effects) Taking a quarterly view the development for Equipment division during 2013 has been as follows:
Order intake was down slightly in the first quarter 2013, compared to the last quarter 2012. The drop was most notable in the Sanitary segment, whereas Service all-over had a good development. From a geographical perspective there was good growth reported in the U.S., France and the Adriatic region. The Nordic region and China, however, were down compared to the previous quarter, negatively affected by non-repeats in Sanitary. Sanitary contracted compared to the previous quarter, as the larger projects booked in the fourth quarter – mainly to customers in the dairy markets in the U.S., China and the Nordic region – were not repeated. Personal care applications saw a good development and regions that performed well included Mid Europe, Adriatic and France. Industrial Equipment declined somewhat from the previous quarter, the main reason being a slow development in district heating. At the same time demand from the refrigeration market increased. Both the U.S. and China grew compared to the previous quarter, while the Nordic countries and Russia decreased, negatively affected by the development in district heating. OEM was unchanged from the fourth quarter 2012 as the prolonged cold winter in certain parts of the world led to lower demand from customers making air conditioning units. At the same time growth was recorded from boiler manufacturers.
Order intake grew in the second quarter compared to the first, boosted by a seasonal pick-up in demand for segments Industrial Equipment and OEM. From a geographical perspective the development was good in major markets such as the Nordic countries, China and Mid Europe. Order intake in the U.S. was on an unchanged level from the first quarter. Industrial Equipment showed significant growth compared to the previous quarter, due to the seasonal effect in the heating and refrigeration applications. Both did well across the line, especially in the Nordic countries, Russia and China. Also the market units fluids & utilities and engine & transport contributed to the segment's positive development. Sanitary was slightly up versus the first quarter following good demand for products to beverage and dairy applications. The smaller market unit pharmaceuticals & personal care declined somewhat. In OEM (Original Equipment Manufacturers), order intake from manufacturers of heat pumps and air conditioning units grew significantly as the season for making heating and cooling installations took off. Another factor contributing to the growth was the positive development for new products, which, since their launch have continued to attract customers. The demand for spare parts and services was unchanged from the previous quarter.
Order intake dropped somewhat in the third quarter compared to the second, driven by a decline in Industrial Equipment and OEM. From a geographical perspective, demand declined in the U.S. and the Nordic countries, while many developing economies such as China, Russia and India as well as countries in Southeast Asia, developed well. Industrial Equipment saw lower demand, negatively impact by products going into refrigeration applications. Demand for products for HVAC applications, however,
Equipment division
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Orders received | 9,604 | 9,701 |
| Order backlog* | 1,495 | 1,583 |
| Net sales | 9,595 | 9,476 |
| Operating income** | 1,306 | 1,389 |
| Depreciation and amortisation | 173 | 162 |
| Investments | 57 | 46 |
| Assets* | 5,955 | 5,804 |
| Liabilities* | 910 | 986 |
| Number of employees* | 2,742 | 2,813 |
* At the end of the period. ** In management accounts.
Change excluding currency effects
| Order intake | Net sales | |||||
|---|---|---|---|---|---|---|
| % | Structural change |
Organic development |
Total | Structural change |
Organic development |
Total |
| 2013/2012 | 0.7 | 1.2 | 1.9 | 0.7 | 3.5 | 4.2 |
| 2012/2011 | 0.5 | 1.6 | 2.1 | 0.6 | -0.1 | 0.5 |
remained unchanged as the seasonal effect seen in the second quarter, continued. In OEM (Original Equipment Manufacturers), order intake from manufacturers of air conditioners dropped as higher order intake in the previous quarter related to phase out of older products among these manufacturers did not continue. Demand for products aimed at the boiler and heat pump applications were growing in volume. Sanitary was unchanged, but met good demand for products that go to beverage, pharmaceuticals & personal care applications. The demand for spare parts and services was unchanged from the previous quarter.
Order intake remained flat in the fourth quarter compared to the third quarter as a slight decline in Industrial Equipment was offset by growth in Sanitary, while OEM saw unchanged demand. From a geographical perspective the development was good in markets such as North America and the Nordic countries, whereas demand in China declined, affected by the non-repeat of pharmaceutical projects as well as a certain seasonality effect in the market unit Comfort. Sanitary showed growth in the quarter following good demand for products that go into brewery, dairy and other food applications. The market unit personal care also reported a good development, while orders for products going into pharmaceuticals
declined somewhat as projects were not repeated. Industrial Equipment experienced a slight decline, driven by lower demand for products for HVAC applications, due to the cold season. Demand for other applications remained stable. In OEM order intake remained unchanged. Demand from boiler manufacturers continued to grow, driven by new products. At the same time demand for products for other HVAC applications declined somewhat, affected by seasonality. The demand for services and spare parts was unchanged from the previous quarter.
(excluding comparison distortion items) The decrease in operating income during 2013 compared to last year is mainly explained by a negative price/mix variation and higher sales and administration costs and development costs, partly mitigated by a higher sales volume.
The Process Technology division consists of four customer segments: Energy & Environment, Food Technology, Process Industry and the aftermarket segment Service.
Orders received and net sales (all comments are excluding currency effects) Taking a quarterly view the development
for Process Technology division during 2013 has been as follows:
Demand in the first quarter was slightly down from the previous quarter, mainly driven by fewer large orders within the Process Industry segment and the market unit environment. Energy related areas, however, such as oil & gas and power, recorded strong growth, while Service was unchanged. Geographically, North America grew, Latin America was stable, Europe was virtually unchanged and Asia declined. Energy & Environment showed good growth compared to the previous quarter, primarily driven by large orders, especially for oil and gas exploration. This sector showed continued strength with extensive ongoing investment programmes. The power market unit had a strong quarter, also contributing to the positive development. The environmental business saw a slight contraction even as the base business* grew, due to less of large orders. Process Industry declined, mainly driven by fewer large orders compared to the fourth quarter 2012. However, the base business had a stable development, reflecting the underlying activity level seen in the end markets. Food Technology showed a decline compared to the previous quarter, affected by the development in the market units brewery and beverage & viscous food. The market unit vegetable oil technology however – the largest part of the segment – noted strong growth. This reflected a continued strong activity level in the industry, with both upgrades and investments in capacity, primarily in Latin America and Asia.
Demand was in total unchanged in the second quarter, compared to the first, as Food Technology and Process Industry reported steady growth while Energy & Environment declined. Geographically the picture was also mixed. Europe and Asia were both stable, Latin America reported a strong quarter, whereas North America declined, partly due to said development for Energy & Environment. Energy & Environment's decline was partly a result of non-repeat large orders. It is also a reflection of the fact that the very high activity level among end-users and contractors in the oil & gas industry has led to certain investments being postponed due to lack of execution resources. The general activity level in oil and gas however, still remains high, with significant ongoing investment programmes. The power market unit also declined, due to non-repeats, while the environmental business had a strong development, especially for large
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Orders received | 13,935 | 14,081 |
| Order backlog* | 8,393 | 8,358 |
| Net sales | 13,813 | 12,812 |
| Operating income** | 2,479 | 2,194 |
| Depreciation and amortisation | 297 | 230 |
| Investments | 98 | 110 |
| Assets* | 10,828 | 10,608 |
| Liabilities* | 4,029 | 4,304 |
| Number of employees* | 5,256 | 5,085 |
* At the end of the period. ** In management accounts.
| Consolidated | ||||||
|---|---|---|---|---|---|---|
| Order intake | Net sales | |||||
| % | Structural change |
Organic development |
Total | Structural change |
Organic development |
Total |
| 2013/2012 | 4.3 | -0.9 | 3.4 | 6.2 | 6.3 | 12.5 |
| 2012/2011 | 2.2 | 9.2 | 11.4 | 2.0 | 4.2 | 6.2 |
orders. Process Industry reported growth in the quarter compared to the previous quarter as the base business grew, reflecting a continued favourable sentiment in the end markets. Large orders remained on the same level as in the previous quarter. Food Technology showed strong growth compared to the previous quarter for base business and large orders alike. Structural growth drivers continue to generate orders. Market unit brewery was up on more large contracts, while market unit food solutions grew as a result of a stronger base business. Market unit vegetable oil declined somewhat from the first quarter, but still remained on a very good level, reflecting a strong activity in Asia as well as Central and Eastern Europe. Service was unchanged compared to the first quarter.
Process Technology reported an increase in demand in the third quarter compared to the previous quarter, lifted by a favourable development in both Process Industry and Energy & Environment. The base business reported a limited decline. Geographically, North and South America grew, as did Asia and Western Europe. Overall, the BRIC countries showed a good development, while Eastern Europe reported an overall contraction. Energy & Environment recorded
steady growth, driven by a positive development for large orders. Oil & gas developed well, reflecting a continued positive sentiment and high activity level. The positive development materialized despite the trend of investments being postponed due to lack of execution resources. Market unit power had a strong quarter and the environmental business recorded growth, with steady market conditions. Process Industry also grew in the quarter, driven by market unit refinery which was boosted by a large energy efficiency order in India. Food Technology declined somewhat from a good level, as the market unit food solutions dropped, partly related to the non-repeat of larger orders. Brewery, on the other hand, noted a higher level, based on an upturn in the base business as well as large orders. Market unit vegetable oil also grew, benefitting from a large order in Latin America, a region with an overall positive sentiment. Demand for parts and services grew in the quarter. A very strong development for large orders contributed to the positive development. Regionally, the strongest development was noted in Asia.
Process Technology showed a strong increase in demand in the fourth quarter compared to the third quarter, boosted by a very favourable development in the Energy & Environment and Food Technology segments. Large orders reached a level considerably above the quarterly average but also the base business reported good growth. Geographically, North America and to an even higher degree, Latin America grew. A very strong development could also be seen in Eastern Europe, while the BRIC countries delivered growth in line with the average for the division. Energy & Environment recorded very strong growth, driven by large orders in the oil & gas sector. Market unit Power contributed to the positive development as large nuclear orders were secured, reflecting an increased activity level in the sector. The base business showed a positive development in the quarter. Process Industry declined compared to the third quarter, caused by a lower level of large orders within market unit Refinery. All other areas within Process Industry showed a strong development and the segment also generated a steady growth in the base business. Strong growth characterised all areas of Food Technology, with the exception of Vegetable oil, which was affected by the non-repeat of some large orders. Market unit Protein did very well as did market unit Brewery, boosted by a very large order for a brewery project in Latin America. Base business continued to develop favourably. Demand for parts and services continued to grow in the quarter. The high level of larger orders reported in previous quarters remained.
(excluding comparison distortion items) The increase in operating income during 2013 compared to last year is mainly explained by a higher sales volume, partly mitigated by a negative mix variation and higher sales costs.
The Marine & Diesel division consists of three customer segments: Marine & Diesel Equipment, Marine & Offshore Systems and the aftermarket segment Service.
(all comments are excluding currency effects) Taking a quarterly view the development for Marine & Diesel division during 2013 has been as follows:
Order intake for the Marine & Diesel Division grew substantially in the first quarter of 2013 compared to the fourth quarter of
2012, boosted by growth for the base business as well as some large orders within the environmental and offshore applications. The Marine and Diesel Equipment segment saw a recovery in demand, with solid growth across the traditional marine portfolio, diesel power plants and, in particular, marine environmental solutions. The latter included a large order for ballast water treatment systems, worth SEK 50 million. The Marine & Offshore Systems segment also reported growth following a large offshore gas order in South Korea, worth approximately SEK 130 million. The base business showed a stable development compared to the previous quarter. Demand for parts and services showed growth compared to the previous quarter, mainly due to good repair activity.
Order intake for the Marine & Diesel Division grew in the second quarter compared to the first, boosted by continued growth in the base business as well as large orders for exhaust gas cleaning. Marine & Diesel Equipment ended up on the same level as the previous quarter. The base business within Marine grew, which began to reflect an increase in the contracting to the yards as customers seem to take advantage of the low ship-building prices to invest in new very energy-efficient ships. Environmental solutions declined versus the previous quarter as a large order for ballast water treatment systems booked in the first quarter was not repeated. Demand for equipment for land-based diesel power plants declined compared to the first quarter, due to a slow general market activity. Marine & Offshore Systems had a good quarter, reflecting a strong base business development as well as increasing demand for the environmental solution for exhaust gas cleaning, Alfa Laval PureSOx. Demand for parts and services declined in the second quarter, compared to the first, as large repair orders booked in the previous quarter were not repeated.
Order intake for the Marine & Diesel division was down in the third quarter compared with the second, due to the non-repeat of large exhaust gas cleaning orders and a decline in demand for other environmental solutions. The demand for parts and services was unchanged. The Marine & Diesel Equipment segment was down from the previous quarter, affected by a decline for the base business as well as for environmental solutions. The underlying trend is however still positive, following the continued growth in order intake to the yards and continued good interest in environmental products and applications. The market unit diesel power had a strong
| Marine & Diesel division | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 |
| Orders received | 6,796 | 6,557 |
| Order backlog* | 4,680 | 4,527 |
| Net sales | 6,526 | 7,525 |
| Operating income** | 1,243 | 1,458 |
| Depreciation and amortisation | 204 | 224 |
| Investments | 49 | 38 |
| Assets* | 8,101 | 8,309 |
| Liabilities* | 2,167 | 2,043 |
| Number of employees* | 2,945 | 3,346 |
* At the end of the period. ** In management accounts.
| Consolidated | ||||||
|---|---|---|---|---|---|---|
| Order intake | Net sales | |||||
| % | Structural change |
Organic development |
Total | Structural change |
Organic development |
Total |
| 2013/2012 | – | 7.5 | 7.5 | – | -10.3 | -10.3 |
| 2012/2011 | 3.3 | -0.8 | 2.5 | 11.8 | -5.1 | 6.7 |
development following a large order in the Middle East. The Marine & Offshore Systems segment reported a decline in order intake compared to the second quarter as large orders for exhaust gas cleaning were not repeated. Market unit offshore systems, where the order intake tends to vary, also saw a decline whereas the base business of the marine systems market unit showed solid growth.
Order intake for the Marine & Diesel division increased in the fourth quarter compared with the third, as the growth in order intake to the yards throughout the year, manifested itself in high demand across the capital sales segments. A further boost came from a large order for the exhaust gas cleaning system Alfa Laval Pure SOx. The Marine & Diesel Equipment segment saw overall higher demand than in the previous quarter, even as demand for equipment for diesel power plants declined. The positive development was instead explained by the high contracting to the yards, which generated good growth for the Marine Equipment base business. Environmental solutions also contributed to growth, lifted by an increasing demand for PureDry. The Marine & Offshore Systems segment was up significantly compared to the third quarter, reflecting a positive development across the board. Growth was recorded for the Marine Systems base business, for Offshore Systems and also exhaust gas cleaning, the latter due to an order for equipment to be retrofitted on board five vessels owned by the Dutch ship-owner Spliethoff. Demand for parts and services were below the third quarter due to lower repair activity.
(excluding comparison distortion items) The decrease in operating income during 2013 compared to last year is mainly explained by lower sales volume, partly mitigated lower costs for sales and administration.
Other is covering procurement, production and logistics as well as corporate overhead and non-core businesses.
| Other | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 |
| Orders received | 0 | 0 |
| Order backlog* | 0 | 0 |
| Net sales | 0 | 0 |
| Operating income** | -581 | -541 |
| Depreciation and amortisation | 336 | 318 |
| Investments | 291 | 337 |
| Assets* | 5,236 | 5,395 |
| Liabilities* | 2,442 | 2,188 |
| Number of employees* | 5,365 | 5,175 |
* At the end of the period. ** In management accounts.
All comments are reflecting the quarterly development during the year and are after considering exchange rate variations.
Order intake declined in the first quarter compared with the previous quarter, affected by fewer large contracts being booked in the Process Technology Division. The base business*, however, had an overall positive development. Service developed positively across the region and a good development was also recorded for Marine & Diesel Equipment and OEM. From a regional perspective France and Mid Europe developed positively, while the Iberica and Nordic sales regions declined as a result of the fewer large contracts.
Order intake increased in the second quarter compared to the fi rst, driven by a good development across most countries and regions. Both the base business and large projects developed positively. Segments to do especially well included Industrial Equipment, OEM, Food Technology and Marine Offshore Systems. Demand for Service was unchanged across the region compared with the previous quarter.
Order intake declined in the third quarter compared with the second, affected by the development in sales regions such as Nordic, France, Benelux, Adriatic and Iberica. The decline was mainly in the base business, across a majority of segments. Mid Europe, however, showed continued growth, as did the UK, boosted by large projects in the brewery and process industries. Service declined during the quarter.
Order intake increased in the fourth quarter
compared with the third following a positive development for both the base business and large orders. A majority of sales regions/ countries rose, with the Nordic, Benelux and Adriatic areas developing particularly well. Standing out among the segments were Sanitary, Marine & Offshore Systems and Energy & Environment. The demand for parts and services also developed positively across the region.
Central and Eastern Europe reported a strong increase in order intake in the first quarter compared to the fourth quarter 2012. The base business was stable and Service saw a very good development. The main driver, however, was an increase in large orders, primarily in oil & gas and refinery in Russia. Russia was hence the country to show the best performance, followed by Poland, the Baltic states and Turkey.
Central and Eastern Europe reported a strong increase in order intake during the second quarter compared to the fi rst. The growth was driven by a very good base business development, for both Equipment and Process Technology, as well as for Service. Large orders declined somewhat, affected by the development in Russia. As a whole the country was still on an unchanged level from the previous quarter, helped by a positive base business development. With Russia fl at, the growth in the region is explained by the increased demand in Central Europe as well as Poland and the Baltic states.
Central and Eastern Europe reported a slight decrease in order intake during the third quarter compared to the second, explained by Poland and Turkey. The two countries
were affected by a lower base business in the Process Technology division as well as the non-repeat of large contracts. The decline was mitigated by good growth in Russia, where especially the Equipment division had a very strong quarter. The service business continued to develop well throughout the region during the quarter.
Central and Eastern Europe reported a strong increase in order intake during the fourth quarter compared to the third, mainly due to a very positive development in Russia, Poland and the Baltic states. Russia reported a record quarter, due to three large orders for power, starch processing and food.
Order intake increased in the first quarter compared to the previous quarter, both in the U.S. and in Canada. The base business contributed to this positive development, but the main explanation was the development for large projects. Both Energy & Environment and OEM did particularly well in the quarter, while Service declined somewhat.
In the second quarter the order intake declined compared with the fi rst quarter as large projects were not repeated. The base business however remained unchanged. One explanation to the decline was the oil and gas sector in the Energy & Environment segment, where customers, due to a general high activity level, were forced to postpone certain projects due to lack of resources. Segments to perform well were Industrial Equipment, OEM and Process Industry. Service reported an unchanged level of demand compared to the fi rst quarter.
Order intake was unchanged in the third quarter compared to the previous quarter as the United States reported continued growth, while Canada declined. The base business grew and there was also a continued positive development for parts and service. From a segment perspective, Food Technology was doing well, but the strongest development was recorded in Energy & Environment.
The order intake for the region grew in the fourth quarter compared to the third quarter, mainly due to large projects, with a good development seen in both the US and Canada. The base business also did well as demand continued to grow. Driving the development were segments Sanitary, Industrial Equipment, Process Industry and Food Technology. The demand for parts and services was up compared to the third quarter.
Order intake was virtually unchanged in the
first quarter compared to the fourth quarter 2012. A drop in new sales in the divisions Marine & Diesel and Equipment was compensated by an increase in project orders in the Process Technology Division. Service saw an overall good development. Geographically, the best performance was reported in Brazil and Mexico, boosted by projects relating to investments in the refinery and food sectors.
Order intake increased in the second quarter compared to the previous quarter, boosted by large orders in the food and oil & gas sectors. The base business also reported growth and order intake in general developed well in all countries in the region.
Order intake grew in the third quarter compared to the previous quarter, driven by a very strong development in Brazil and Mexico. Brazil had a very good base business development, together with a number of large orders within oil & gas, marine and vegetable oil. Mexico was boosted by a good development in the Equipment division and the Process Technology division saw a large order in the oil & gas sector adding to a positive base business development. The Service business continued to develop well throughout the region during the quarter.
Order intake increased in the fourth quarter compared to previous quarter driven by strong growth in Brazil and Argentina. Brazil had a particularly positive development, seen both for the base business as well as for large orders, with the latter dominated by a large brewery project. Argentina's growth was driven by a good development for the base business in the Process Technology division.
Order intake was unchanged in the first quarter compared to the previous quarter. Demand for parts and services was also on the same level as in the fourth quarter while the Equipment division dropped somewhat due to a lower order intake for Sanitary. The Process Technology division also declined, as fewer large orders were booked in the first quarter compared to the fourth. At the same time, smaller projects within refinery, vegetable oil and life science noted a high activity level across the region. The best performance was seen in the Marine & Diesel division and in particular for ballast water treatment systems, marine boilers and the traditional Marine & Diesel Equipment portfolio. South Korea, Malaysia and Japan were the best performing countries. China declined somewhat as the project business in the country continued to be in a wait-andsee mode, the exception being Process Industry which saw strong growth compared to the previous quarter.
Order intake showed growth in the second quarter compared to the first quarter, boosted by a particularly strong base business development across all three divisions. Equipment and Marine & Diesel grew, while Process Technology declined somewhat due to nonrecurring large orders within the vegetable oil and energy sectors in South East Asia. OEM, Industrial Equipment, Marine & Offshore Systems and Food Technology were segments that did particularly well during the quarter. Looking at Marine in more detail, the division was positively influenced by growth in new shipbuilding contracts, as customers took advantage of the low shipbuilding prices generally and in particular by good demand for vessels for transportation of oil and gas. Service delivered good growth compared to the previous quarter. Looking at the development by country, China and Japan both reported strong growth. India also did well, supported by a good base business development, even as the project business was affected by a somewhat erratic investment climate. The growth in China was broad-based, covering most segments and concerned both base business and large orders. Customers, who for some quarters adopted a wait-and-see mode when it came to investments, now seem to be moving towards a more positive sentiment.
Order intake showed growth in the third quarter compared to the second, boosted by a strong development in China, India and South East Asia. The positive development in China was driven by larger projects, secured in segments such as Industrial Equipment, Energy & Environment and Marine & Offshore Systems. The base business was, however, somewhat weaker reflecting that the customers are still in a "wait and see" mode. Chinese demand for parts and services still showed a positive development. India developed well, following a large Packinox energy-efficiency order from a local petrochemical plant. Looking at the region as a whole, all three divisions reported growth, with Energy & Environment, Process Industry and Marine & Offshore Systems doing particularly well. Industrial Equipment also did well on the back of some larger cooling projects in China. Energy & Environment was lifted by projects in oil & gas and nuclear power, the latter reflecting pent up demand post Fukushima. Process Industry rose, benefitting from refinery investments across Asia and Marine & Offshore Systems saw rising order intake for products going to LNG and product carriers in South Korea, China and also Japan.
Order intake was unchanged in the fourth quarter compared to the third, even as a large
order in India in the third quarter was not repeated. A positive development was reported by the Marine & Diesel division, which had a strong quarter, as well as the base business which developed well, especially in the Process Technology division. The Marine & Diesel division was lifted by a high activity level among shipyards in South Korea, China and Japan. Meanwhile, segment Energy & Environment also did well, thanks to a large LNG contract in Australia for wastewater treatment. The Process Technology division as a whole however, declined due to the non-repeat order in India. The Equipment division reported a slightly lower pace compared to the relatively strong performance seen in the first three quarters. Korea and Japan stood out from a geographic perspective, showing a strong and broad based positive development. China also reported growth, with a very strong development in the Marine & Diesel division, Food Technology, Process Industries as well as Service. For the region as a whole, the demand for parts and services was unchanged from the third quarter.
As the result of an intensive and consistent commitment over many years to research and development, Alfa Laval has achieved a world-leading position within the areas of separation and heat transfer. The product development within fluid handling has resulted in a strong market position for a number of products. In order to strengthen the Group's position and to support the organic growth, by identifying new applications for existing products as well as developing new products, research and development is always an activity of high priority. Research and development is conducted at approximately twenty facilities around the world.
The costs for research and development have amounted to SEK 732 (707) million, corresponding to 2.4 (2.4) percent of net sales. Excluding currency effects and acquisition of businesses, the costs for research and development have increased by 3.5 percent compared to last year.
Two of Alfa Laval's four business principles are: "Respect for human rights is fundamental" and "High ethical standards guide our conduct". This means that Alfa Laval respects human rights and the very different social cultures in which the company works and supplies its products and services and that Alfa Laval conducts its business with
honesty, integrity and respect for others. Globalisation gives Alfa Laval new business opportunities for increased sales as well as lower costs for manufacturing the products. But when part of the supply chain is moved to countries with lower costs the company is often confronted with ethical questions in a more obvious manner. Health, security and working conditions for the employees at the company's suppliers are some of Alfa Laval's main topics. When Alfa Laval procures products from quickly growing economies like China and India it is important for the company to secure that the cost reduction opportunities are not at the expense of those performing the work in each country. Alfa Laval regards it as an obligation to make sure that its suppliers develop quickly if the work, health and security conditions are not acceptable.
Alfa Laval has developed an internal training programme to give sales people and purchase departments knowledge on legal business practice.
One of Alfa Laval's four business principles is: "Optimizing the use of natural resources in the most efficient manner is our business." The company's products make a significant contribution to reducing the environmental impact of industrial processes and are used to produce renewable energy.
Since 2004 the Group runs a project to improve the internal environmental management systems. Today all sites (except recent acquisitions) have an environmental management system in place. At the end of 2013 28 (26) production sites with ISO 14001 certification accounted for about 93 (86) percent of the delivery value. The increase is due to certification of two sites for boiler manufacturing in Denmark and in China. Yet one site has an ongoing certification. The goal is to have a certification level of at least 95 percent.
The subsidiary, Alfa Laval Corporate AB, is involved in operational activities that are subject to an obligation to report and compulsory licensing according to Swedish environmental legislation. The permits mainly relate to the manufacturing of heat exchangers in Lund and Ronneby and the manufacturing of separators in Tumba and Eskilstuna. The external environment is affected through limited discharges into the air and water, through waste and noise.
The foreign manufacturing sites within the Alfa Laval Group are engaged in operational activities with a similar effect on the external environment. To what extent this activity is subject to an obligation to report and/or compulsory licensing according to local environmental legislation varies from country to country. Alfa Laval has an overall intention to operate well within the limits that are set by local legislation.
The distribution of the number of employees by region is:
The distribution of the number of employees by personnel category is:
The productivity by employee has developed as follows:
The figures for 2008 were inflated by the high metal prices. The outcome for 2009 and 2010 has been affected by the financial crisis and the outcome for 2011 and 2012 by the acquisition of Aalborg Industries and the Euro crisis. Aalborg Industries has a lower turnover per employee than Alfa Laval.
The parent company does not have any employees.
The Group has on average had 16,282 (16,060) employees. At the end of December 2013 the Group had 16,308 (16,419) employees. The employee turnover rate for 2013 is 10.2 (10.3) percent and mainly relates to employees within manufacturing units and the sales organisation.
Alfa Laval has the ambition to develop the employees on all levels within the Group. Part of this is made through local training and development efforts in the different factories and sales companies around the world, for instance ALPS (Alfa Laval Production System) that is based on the well known concepts of Lean and Six Sigma, while the more comprehensive group-wide training programmes and development projects are performed within the Alfa Laval Academy framework. Examples of these training programmes are Challenger (for young talents with international leadership potential), Impact (for women in the middle of the carreer), Project Management, Product trainings, Information Security (mandatory training via E-learning) and Pure Leadership (for middle management).
Alfa Laval is working to achieve equal career opportunities independent of for instance gender or ethnic origin. The latter is not the least important in an international company. Likewise the number of female managers shall increase in order to better reflect the females' part of the total number of employees. To facilitate this, a mentor programme has started for women with capacity to become future leaders.
The distribution of employees per country and per municipality in Sweden and between males and females can be found in Note 5 in the notes to the financial statements. The specification of salaries, wages, remunerations, social costs and pension costs are provided in Note 6 in the notes to the financial statements.
The guidelines for remunerations to executive officers are established by the Annual General Meeting, see further description in Note 6.
The Annual General Meeting 2013 decided to implement step three of a modified cash based long term incentive programme for maximum 85 senior managers in the Group including the Chief Executive Officer and the persons defined as executive officers. The Board of Directors will propose the Annual General Meeting 2014 to implement step four of this modified cash-based long term incentive programme for the period January 1, 2014 – December 31, 2016. No other
changes of these guidelines are proposed by the Board of Directors.
The Alfa Laval Group was as of December 31, 2013, named as a co-defendant in a total of 759 asbestos-related lawsuits with a total of approximately 819 plaintiffs. Alfa Laval strongly believes the claims against the Group are without merit and intends to vigorously contest each lawsuit.
Based on current information and Alfa Laval's understanding of these lawsuits, Alfa Laval continues to believe that these lawsuits will not have a material adverse effect on the Group's financial condition or results of operation.
The parent company's result after financial items was SEK 1,762 (101) million, out of which dividends from subsidiaries were SEK 1,697 (-) million, net interests SEK 71 (115) million, realised and unrealised exchange rate gains and losses SEK 4 (-1) million, costs related to the listing SEK -3 (-3) million, fees to the Board SEK -6 (-6) million, costs for annual report and annual general meeting SEK -2 (-4) million and other operating costs the remaining SEK 1 (-0) million. Change of tax allocation reserve has been made with SEK 30 (283) million. Group contributions amount to SEK 855 (-403) million, Tax on this year's result amount to SEK -212 (-1) million. Net income for the year was SEK 2,435 (-20) million.
The unrestricted equity of Alfa Laval AB (publ) was SEK 9,253 (8,285) million.
The Board of Directors propose a dividend of SEK 3.75 (3.50) per share corresponding to SEK 1,573 (1,468) million and that the remaining income available for distribution in Alfa Laval AB (publ) of SEK 7,680 (6,817) million be carried forward, see page 134.
The Board of Directors are of the opinion that the proposed dividend is in line with the requirements that the type and size of operations, the associated risks, the capital needs, liquidity and financial position put on the company.
Paragraph 2a in chapter 6 of the Swedish Annual Accounts Act requires listed companies to disclose certain information relating to the company's shares in the Board of Directors' Report. This information is found in the following paragraphs, in the "Changes in consolidated equity" and in Note 6.
The Annual General Meeting 2013 gave the Board a mandate to decide on repurchase of the company's shares – if the Board deems this appropriate – until the next Annual General Meeting. The mandate referred to repurchase of up to 5 percent of the issued shares with the purpose to cancel the repurchased shares and reduce the share capital. The repurchase would be made through purchases on OMX Stockholm Stock Exchange. Until December 31, 2013 Alfa Laval has not made any repurchases.
Alfa Laval's financial position is very strong. In order to adjust this to a more efficient structure while maintaining financial flexibility, the Board of Directors will propose the Annual General Meeting to mandate the Board to decide on repurchase of the company's shares – if the Board deems this appropriate – until the next Annual General Meeting. The mandate will refer to repurchase of up to 5 percent of the issued shares with the purpose to cancel the repurchased shares and reduce the share capital. The repurchase will be made through transactions on OMX Stockholm Stock Exchange.
The statements on financial position and the comprehensive income statements will be adopted at the Annual General Meeting of shareholders on April 28, 2014.
In the fourth quarter and full year 2013 report issued on February 5, 2014, the President and Chief Executive Officer Lars Renström stated:
"We expect that demand during the first quarter 2014 will be in line with or somewhat lower than in the fourth quarter."
Earlier published outlook (October 29, 2013): "We expect that demand during the fourth quarter 2013 will be on about the same level as in the third quarter."
Alfa Laval will publish interim reports during 2014 at the following dates:
| Interim report for | |
|---|---|
| the first quarter | April 28 |
| Interim report for | |
| the second quarter | July 17 |
| Interim report for | |
| the third quarter | October 28 |
| Consolidated cash flows | ||
|---|---|---|
| SEK millions Note |
2013 | 2012 * |
| Operating activities | ||
| Operating income | 4,353 | 4,396 |
| Adjustment for depreciation | 1,010 | 934 |
| Adjustment for other non-cash items | -38 | 241 |
| 5,325 | 5,571 | |
| Taxes paid | -1,093 | -1,569 |
| 4,232 | 4,002 | |
| Changes in working capital: | ||
| Increase(-)/decrease(+) of receivables | 107 | -158 |
| Increase(-)/decrease(+) of inventories | -134 | -214 |
| Increase(+)/decrease(-) of liabilities | 201 | -25 |
| Increase(+)/decrease(-) of provisions | -178 | -19 |
| Increase(-)/decrease(+) in working capital | -4 | -416 |
| 4,228 | 3,586 | |
| Investing activities | ||
| Investments in fixed assets (Capex) | -495 | -531 |
| Divestment of fixed assets | 37 | 49 |
| Acquisition of businesses 16 |
-495 | -2,778 |
| -953 | -3,260 | |
| Financing activities | ||
| Received interests and dividends | 122 | 97 |
| Paid interests | -208 | -252 |
| Realised financial exchange differences | -16 | 104 |
| Dividends to owners of the parent | -1,468 | -1,363 |
| Dividends to non-controlling interests | 0 | -7 |
| Increase(-)/decrease(+) of financial assets | -190 | 5 |
| Increase(+)/decrease(-) of borrowings | -1,431 | 1,009 |
| -3,191 | -407 | |
| Cash flow for the period | 84 | -81 |
| Cash and bank at the beginning of the period | 1,404 | 1,564 |
| Translation difference in cash and bank | -34 | -79 |
| Cash and bank at the end of the period 25 |
1,454 | 1,404 |
| Free cash flow per share (SEK) ** | 7.81 | 0.78 |
| Capex in relation to sales | 1.7% | 1.8% |
| Average number of shares | 419,456,315 | 419,456,315 |
* Restated to the new IAS 19.
** Free cash flow is the sum of cash flows from operating and investing activities.
For further comments on certain individual lines in the cash-flow statement, reference is made to Notes 16 and 25.
The increase in cash flows from operating activities in 2013 is explained by the lower tax payments and the lower increase in working capital.
The item cash and bank mainly consists of short term deposits of less than three months with banks.
Cash flow from operating and investing activities amounted to SEK 3,275 (326) million during 2013. Out of this, acquisitions of businesses were SEK -495 (-2,778) million whereas divestments generated cash of SEK 37 (49) million.
Other non-cash items are mainly referring to realised gains and losses in connection with sale of assets. These have to be eliminated since the cash impact of divestments of fixed assets and businesses are reported separately under cash flow from investing activities.
Working capital increased by SEK 4 (416) million during 2013.
Investments in property, plant and equipment amounted to SEK 495 (531) million during 2013. The investments made for the individual product groups are as follows:
Investments have been made in machines for manufacturing of new products and in productivity enhancing equipment in Ronneby in Sweden and in Jiang Yin in China for brazed heat exchangers. Investments have been made in Jiang Yin in China and in Lund in Sweden in equipment to increase capacity and widen the product range for gasketted heat exchangers. Investments in manufacturing equipment for a wider product range of air heat exchangers have been made in Groningen in the Netherlands and in Alonte in Italy.
During 2013 a new factory for decanters has been completed in Kunshan in China.
Investments in machine capacity have been made during the year in Eskilstuna in Sweden and in Pune in India.
During 2013 investments in productivity and capacity increasing equipment have been made relating to fluid handling products.
Depreciation, excluding allocated step-up values, amounted to SEK 449 (447) million during the year.
For a further analysis of the impact on the cash flow by acquisitions and disposals, see Note 16.
The free cash flow per share is SEK 7.81 (0.78).
| Consolidated comprehensive income | |||
|---|---|---|---|
| SEK millions | Note | 2013 | 2012 * |
| Net sales | 1, 2, 3, 4 | 29,934 | 29,813 |
| Cost of goods sold | 9 | -19,349 | -19,169 |
| Gross profit | 10,585 | 10,644 | |
| Sales costs | 5, 6, 9 | -3,481 | -3,345 |
| Administration costs | 5, 6, 7, 9 | -1,590 | -1,656 |
| Research and development costs | 9 | -732 | -707 |
| Other operating income ** | 8 | 453 | 384 |
| Other operating costs ** | 8, 9 | -882 | -924 |
| Operating income | 4,353 | 4,396 | |
| Dividends and changes in fair value | 10 | 8 | 8 |
| Interest income and financial exchange rate gains | 11 | 358 | 501 |
| Interest expense and financial exchange rate losses | 11 | -547 | -376 |
| Result after financial items | 4,172 | 4,529 | |
| Tax on this year's result | 15 | -1,098 | -1,279 |
| Other taxes | 15 | -34 | -27 |
| Net income for the year | 3,040 | 3,223 | |
| Other comprehensive income: | |||
| Items that will subsequently be reclassified to net income | |||
| Cash flow hedges | 13 | 168 | |
| Translation difference | 39 | -798 | |
| Deferred tax on other comprehensive income | 15 | -14 | -50 |
| Sum | 38 | -680 | |
| Items that will subsequently not be reclassified to net income | |||
| Revaluations of defined benefit obligations | 234 | -277 | |
| Deferred tax on other comprehensive income | 15 | -81 | 35 |
| Sum | 153 | -242 | |
| Comprehensive income for the year | 3,231 | 2,301 | |
| Net income attributable to: | |||
| Owners of the parent | 3,027 | 3,206 | |
| Non-controlling interests | 13 | 17 | |
| Earnings per share (SEK) | 7.22 | 7.64 | |
| Average number of shares | 419,456,315 | 419,456,315 | |
| Comprehensive income attributable to: | |||
| Owners of the parent | 3,212 | 2,288 | |
| Non-controlling interests | 19 | 13 |
* Restated to the new IAS 19.
** The line has been affected by comparison distortion items, see specification in Note 8.
For comments on the individual lines in the consolidated comprehensive income statement, reference is made to Notes 1 to 15 and Note 28. For comments on the operating segments, see Note 1.
As a basis for comments on the various main items of the consolidated comprehensive income statement, please find a comparison between the last two years:
| 2013 | 2012 * |
|---|---|
| 29,934 | 29,813 |
| 11,146 | 11,131 |
| 37.2 | 37.3 |
| -5,783 | -5,750 |
| 19.3 | 19.3 |
| 5,363 | 5,381 |
| 17.9 | 18.0 |
| -449 | -447 |
| 4,914 | 4,934 |
| 16.4 | 16.5 |
| -561 | -487 |
| – | -51 |
| 4,353 | 4,396 |
* Restated to the new IAS 19. ** Excluding amortisation of step up values. *** Excluding comparison distortion items.
The gross margin has decreased by 0.1 percentage unit between 2012 and 2013. Exchange rate effects have caused a negative impact that more than corresponds to the total change of 0.1 percent. A minor positive effect relating to prices has been mitigated by a limited negative change in mix.
Sales and administration expenses amounted to SEK 5,071 (5,001) million. Excluding currency effects and acquisition of businesses, sales and administration expenses were 1.5 percent higher than last year.
The costs for research and development have amounted to SEK 732 (707) million, corresponding to 2.4 (2.4) percent of net sales. Excluding currency effects and acquisition of businesses, the costs for research and development have increased by 3.5 percent compared to last year.
The net income attributable to the owners of the parent, excluding depreciation of step-up values and the corresponding tax, is SEK 8.18 (8.39) per share.
Compared with last year Alfa Laval has been affected during 2013 by exchange rate differences, both through translation differences and through the net exposure when trading in foreign currencies. The effect on adjusted EBITA has been calculated to totally about SEK -187 (-139) million for 2013 compared with last year. The effect of the exchange rate variations has been limited through exchange rate hedging and through the distribution of the company's financial debts in relation to its net assets in different currencies.
In order to illustrate the quarterly development, the last 12 quarters are shown below for four of the parameters in the income analysis:
Adjusted EBITA
The operating income has been affected by comparison distortion items of SEK - (-51) million, which are specified below. In the consolidated comprehensive income statement these are reported gross as a part of other operating income and other operating costs, see summary in Note 8.
The comparison distortion cost during 2012 of SEK -51 million related to write down of the goodwill relating to the acquisition of Onnuri with SEK -48 million and a realised loss on sale of a property in Korea that was used by Onnuri with SEK -3 million.
The financial net has amounted to SEK -90 (-126) million, excluding realised and unrealised exchange rate losses and gains. The main elements of costs were interest on debt to the banking syndicate of SEK -21 (-25) million, interest on the bilateral term loans SEK -70 (-83) million, interest on the private placement of SEK -12 (-16) million and a net of dividends, other interest income and interest costs of SEK 13 (-2) million.
The net of realised and unrealised exchange rate differences amounts to SEK -91 (259) million.
The item cash flow hedges in other comprehensive income almost entirely consist of fair value changes in cash flow hedges:
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Opening balance | 110 | -58 |
| Booked into other comprehensive income during the year | -41 | 124 |
| Reversed from other comprehensive income due to inefficiency: | ||
| booked against cost of goods sold | 17 | -40 |
| Reversed from other comprehensive income: | ||
| booked against cost of goods sold | 46 | 90 |
| booked against interest income/interest costs | -9 | -6 |
| Closing balance | 123 | 110 |
| Change reported against other comprehensive income | 13 | 168 |
The Group has not had any cash flow hedges that have affected the initially recognised carrying amount of non-financial assets.
In the item cash flow hedges in other comprehensive income the fair value changes in shares in external companies is also included with SEK -0 (-0) million for 2013. They are not material enough to render a separate line in the comprehensive income statement.
Accumulated translation differences *
| Consolidated | ||
|---|---|---|
| SEK millions |
| Year | Main explanation to translation differences | Change | Accumulated | Pre-tax effect on change by hedging measures |
|---|---|---|---|---|
| Formation of the Group | ||||
| 2000 | The EUR was appreciated by 6 %, which affected the EUR based acquisition loans |
-94 | -94 | -312 |
| 2001 | The USD was appreciated by 10.7 % | 97 | 3 | -105 |
| 2002 | The USD was depreciated by 16.7 % | -190 | -187 | 165 |
| 2003 | The USD was depreciated by 17.5 % | -38 | -225 | 195 |
| 2004 | The USD was depreciated by 9.0 % | -103 | -328 | -19 |
| 2005 | The USD was appreciated by 20.3 % and the EUR was appreciated by 4.8 % |
264 | -64 | -65 |
| 2006 | The USD was depreciated by 13.5 % and the EUR was depreciated by 4.0 % |
-269 | -333 | 56 |
| 2007 | The USD was depreciated by 5.7 % whereas the EUR was appreciated by 4.7 % |
224 | -109 | 13 |
| 2008 | The USD was appreciated by 20.5 % and the EUR was appreciated by 16.2 % |
850 | 744 | -468 |
| 2009 | The USD was depreciated by 7.5 % and the EUR was depreciated by 6.0 % |
-392 | 352 | 220 |
| 2010 | The USD was depreciated by 5.7 % and the EUR was depreciated by 12.9 % |
-554 | -202 | 99 |
| 2011 | The USD was appreciated by 1.4 % whereas the EUR was depreciated by 0.8 % |
-254 | -456 | 34 |
| 2012 | The USD was depreciated by 5.8 % and the EUR was depreciated by 3.6 % |
-798 | -1,254 | 214 |
| 2013 | The USD was appreciated by 0.3 % and the EUR was appreciated by 4.1 % |
39 | -1,215 | -83 |
* Reported against other comprehensive income. Prior to 2009 these translation differences were reported against equity.
Consolidated financial position
| ASSETS | |||
|---|---|---|---|
| Opening balance | |||
| SEK millions Note |
2013 | 2012 * | January 1, 2012 |
| Non-current assets | |||
| Intangible assets 16, 17 |
|||
| Patents and unpatented know-how | 1,927 | 1,943 | 1,327 |
| Trademarks | 1,618 | 1,819 | 2,130 |
| Licenses, renting rights and similar rights | 37 | 45 | 45 |
| Goodwill | 10,061 | 9,792 | 9,543 |
| 13,643 | 13,599 | 13,045 | |
| Property, plant and equipment 16, 18 |
|||
| Real estate | 1,664 | 1,702 | 1,734 |
| Machinery and other technical installations | 1,435 | 1,430 | 1,439 |
| Equipment, tools and installations | 560 | 541 | 555 |
| Construction in progress and advances to suppliers concerning | |||
| property, plant and equipment | 137 | 150 | 208 |
| 3,796 | 3,823 | 3,936 | |
| Other non-current assets | |||
| Other long-term securities 13, 14, 19 |
8 | 9 | 25 |
| Pension assets 26 |
11 | 3 | 15 |
| Deferred tax assets 15 |
1,401 | 1,497 | 1,559 |
| 1,420 | 1,509 | 1,599 | |
| Total non-current assets | 18,859 | 18,931 | 18,580 |
| Current assets | |||
| Inventories 20 |
6,319 | 6,176 | 6,148 |
| Assets held for sale | |||
| Real estate 18 |
– | 9 | – |
| Current receivables | |||
| Accounts receivable 13, 21 |
5,059 | 5,211 | 5,080 |
| Current tax assets | 1,113 | 1,207 | 918 |
| Other receivables 13, 22 |
1,085 | 1,098 | 1,188 |
| Prepaid costs and accrued income 13, 23 |
219 | 200 | 174 |
| Derivative assets 13, 14 |
219 | 325 | 303 |
| 7,695 | 8,041 | 7,663 | |
| Current deposits | |||
| Other current deposits 13, 24 |
611 | 427 | 483 |
| Cash and bank 13, 25 |
1,454 | 1,404 | 1,564 |
| Total current assets | 16,079 | 16,057 | 15,858 |
| TOTAL ASSETS | 34,938 | 34,988 | 34,438 |
* Restated to the new IAS 19.
Consolidated financial position, continued
| EQUITY AND LIABILITIES | ||||
|---|---|---|---|---|
| Opening balance | ||||
| SEK millions | Note | 2013 | 2012 * | January 1, 2012 |
| Equity | ||||
| Attributable to owners of the parent | ||||
| Share capital | 1,117 | 1,117 | 1,117 | |
| Other contributed capital | 2,770 | 2,770 | 2,770 | |
| Other reserves | -1,949 | -2,134 | -1,216 | |
| Retained earnings | 14,149 | 12,639 | 11,543 | |
| 16,087 | 14,392 | 14,214 | ||
| Attributable to non-controlling interests | 12 | 75 | 61 | 162 |
| Total equity | 16,162 | 14,453 | 14,376 | |
| Non-current liabilities | ||||
| Liabilities to credit institutions | 13, 28 | 2,813 | 4,679 | 4,302 |
| Private placement | 13, 28 | 716 | 714 | 758 |
| Provisions for pensions and similar commitments | 26 | 1,494 | 1,727 | 1,604 |
| Provision for deferred tax | 15 | 1,761 | 1,932 | 1,927 |
| Other provisions | 27 | 431 | 473 | 520 |
| Total non-current liabilities | 7,215 | 9,525 | 9,111 | |
| Current liabilities Liabilities to credit institutions |
13, 28 | 1,049 | 610 | 132 |
| Advances from customers | 2,027 | 2,121 | 2,020 | |
| Accounts payable | 13 | 2,250 | 2,198 | 2,529 |
| Notes payable | 13 | 144 | 135 | 139 |
| Current tax liabilities | 1,064 | 1,104 | 1,050 | |
| Other liabilities | 13, 29 | 1,532 | 1,381 | 1,356 |
| Other provisions | 27 | 1,539 | 1,603 | 1,612 |
| Accrued costs and prepaid income | 13, 30 | 1,722 | 1,671 | 1,685 |
| Derivative liabilities | 13, 14 | 234 | 187 | 428 |
| Total current liabilities | 11,561 | 11,010 | 10,951 | |
| Total liabilities | 18,776 | 20,535 | 20,062 | |
| TOTAL EQUITY AND LIABILITIES | 34,938 | 34,988 | 34,438 | |
| PLEDGED ASSETS AND CONTINGENT LIABILITIES | ||||
| Pledged assets | 31 | 17 | 10 | 51 |
| Contingent liabilities | 31 | 1,950 | 2,015 | 1,722 |
* Restated to the new IAS 19.
For comments on the individual lines in the statement on financial position, reference is made to Notes 12 to 34. For comments on the operating segments, see Note 1.
The average capital employed including goodwill and step-up values amounted to SEK 18,586 (17,833) million during the year.
The return on average capital employed including goodwill and step-up values amounted to 26.4 (27.4) percent during the year.
The capital turnover rate calculated on the average capital employed including goodwill and step-up values amounted to 1.6 (1.7) times for the year.
Net income in relation to the average equity was 20.4 (22.9) percent during the year.
The solidity, that is the equity in relation to total assets, was 46.3 (41.3) percent at the end of the year.
The net debt was SEK 2,597 (4,270) million at the end of the year.
Net debt in relation to EBITDA was 0.48 (0.80) times at the end of December.
The debt ratio, that is the net debt in relation to equity, was 0.16 (0.30) times at the end of December.
| Attributable to: | Owners of the parent | Non-controlling interests | Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Other reserves | ||||||||||||
| SEK millions | Share capital |
Other contribu ted capital |
Cash flow hedges |
Translation | differences Revaluations Deferred tax | Retained earnings |
Subtotal | Translation differences |
Retained earnings |
Subtotal | ||
| As of December 31, 2011 | 1,117 | 2,770 | -58 | -441 | -768 | 51 | 11,543 | 14,214 | -15 | 177 | 162 | 14,376 |
| 2012 | ||||||||||||
| Comprehensive income | ||||||||||||
| Net income | – | – | – | – | – | – | 3,206 | 3,206 | – | 17 | 17 | 3,223 |
| Other comprehensive income | – | – | 168 | -794 | -277 | -15 | – | -918 | -4 | – | -4 | -922 |
| Comprehensive income | – | – | 168 | -794 | -277 | -15 | 3,206 | 2,288 | -4 | 17 | 13 | 2,301 |
| Transactions with shareholders | ||||||||||||
| Decrease of non-controlling interests |
– | – | – | – | – | – | -747 | -747 | – | -107 | -107 | -854 |
| Dividends to owners of the parent |
– | – | – | – | – | – | -1,363 | -1,363 | – | – | – | -1,363 |
| Dividends to non-controlling interests |
– | – | – | – | – | – | – | – | – | -7 | -7 | -7 |
| As of December 31, 2012 | 1,117 | 2,770 | 110 | -1,235 | -1,045 | 36 | 12,639 | 14,392 | -19 | 80 | 61 | 14,453 |
| 2013 | ||||||||||||
| Comprehensive income | ||||||||||||
| Net income | – | – | – | – | – | – | 3,027 | 3,027 | – | 13 | 13 | 3,040 |
| Other comprehensive income | – | – | 13 | 33 | 234 | -95 | – | 185 | 6 | – | 6 | 191 |
| Comprehensive income | – | – | 13 | 33 | 234 | -95 | 3,027 | 3,212 | 6 | 13 | 19 | 3,231 |
| Transactions with shareholders | ||||||||||||
| Decrease of non-controlling interests |
– | – | – | – | – | – | -49 | -49 | – | -5 | -5 | -54 |
| Dividends to owners of the | ||||||||||||
| parent | – | – | – | – | – | – | -1,468 | -1,468 | – | – | – | -1,468 |
| Dividends to non-controlling | ||||||||||||
| interests | – | – | – | – | – | – | – | – | – | 0 | 0 | 0 |
| As of December 31, 2013 | 1,117 | 2,770 | 123 | -1,202 | -811 | -59 | 14,149 | 16,087 | -13 | 88 | 75 | 16,162 |
* Restated to the new IAS 19.
| Change in share | ||||||
|---|---|---|---|---|---|---|
| Change in number | Total number of | capital | Total share capital | |||
| Year | Event | Date | of shares | shares | SEK millions | SEK millions |
| 2000 | Company formation | March 27, 2000 | 10,000,000 | 10,000,000 | 0.1 | 0.1 |
| New issue of shares | August 24, 2000 | 27,496,325 | 37,496,325 | 0.3 | 0.4 | |
| 2002 | Bonus issue of shares | May 3, 2002 | 37,496,325 | 74,992,650 | 0.4 | 1 |
| Bonus issue of shares | May 16, 2002 | – | – | 749 | 750 | |
| New issue of shares | May 16, 2002 | 3,712,310 | 78,704,960 | 37 | 787 | |
| New issue of shares | May 17, 2002 | 32,967,033 | 111,671,993 | 330 | 1,117 | |
| 2008 | Cancellation of repurchased shares | May 27, 2008 | -4,323,639 | 107,348,354 | -43 | |
| Bonus issue of shares | May 27, 2008 | – | 107,348,354 | 43 | 1,117 | |
| Split 4:1 | June 10, 2008 | 322,045,062 | 429,393,416 | – | 1,117 | |
| 2009 | Cancellation of repurchased shares | July 9, 2009 | -7,353,950 | 422,039,466 | -19 | |
| Bonus issue of shares | July 9, 2009 | – | 422,039,466 | 19 | 1,117 | |
| 2011 | Cancellation of repurchased shares | May 16, 2011 | -2,583,151 | 419,456,315 | -7 | |
| Bonus issue of shares | May 16, 2011 | - | 419,456,315 | 7 | 1,117 |
The articles of association of Alfa Laval AB state that the share capital should be between SEK 745,000,000 and 2,980,000,000 and that the number of shares should be between 298,000,000 and 1,192,000,000.
At January 1, 2013 the share capital of SEK 1,116,719,930 was divided into 419,456,315 shares. Since then no changes have been made.
The Annual General Meeting 2013 gave the Board a mandate to decide on repurchase of the company's shares – if the Board deems this appropriate – until the next Annual General Meeting. The mandate referred to repurchase of up to 5 percent of the issued shares with the purpose to cancel the repurchased shares and reduce the share capital. The repurchase would be made through purchases on OMX Stockholm Stock Exchange. Until December 31, 2013 Alfa Laval has not made any repurchases.
The company has only issued one type of shares and all these have equal rights. There are no restrictions in law or in the articles of association in the negotiability of the shares.
The only shareholder holding more than 10 percent of the shares is Tetra Laval B.V., the Netherlands who owns 26.1 (26.1) percent. The employees of the company do not own any shares in the company through company pension trusts.
No restrictions exist in how many votes that each shareholder can represent at a general meeting of shareholders. The company has no knowledge of any agreements between shareholders that would limit the negotiability of their shares.
The articles of association stipulate that members of the Board are elected at the Annual General Meeting. Election or discharge of members of the Board is otherwise regulated by the provisions in the Swedish Companies Act and the Swedish Corporate Governance Code. According to the Companies Act changes in the articles of association are decided at general meetings of shareholders.
The senior credit facility with the banking syndicate, the private placement and the bilateral term loans with Swedish Export Credit and the European Investment Bank contain conditions that give the lenders the opportunity to terminate the loans and declare them due and payable if there is a change of control of the company through a public offering or otherwise.
The possibilities to distribute unappropriated profits from foreign subsidiaries are limited in certain countries due to currency regulations and other legislation.
| Parent company cash flows | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Cash flow from operating activities | ||
| Operating income | -10 | -13 |
| Taxes paid | -3 | -214 |
| -13 | -227 | |
| Changes in working capital: | ||
| Increase(-)/decrease(+) of receivables | 112 | 1,444 |
| Increase(+)/decrease(-) of liabilities | 4 | -374 |
| Increase(-)/decrease(+) in working capital | 116 | 1,070 |
| 103 | 843 | |
| Cash flow from investing activities | ||
| Investment in subsidiaries | – | – |
| – | – | |
| Cash flow from financing activities | ||
| Financial net, paid | 71 | 115 |
| Received dividends from subsidiaries | 1,697 | – |
| Paid dividends | -1,468 | -1,363 |
| Received/paid group contribution | -403 | 405 |
| -103 | -843 | |
| Cash flow for the year | – | – |
| Cash and bank at the beginning of the year | – | – |
| Cash and bank at the end of the year | – | – |
Parent company income *
| SEK millions | Note | 2013 | 2012 ** |
|---|---|---|---|
| Administration costs | -11 | -13 | |
| Other operating income | 4 | 3 | |
| Other operating costs | -3 | -3 | |
| Operating income | -10 | -13 | |
| Dividends from subsidiaries | 1,697 | – | |
| Interest income and similar result items | 11 | 79 | 118 |
| Interest expenses and similar result items | 11 | -4 | -4 |
| Result after financial items | 1,762 | 101 | |
| Change of tax allocation reserve | 30 | 283 | |
| Group contributions | 855 | -403 | |
| Result before tax | 2,647 | -19 | |
| Tax on this year's result | -212 | -1 | |
| Net income for the year | 2,435 | -20 |
* The parent company income statement also constitutes its comprehensive income statement.
** Group contributions restated due to changes in RFR.
| Parent company financial position | ||
|---|---|---|
| SEK millions Note |
2013 | 2012 * |
| ASSETS | ||
| Non-current assets | ||
| Financial non-current assets | ||
| Shares in group companies | 19 4,669 |
4,669 |
| Current assets | ||
| Current receivables | ||
| Receivables on group companies | 8,263 | 8,035 |
| Current tax assets | 40 | 249 |
| Other receivables | 3 | 3 |
| Accrued income and prepaid costs | 1 | 1 |
| 8,307 | 8,288 | |
| Cash and bank | – | – |
| Total current assets | 8,307 | 8,288 |
| TOTAL ASSETS | 12,976 | 12,957 |
| EQUITY AND LIABILITIES | ||
| Equity | ||
| Restricted equity | ||
| Share capital | 1,117 | 1,117 |
| Statutory reserve | 1,270 | 1,270 |
| 2,387 | 2,387 | |
| Unrestricted equity | ||
| Profit brought forward | 6,818 | 8,305 |
| Net income for the year | 2,435 | -20 |
| 9,253 | 8,285 | |
| Total equity | 11,640 | 10,672 |
| Untaxed reserves | ||
| Tax allocation reserve, taxation 2008 | – | 350 |
| Tax allocation reserve, taxation 2009 | 239 | 239 |
| Tax allocation reserve, taxation 2010 | 224 | 224 |
| Tax allocation reserve, taxation 2011 | 313 | 313 |
| Tax allocation reserve, taxation 2012 | 140 | 140 |
| Tax allocation reserve, taxation 2014 | 320 | – |
| 1,236 | 1,266 | |
| Current liabilities | ||
| Liabilities to group companies | 99 | 1 018 |
| Accounts payable | 1 | 1 |
| 100 | 1 019 | |
| TOTAL EQUITY AND LIABILITIES | 12,976 | 12,957 |
| MEMORANDUM ITEMS | ||
| Pledged assets and contingent liabilities |
PLEDGED ASSETS None None
Performance guarantees None None Other contingent liabilities None None
* Group contributions restated due to changes in RFR.
CONTINGENT LIABILITIES (for subsidiaries):
| Changes in parent company equity | ||||
|---|---|---|---|---|
| SEK millions | Share capital | Statutory reserve | Unrestricted equity | Total |
| As of December 31, 2011 | 1,117 | 1,270 | 9,668 | 12,055 |
| 2012 * | ||||
| Comprehensive income | ||||
| Net income | – | – | -20 | -20 |
| – | – | -20 | -20 | |
| Transactions with shareholders | ||||
| Dividends | – | – | -1,363 | -1,363 |
| As of December 31, 2012 | 1,117 | 1,270 | 8,285 | 10,672 |
| 2013 | ||||
| Comprehensive income | ||||
| Net income | – | – | 2,435 | 2,435 |
| – | – | 2,435 | 2,435 | |
| Transactions with shareholders | ||||
| Dividends | – | – | -1,468 | -1,468 |
| As of December 31, 2013 | 1,117 | 1,270 | 9,253 | 11,640 |
The share capital of SEK 1,116,719,930 (1,116,719,930) is divided among 419,456,315 (419,456,315) shares.
* Group contributions restated due to changes in RFR.
The accounting principles mentioned below are only the ones that are relevant for the parent company and the consolidated group.
The consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments including derivatives that are valued at fair value. The statements are presented in SEK millions, unless otherwise stated.
As from January 1, 2005 Alfa Laval applies International Financial Reporting Standards (IFRS) as adopted by the European Union. Furthermore recommendation RFR 1 "Supplementary accounting principles for consolidated groups" from the Council for Financial Reporting in Sweden is applied.
The accounting and valuation principles of the parent company comply with the Swedish Annual Accounts Act and the recommendation RFR 2 "Accounting for legal entities" issued by the Council for Financial Reporting in Sweden.
The company has chosen to only comment the changed accounting principles that are relevant for the company's financial reporting.
During 2013 the changes in IAS 1 "Presentation of Financial Statements" have been implemented. The change means that the grouping of transaction reported in other comprehensive income is changed. The items that are recycled over the income statement are to be reported separately from the items that are not recycled over the income statement. The proposal does not change the actual content of other comprehensive income but only the format. The changes must be applied retroactively in accordance with IAS 8.
During 2013 the changes in IAS 19 "Employee Benefits" have been implemented. The changes mean substantial changes concerning the accounting for defined benefit pension schemes, for example:
– The possibility to phase actuarial gains and losses as a part of the corridor cannot be used, but these are to be accounted for currently in other comprehensive income. The items that relate to the vesting of defined benefit pensions and gains and losses that arise when settling a pension liability and the financial net concerning the defined benefit
plan are reported in the income statement above net income.
The revised standard must be applied retroactively in accordance with IAS 8. The changes to IAS 19 mean that:
The net of these two amounts is booked as a reduction of equity as a change in accounting principles per January 1, 2012.
As a consequence of this the comparison figures for 2012 have been changed.
During 2013 IFRS 13 "Fair Value Measurement" has been implemented. IFRS 13 describes how a fair value is established when such value is to be or may be used in accordance with each IFRS standard. In accordance with IFRS a fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price).
The standard presents elucidations on the fair value concept including the following areas:
New disclosures must be made to explain what valuation models that are used and what information that is used in these models and which effects the valuation has caused in the result.
The standard is to be applied prospectively. During 2013 Alfa Laval has decided to make an early adoption of the changes in RFR 2 issued by the Council for Financial Reporting in Sweden. The parent company has chosen to account for group contributions according to the alternative rule. This means that both received and given group contributions are reported as appropriations in the income statement. The comparison figures for last year have been restated.
During 2013 the opinion UFR 9 "Redovisning av avkastningsskatt" from the Swedish Financial Reporting Board has been implemented. The opinion covers how the Swedish tax on returns from pension funds is to be treated in light of the changes to IAS 19. The tax on returns from pension funds is to be reported currently as a cost in the profit and loss and must not be included in the actuarial calculation for defined benefit pension plans. UFR 9 has not meant any change compared to how the Swedish tax on returns from pension funds has been accounted earlier. It is rather a clarification in order to establish that the tax should not be included in the actuarial calculations.
During 2012 the amendment to IFRS 7 "Financial Instruments: Disclosures" was implemented. The amendment means that additional quantitative and qualitative disclosures that must be made when removing financial instruments from the statement of financial position.
IFRS 3 "Business Combinations" means that goodwill and intangible assets with indefinite useful life are not amortised. They are instead tested for impairment both annually and when there is an indication. The effect of IFRS 3 can be considerable for the Group if the profitability within the Group or parts of the Group goes down in the future, since this could trigger a substantial impairment write down of the goodwill. Such a write down will affect net income and thereby the financial position of the Group. The reported goodwill is SEK 10,061 (9,792) million at the end of the year. No intangible assets with indefinite useful life other than goodwill exist.
The Group has defined benefit plans, which are reported according to IAS 19 "Employee Benefits". This means that the plan assets are valued at fair value and that the present value of the benefit obligations in the defined benefit plans is decided through yearly actuarial calculations made by independent actuaries. If the value of the plan assets start to decrease at the same time as the actuarial assumptions increase the benefit obligations the combined effect could result in a substantial deficit. The monetary magnitude comes from the fact that the deficit is the difference between two large numbers. The risk for this happening has increased due to the implementation of the new IAS 19. The effect on profit and loss however only affects other comprehensive income and not net income. The risk has been limited since many of these defined benefit schemes are closed for new participants and replaced by defined contribution schemes.
The Group's reporting of provisions according to IAS 37 means that SEK 1,970 (2,076) million is reported as other provisions. This constitutes 5.6 (5.9) percent of the Group's assets and is important for the assessment of the Group's financial position, not the least since provisions normally are based on judgements of probability and estimates of costs and risks. If the accounting principles for provision would be changed sometime in the future, this could have a substantial impact on the Group's financial position.
IAS 39 "Financial Instruments: Recognition and Measurement" has a considerable effect on the Groups comprehensive income and equity and may have a substantial effect on net income if the used derivatives turns out not to be effective.
The key source of estimation uncertainty is related to the impairment test of goodwill, since the testing is based on certain assumptions concerning future cash-flows. See the section on critical accounting principles above for further details.
In applying the accounting policies Management has made various judgements, apart from those involving estimations, that can significantly affect the amounts recognised in the financial statements. These judgements mainly relate to:
The Group does not own shares in any material companies that fulfil the definition of an associate in IAS 28 "Investments in Associates", that is where the ownership is between 20 and 50 percent.
Borrowing costs are accounted for according to IAS 23 "Borrowing Costs", which means that the borrowing costs are charged to the profit and loss in the period to which they relate. Transaction costs that arise in connection with raising a loan are capitalised and amortised over the maturity of the loan according to IAS 39 "Financial Instruments: Recognition and Measurement". The capitalised amount is reported net against the raised loan.
The consolidated financial statements have been prepared according to IFRS 3 "Business Combinations" and IAS 27 "Consolidated and Separate Financial Statements".
The consolidated financial statements include the parent company Alfa Laval AB (publ) and the subsidiaries in which it holds more than 50 percent during the period.
The statement on consolidated financial position has been prepared in accordance with the purchase method, which means that the book value of shares in the subsidiaries is eliminated from the reported equity in the subsidiaries at the time of their acquisition. This means that the equity in the subsidiaries at the time of acquisition is not included in the consolidated equity.
The difference between the purchase price paid and the net assets of the acquired companies is allocated to the step-up values related to each type of asset, with any remainder accounted for as goodwill.
During the first 12 months after the acquisition the value of the goodwill is often preliminary. The reason to this is that experience has shown that there is some uncertainty linked to the different components of the purchase price allocation concerning:
Since the goodwill is a residual that emerges once all other parameters in the purchase price allocation have been established, it will be preliminary and open for changes until all other values are final.
At acquisitions where there is a goodwill
it should be stated what the goodwill is relating to. Since goodwill by definition is a residual this is not always that easy. Generally speaking the goodwill is usually relating to estimated synergies in procurement, logistics and corporate overheads. It can also be claimed that the goodwill is relating to the acquired entity's ability to over time recreate its intangible assets. Since the value of the intangible assets at the time of acquisition only can be calculated on the assets that exist then, no value can be attached to the patents etc. that the operations manage to create in the future partially as a replacement for the current ones and these are therefore referred to goodwill.
Goodwill and intangible assets with indefinite useful life are not amortised. These assets are instead tested for impairment both annually and when there is an indication. The impairment test is made according to IAS 36 Impairment on assets.
Transaction costs are reported in net income. If the value of an additional purchase price is changed the difference is reported in net income. In business combinations achieved in stages the goodwill is calculated and valued when the acquirer obtains control over a business. If the acquirer previously has reported an equity interest in the company the accumulated change in value of the holding is recognised in net income at the acquisition date. Changes in holdings in subsidiaries, where the majority owner does not lose its decisive influence, are reported in equity. This means that these transactions no longer will generate goodwill or lead to any gains or losses. In addition the transaction will result in a transfer between owners of the parent and non-controlling interests in equity. If the non-controlling interest's share of reported losses is higher than its reported share of the equity, a negative non-controlling interest is reported.
Items that do not have any link to the normal operations of the Group or that are of a non-recurring nature are classified as comparison distortion items. In the consolidated comprehensive income statement these are reported gross as a part of the most concerned lines, but are specified separately in Note 8. To report these together with other items in the consolidated comprehensive income statement without this separate reporting in a note would have given a comparison distortion effect that would have made it difficult to judge the development of the ordinary operations from an outside viewer. Comparison distortion items affecting operating income are reported as a part of
operating income, while comparison distortion items affecting the result after financial items are reported as a part of the financial net.
Alfa Laval has chosen to report the items in other comprehensive income as a part of one statement over comprehensive income instead of reporting the result down to net income for the year in one statement and the result below this down to comprehensive income in a separate statement.
Other comprehensive income is referring to items that are not transactions with shareholders, but that before 2009 were reported directly against equity. Now they are instead reported in comprehensive income as a part of other comprehensive income. Other comprehensive income relates to for instance cash flow hedges and translation differences and deferred tax related to these.
Paragraph 2a in chapter 6 of the Swedish Annual Accounts Act requires listed companies to disclose certain information relating to the company's shares in the Board of Directors' Report. This information is found at the end of the Board of Directors' Report, in the "Changes in consolidated equity" and in Note 6.
Employee benefits are reported according to IAS 19 "Employee Benefits".
The present value of the benefit obligations in the defined benefit plans is decided through yearly actuarial calculations made by independent actuaries. The plan assets are valued at fair value. The net plan asset or liability is arrived at in the following way.
If the calculation per plan gives a negative amount, thus resulting in an asset, the amount to be recognised as an asset for this particular plan is the lower of the two following figures:
The items that relate to the vesting of defined benefit pensions and gains and losses that arise when settling a pension liability and the financial net concerning the defined benefit plan are reported in the income statement above net income. Past service costs are recognised in the income statement already when the plan is amended or curtailed.
Actuarial gains and losses are accounted for currently in other comprehensive income. Changes in the obligations that relate to changes in actuarial assumptions are accounted for in other comprehensive income.
The return on plan assets is calculated with the same interest rate as the discount rate. The difference between the actual return on plan assets and the interest income in the previous sentence is reported in other comprehensive income.
The plan assets are specified on different types of assets.
Sensitivity analysis must be made concerning reasonable changes in all assumptions made when calculating the pension liability.
The difference between short and long term remunerations focuses on when the commitment is expected to be settled rather than the link to the employee's vesting of the commitment.
Termination benefits are accounted for at the earliest of the following - the time when the benefit offer cannot be withdrawn, alternatively in accordance with IAS 37 as a part of for instance restructuring the operations.
For Swedish entities the actuarial calculations also include future payments of special salary tax. The Swedish tax on returns from pension funds is reported currently as a cost in the profit and loss and are not included in the actuarial calculation for defined benefit pension plans.
The discount rate used to calculate the obligations is determined based on the market yields in each country at the closing date on high quality corporate bonds with a term that is consistent with the estimated term of the obligations. In countries that lack a deep market in such bonds the country's government bonds are used instead.
The costs for defined contribution plans are reported in Note 6.
The Swedish ITP plan is a multi-employer plan insured by Alecta. It is a defined benefit plan, but since the plan assets and liabilities cannot be allocated on each employer it is reported as a defined contribution plan according to item 30 in IAS 19. The construction of the plan does not enable Alecta to provide each employer with its share of the assets and liabilities or the information to be disclosed. The cost for the plan is reported together with the costs for other defined contribution plans in Note 6. Alecta reported
a collective consolidation level at December 31, 2013 of 148 (129) percent. The collective consolidation level is defined as the fair value of Alecta's plan assets in percent of the insured pension commitments calculated according to Alecta's actuarial assumptions, which are not in accordance with IAS 19. Such a surplus can be distributed among the employers or the beneficiaries, but there is no agreement concerning this that enables the company to report a receivable on Alecta.
Events after the closing date are reported according to IAS 10 under a separate heading in the Board of Directors' report.
The reporting of financial instruments is governed by the following four accounting and financial reporting standards:
IAS 39 means that financial derivatives, bonds and external shares are adjusted to fair value. IFRS 7 contains expanded disclosure requirements related to the significance of financial instruments for the company's financial position and performance and the nature and extent of risks arising from financial instruments.
IFRS 13 describes how a fair value is established when such value is to be or may be used in accordance with each IFRS standard. Disclosures must be made to explain what valuation models that are used and what information that is used in these models and which effects the valuation has caused in the result.
Both IAS 39 and IFRS 7 formally contain a considerable amount of information that should be presented. According to IFRS 7.B3 the company however should decide how much detail it provides in order not to overburden the financial statements with excessive details.
Financial assets are classified into four different portfolios:
The Financial assets at fair value through profit or loss are split on:
Financial liabilities are classified into two portfolios:
The classification into different portfolios has a direct impact on the valuation of the instruments, i.e. if the instrument is valued at fair value or amortised cost. "Loans and receivables", "Held to maturity investments" and "Loans" are valued at amortised cost, whereas "Financial assets and Financial liabilities at fair value through profit or loss" and "Available for sale financial assets" are valued at fair value. Derivatives are always classified in the portfolios "Financial assets and Financial liabilities at fair value through profit or loss".
The amortised cost is normally equal to the amount recognised upon initial recognition, less any principal repayments and plus or minus any effective interest adjustments.
Prepaid costs, prepaid income and advances from customers are not defined as financial instruments since they will not result in future cash flows.
Disclosures must be made on the methods and, when a valuation technique is used, the assumptions applied in determining the fair value of each class of financial assets and liabilities. The methods are to be classified in a hierarchy of three levels:
The fair values of bonds are arrived at using market prices according to level 1. The effect of the measurement at fair value is reported in net income. The fair value adjustment of these instruments is reflected directly on the item bonds in the statement of financial position.
The fair values of shares in external
companies are arrived at using market prices according to level 1 or other inputs according to level 2. The effect of the measurement at fair value is reported in other comprehensive income. The fair value adjustment of these instruments is reflected directly on the item other long-term securities in the statement of financial position.
The fair values of the Group's currency forward contracts, currency options, interestrate swaps, metal forward contracts and electricity futures are arrived at using market prices according to level 1. The fair value changes are arrived at by comparing the conditions of the derivative entered into with the market price for the same instrument at the closing date and with the same maturity date. The effect of the measurement at fair value is reported in other comprehensive income if the derivative constitutes an effective cash flow hedge and otherwise on the concerned line above net income. The fair value adjustment of these instruments is reported as derivative assets or derivative liabilities in the statement of financial position.
For each class of financial instruments disclosures shall be made on credit risk and an analysis of financial assets that are past due or impaired. Within Alfa Laval credit risk is in reality only related to accounts receivable. The disclosures just mentioned are therefore to be found in Note 21. The factors to be taken into account when providing for bad debts are:
Based on this the best estimate based on past experience is made on which amount that is probable to be received and the difference is provided for as unsecure. Only at a final loss the receivable is
written off.
The parent company is accounting for group contributions according to the alternative rule in the new rules in RFR 2 issued by the Council for Financial Reporting in Sweden. This means that both received and given group contributions are reported as appropriations in the income statement.
Alfa Laval has implemented documentation requirements to qualify for hedge accounting on derivative financial instruments.
The effect of the fair value adjustment of derivatives is reported as a part of other comprehensive income for the derivatives where hedge accounting is made (according to the cash flow hedging method) and above net income only when the underlying transaction has been realised. Hedge accounting requires the derivative to be effective within an 80 – 125 percent range. For the part of an effective derivative that exceeds 100 percent effectiveness the fair value adjustment is reported above net income. For the derivatives where hedge accounting is not made the fair value valuation is reported above net income. The fair value adjustment of derivatives is reported separately from the underlying instrument as a separate item called derivative assets/derivative liabilities in the statement of financial position.
In order to finance acquisitions of foreign operations loans are raised, if possible, in the same currency as the net investment. The loans thereby constitute a hedge of the net investment in each currency. Exchange rate differences relating to these loans are therefore booked to other comprehensive income.
Income taxes are reported in accordance with IAS 12 "Income Taxes".
Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for a period. Current tax liabilities (receivables) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the closing date. In essence, this means that current tax is calculated according to the rules that apply in the countries where the profit was generated.
Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences. Deferred tax liabilities are recognised for all taxable temporary differences, except for goodwill.
Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of: (a) deductible temporary differences; (b) the carry-forward of unused tax losses; and (c) the carry-forward of unused tax credits. Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable (>50 percent) that taxable profit will be available against which the deductible temporary difference can be utilised. Deferred tax assets are recognised for the carry-forward of unused tax losses and unused tax credits to the extent that it is probable (>50 percent) that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the closing date.
If it is not any longer probable that sufficient taxable profits will be available against which a deferred tax asset can be utilised, then the deferred tax asset is reduced accordingly.
The Group's inventory has been accounted for after elimination of inter-company gains. The inventory has been valued according to the "First-In-First-Out" (FIFO) method at the lowest of cost or net realisable value, taking into account obsolescence.
This means that raw material and purchased components normally are valued at the acquisition cost, unless the market price has fallen. Work in progress is valued at the sum of direct material and direct labour costs with a mark-up for the product's share in capital costs in the manufacturing and other indirect manufacturing costs based on a forecasted assumption on the capacity utilisation in the factory. Finished goods are normally valued at the delivery value (i.e. at cost) from the factory if the delivery is forthcoming. Spare parts that can be in the inventory during longer periods of time are normally valued at net realisable value.
Joint ventures are consolidated according to the proportional consolidation method in IAS 31 "Interests in Joint Ventures".
Leasing is accounted for in accordance with IAS 17 "Leases".
When Alfa Laval is the lessor, leased assets that are classified as financial leases are accounted for as a financial receivable from the lessee in the statement on financial position. The leasing fee received from the lessee is accounted for as financial income calculated as interest on the outstanding receivable and as amortisation of the receivable.
When Alfa Laval is the lessee, leased assets that are classified as financial leases are accounted for as capitalised assets and a corresponding financial payable to the lessor in the statement on financial position. The leasing fee to the lessor is accounted for as financial cost calculated as interest on the outstanding payable and as amortisation of the payable. Depreciation according to plan is done in the same manner as purchased assets.
Leased assets classified as operational leases are not capitalised. The leasing fees are expensed as incurred.
Revenue for projects is recognised using the percentage of completion method in IAS 11 "Construction Contracts". This means that when the outcome of a construction project can be calculated reliably, the revenue and the costs related to the project are recognised in relation of the percentage of completion at the closing date. An estimated loss is recognised immediately. The percentage of completion for a construction project is normally established through the relationship between incurred project costs for work performed at the closing date and the estimated total project costs. Disclosures shall be made for:
The amount of recognised project sales revenue is the amount recognised in consolidated comprehensive income as a reflection of the percentage of completion of the projects. It has nothing to do with the volume of progress billing in the period. This figure shows how much of the net invoicing of the Group that originates from project sales.
The aggregated amount of costs incurred and recognised profits less recognised losses shows the total volume of work performed on ongoing projects at the closing date. It has nothing to do with the recognised costs in the consolidated comprehensive income statement.
Retentions are amounts of progress billing that are not paid according to the contract until conditions specified in the contract have been satisfied or until defects have been rectified. This has a negative effect
on the profitability of the project. Progress billing is amounts billed for work performed on a project whether or not they have been paid by the customer.
The gross amount due from customers for work in progress on plant projects is the net amount of:
for each project in progress where the net of the first three items is higher than item 4. The figure shows how much progress billing is lacking behind the work performed.
Advances are amounts received from the customer before the related work is performed and are usually very important for the overall profitability of the project.
The gross amount due to customers for work in progress on plant projects is the net amount of:
for each project in progress where the net of the first three items is smaller than item 4. The figure shows how much progress billing is ahead of the work performed.
Assets have been accounted for at cost, net after deduction of accumulated depreciation according to plan. Depreciation according to plan is based on the assets' acquisition values and is calculated according to the estimated useful life of the assets.
The following useful lives have been used:
| 3.3 years |
|---|
| 4 years |
| 5 years |
| 7–14 years |
| 20 years |
| 25–33 years |
| 10–20 years |
| 10–20 years |
| 10–20 years |
| 20 years |
| 10 years |
Any additions to the purchase price in connection with investments in non-current assets or acquisitions of businesses are amortised over the same period as the original purchase price. This means that the time when the asset is fully depreciated is identical regardless of when payments are made. This is a reflection of the fact that the estimated useful life of the asset is the same.
Upon sale or scrapping of assets, the results are calculated in relation to the net book value after depreciation according to plan. The result on sales is included in operating income.
When there are indications that the value of a tangible asset or an intangible asset with a definite useful life has decreased, there is a valuation made if it must be written down according to IAS 36 "Impairment of Assets". If the reported value is higher than the recoverable amount, a write down is made that burdens net income. When assets are up for sale, for instance items of real estate, a clear indication of the recoverable amount is received that can trigger a write down.
Goodwill and intangible assets with indefinite useful life are not amortised. These assets are instead tested for impairment both annually and when there is an indication. The impairment test is made according to IAS 36 "Impairment on assets".
The recoverable amount for goodwill and intangible assets with indefinite useful life is determined from the value in use based on discounted future cash flows. For other assets the recoverable amount is normally determined from the fair value less costs to sell based on an observable market price.
For the impairment testing of goodwill, three of Alfa Laval's operating segments, the divisions "Equipment", "Process Technology" and "Marine & Diesel" have been identified as the cash-generating units within Alfa Laval. Technically a recently acquired business activity could be followed independently during an initial period, but acquired businesses tend to be integrated into the divisions at a fast rate. This means that the independent traceability is lost fairly soon and then any independent measurement and testing becomes impracticable. The net present value is based on the projected EBITDA figures for the next twenty years, less projected investments and changes in operating capital during the same period. The used discount rate is the pre-tax weighted average cost of capital (WACC). The growth rate for the divisions during the period is the perceived expected average industry growth rate. No terminal
value has been calculated since this would render a very large and uncertain value, which could give an erroneous impression that no impairment exists.
The Group is applying IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations". IFRS 5 specifies the accounting for assets held for sale and the disclosures to be made for discontinued operations.
Assets held for sale are to be measured at the lower of the carrying amount and fair value, less sales costs. No depreciation of such assets is made. An asset held for sale is an asset whose carrying amount will be recovered basically through a sale rather than through continuing use. It must be available for immediate sale in its current condition. The sale must be highly probable, that is a decision must have been made and an active sales effort must have been initiated. The sale must be expected to be finalised within one year. Non-current assets are reclassified to current assets and presented separately in the statement on financial position.
IAS 1 "Presentation of Financial Statements" paragraphs 134 and 135 contain disclosure requirements on the company's objectives, policies and processes for managing capital. This information is disclosed in a separate section after the description of the accounting principles.
Other operating income relates to for instance commission, royalty and license income. Other operating costs refer mainly to restructuring costs and to royalty costs.
Comparison distortion items that affect the operating income are reported in other operating income and other operating costs.
The Group is applying IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" for the reporting of provisions, contingent liabilities and contingent assets.
A provision is recognised when and only when:
The amount recognised as a provision is the best estimate of the cost required to settle the present obligation at the closing date.
In measuring the provision:
If a reimbursement of some or all of the costs to settle a provision is expected (e.g. through insurance contracts, indemnity clauses or supplier's warranties), the reimbursement is recognised:
Provisions are reviewed at each closing date and adjusted to reflect the current best estimate. If it is no longer probable that a payment to settle the obligation will be incurred, the provision is reversed.
A provision must only be used for the purpose it was originally recognised for. Provisions are not recognised for future operating losses. An expectation of future operating losses is though an indication that certain assets of the operation may be impaired. If a contract is onerous, the present obligation under the contract is recognised and measured as a provision, once the assets used in order to finalize the contract have been tested for impairment.
A provision for restructuring costs is recognised only when the general recognition criteria are met. A constructive obligation to restructure arises only when there is:
– a detailed formal plan for the restructuring, identifying at least:
A management or board decision to restructure does not give rise to a constructive obligation at the closing date unless the company has, before the closing date:
When a restructuring involves the sale of an operation, no obligation arises for the sale until the company is committed to the sale, i.e. through a binding sales agreement.
A restructuring provision only includes the direct costs arising from the restructuring, which are those that are both:
Research costs are charged to the result in the year in which they are incurred. Development costs are charged to the result in the year in which they are incurred provided that they do not fulfil the conditions for instead being capitalised according to IAS 38 "Intangible Assets".
Revenue recognition is made according to IAS 18 "Revenue" and IAS 11 "Construction Contracts".
Revenues from sale of goods, services and projects are reported as "Net sales" in the statement of consolidated comprehensive income.
Revenue from sale of goods is recognised when all of the following conditions have been fulfilled:
The revenue recognition is usually governed by the delivery terms used in the sale. Net sales are referring to sales value less sales taxes, cancellations and discounts.
To the extent that Alfa Laval also delivers services the three last conditions above apply together with:
– the stage of completion at the closing date can be measured reliably.
Revenue for projects is recognised using the percentage of completion method in IAS 11 "Construction Contracts", see above under "Long-term construction projects".
IFRS 8 means that the reporting of operating segments must be made according to how the chief operating decision maker monitors the operations, which may deviate from IFRS. Furthermore information according to IFRS for the company as a whole must be given about products and services as well as geographical areas and information about major customers.
The difference between the operating income for the operating segments and the operating income according to IFRS for the company as a whole is explained by two reconciliation items.
Alfa Laval's operating segments are the divisions. The chief operating decision maker within Alfa Laval is its Board of Directors.
Receivables and liabilities denominated in foreign currencies have been valued at year-end rates of exchange.
Within the Group, exchange gains and losses on loans denominated in foreign currencies that finance acquisitions of foreign subsidiaries are transferred to other comprehensive income as foreign currency translation adjustments if the loans act as a hedge to the acquired net assets. There they offset the translation adjustments resulting from the consolidation of the foreign subsidiaries. In the parent company, these exchange differences are reported above net income.
IAS 21 "The Effects of Changes in Foreign Exchange Rates" covers among other things the existence of functional currencies. Almost all of Alfa Laval's subsidiaries are affected by changes in foreign exchange rates for their procurement within the Group. They do however usually sell in their local currency and they have more or less all of their non-product related costs and their personnel related costs in their local currency. This means that none of Alfa Laval's subsidiaries qualify for the use of another functional currency than the local currency, with the following exception. Subsidiaries in highly inflationary countries report their closings in the functional hard currency that is valid in each country, which in all cases is USD. During 2013 Turkey and Venezuela are regarded as highly inflationary countries.
In the consolidation, the foreign subsidiaries have been translated using the current method. This means that assets and liabilities are translated at closing exchange rates and income and expenses are translated at the year's average exchange rate. The translation difference that arises is a result of the fact that net assets in foreign companies are translated at one rate at the beginning of the year and another at year-end and that the result is translated at average rate. The translation differences are part of other comprehensive income.
International Accounting Standards Board (IASB) has issued the following new or revised accounting pronouncements, which may be applicable on Alfa Laval and are effective for fiscal years beginning on or after January 1, 2014. Alfa Laval has chosen not to make any early adoption of any of these pronouncements, except the amendments to IAS 36.
IFRS 9 "Financial Instruments: Recognition and Measurement" is the first step of a complete revision of the current standard IAS 39. The standard means a reduction of the number of valuation categories for financial assets and contains the main categories reported at cost (amortised cost) and fair value through profit or loss. This first part of the standard will be complimented by rules on impairments,
hedge accounting and valuation of liabilities. Any decision on when the final standard is going to be implemented does not exist. The European Union has not adopted any part for application.
Alfa Laval's assessment is that IFRS 9 will mean a reallocation of the financial assets on fewer categories, but otherwise will have limited impact on the financial statements of Alfa Laval and the disclosures in them.
IFRS 10 "Consolidated financial statements" replaces the part of IAS 27 "Consolidated and separate financial statements" that covers consolidation principles. What remains in IAS 27 going forward is the treatment of subsidiaries, joint ventures and associates in separate financial statements.
The consolidation principles have not been changed. The change is rather related to how an entity shall proceed to decide if a decisive influence is present and thus if an entity shall be consolidated. Control (decisive influence) is present when the investor has:
An investor is a party that has a potential influence over an entity. A decisive influence does not need to arise purely through ownership of shares (voting rights). An investor can have a decisive influence over another entity without holding the majority of the shares. An entity must be consolidated until the day the control ceases, even if the control is present only during a limited period.
IFRS 10 has been adopted by the European Union and becomes effective for financial years beginning on or after January 1, 2014. The standard must be applied retroactively in accordance with IAS 8, with certain modifications, that includes exceptions from consolidation where this is impracticable. Early application is allowed if the company also makes an early application of IFRS 11 and IFRS 12 and the changes in IAS 27 and IAS 28.
Alfa Laval's assessment is that IFRS 10 will have limited impact on the financial statements of Alfa Laval and the disclosures in them, since Alfa Laval seldom is facing uncertainties on whether a decisive influence is present or not.
IFRS 11 "Joint arrangements" covers the accounting for joint arrangements, which is defined as a contractual arrangement where two or more parties have a joint decisive influence. IFRS 11 replaces IAS 31 "Interests in Joint Ventures" and SIC 13 "Jointly Controlled Entities – Non-Monetary Contributions by Ventures".
It is crucial to be able to judge whether a party has control over another party, that is decisive influence or if it rather is a substantial or common influence. If it is the latter, then it is a so called joint arrangement, which could be either:
– a joint operation or
– a joint venture.
Jointly owned assets and joint activities are called joint operations. Each owner or party accounts for his share of assets, liabilities, revenues and costs.
Joint ventures are no longer allowed to be consolidated according to the proportional consolidation method, but instead the equity method must be used. This means that the interest is accounted for on one line in the consolidated statement of financial position and that the share of the result is accounted for on one line in the consolidated statement of comprehensive income.
IFRS 11 has been adopted by the European Union and becomes effective for financial years beginning on or after January 1, 2014. The standard must be applied retroactively with certain transitional provisions. Early application is allowed if the company also makes an early application of IFRS 10 and IFRS 12 and the changes in IAS 27 and IAS 28.
Joint ventures are today consolidated according to the proportional consolidation method in IAS 31 "Interests in Joint Ventures". Since the proportional consolidation method disappears Alfa Laval's assessment is that IFRS 11 will lead to that all amounts in note 33 "Interests in joint ventures" will disappear out of Alfa Laval's statements over consolidated comprehensive income and consolidated financial position. Instead the application of the equity method will mean that the net income before tax in the joint ventures will be booked into one line in other operating income and the corresponding tax on the tax line. The counter entry will be an increase or decrease of the value of shares in joint ventures. Alfa Laval is of the opinion that the deletion of the proportional consolidation method means a clear deterioration of accounting practice compared to before since the sales volume and other result items and the balance items in the joint ventures
no longer will be reported in the statements over consolidated comprehensive income and consolidated financial position in any the two owner companies. This does not give a correct representation of the operations, especially if the operations in the joint ventures are substantial. In such cases IFRS 11 might trigger changes in how the operations are organized in the joint ventures instead of just supplying accounting rules for reporting of the operations. In the case of Alfa Laval, the operations in these companies are however presently fairly limited, why IFRS 11 at least initially will have limited impact on the financial statements of Alfa Laval and the disclosures in them.
IFRS 12 "Disclosures of interest in other entities". Entities having interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities must disclose information about these in accordance with IFRS 12. The purpose with these disclosures is to enable the users of the financial reports to understand:
Substantial qualitative and quantitative disclosures must be made of each interest. The disclosure requirements include the following:
IFRS 12 has been adopted by the European Union and becomes effective for financial years beginning on or after January 1, 2014. The standard must be applied retroactively in accordance with IAS 8. Early application is allowed even if IFRS 10 and IFRS 11 and the changes in IAS 27 and IAS 28 are not applied early. Entities are encouraged to voluntarily provide certain information even
if the entire standard is not applied early.
Alfa Laval's assessment is that IFRS 12 will result in a substantial increase of the amount of disclosures in the financial statements of Alfa Laval, which will further burden the presentation without corresponding benefit for the reader.
IAS 19 "Employee Benefits" have been amended. The amendment relates to disclosure requirement for employee contributions to defined benefit plans.
The amendment to IAS 19 has not yet been adopted by the European Union. The standard must be applied retroactively in accordance with IAS 8. Early application is allowed.
Alfa Laval's assessment is that the amendments to IAS 19 will have limited impact on the financial statements of Alfa Laval and the disclosures in them.
IAS 32 "Financial Instruments: Presentation" has been amended. The amendment contains clarifications on the legal right to net and items settled with a net amount.
IAS 32 has been adopted by the European Union and becomes effective for financial years beginning on or after January 1, 2014. The standard must be applied retroactively in accordance with IAS 8. Early application is allowed if disclosures are made on netting according to the amendment to IFRS 7.
Alfa Laval's assessment is that the amendments to IAS 32 will have limited impact on the financial statements of Alfa Laval and the disclosures in them.
IAS 36 "Impairment of Assets" has been amended. The amendments have reduced the circumstances in which the recoverable amount of assets or cash-generating units must be disclosed and clarified the disclosures required.
IAS 36 has been adopted by the European Union and becomes effective for financial years beginning on or after January 1, 2014. The standard must be applied retroactively in accordance with IAS 8. Early application is allowed.
Alfa Laval has decided to make an early adoption of the amended IAS 36 during 2013 in order to avoid unnecessary disclosures.
International Accounting Standards Board (IASB) has issued the following financial reporting interpretations developed by the International Financial Reporting Interpretations Committee (IFRIC), which may be applicable on Alfa Laval and are effective for fiscal years beginning on or after January 1, 2014.
IFRIC 21 "Levies" is an interpretation that clarifies when a liability for levies is to be accounted for. Levies relate to levies/taxes that governmental or corresponding bodies are charging companies in accordance with laws or regulations with exception of income taxes, penalties and fines.
IFRIC 21 has not yet been adopted by the European Union. The interpretation must be applied retroactively in accordance with IAS 8. Early application is allowed.
Alfa Laval's assessment is that IFRIC 21 will have limited impact on the financial statements of Alfa Laval and the disclosures in them.
Otherwise Alfa Laval will further evaluate the effects of the application of the new or revised accounting standards or interpretations before each time of application.
Alfa Laval defines its managed capital as the sum of consolidated net debt and equity including the part that is attributable to non-controlling interests. At the end of 2013 the managed capital was SEK 18,759 (18,723) million.
The Group's objective when managing capital is to safeguard the Group's ability to continue as a going concern and provide an adequate return for shareholders and benefits for other stakeholders.
When managing the capital the Group monitors several measures including:
| Measure | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Target | Outcome | Average over last | |||||||
| Goal | standard | Target not set |
2013 | 2012 * | 3 years | 5 years | 8 years | ||
| Invoicing growth per year ** | ≥8% | 0.4% | 4.1% | 7.0% | 1.5% | 10.4% | |||
| Adjusted EBITA margin ** | 15% | 16.4% | 16.5% | 17.1% | 17.6% | 18.2% | |||
| Return on capital employed | ≥25% | 26.4% | 27.4% | 28.4% | 31.2% | 37.5% | |||
| Debt ratio | <0.75 | 0.16 | 0.30 | 0.23 | 0.14 | 0.18 | |||
| Cash flow from operating activities including investments in fixed assets *** |
10% | 12.5% | 10.2% | 10.9% | 13.3% | 12.6% | |||
| Investments *** | 2.0% | 1.7% | 1.8% | 1.8% | 1.8% | 2.0% | |||
| Return on equity | X | 20.4% | 22.9% | 22.1% | 23.0% | 28.4% | |||
| Solidity | X | 46.3% | 41.3% | 43.8% | 45.6% | 41.9% | |||
| Net debt to EBITDA | X | 0.48 | 0.80 | 0.6 | 0.4 | 0.4 | |||
| Interest coverage ratio | X | 22.2 | 23.2 | 24.7 | 25.0 | 23.7 |
* Restated to the new IAS 19. ** average over a business cycle *** in % of sales
These measures are connected to each other as communicating vessels. This means that if actions are taken that primarily aim at a certain measure they will also have an impact on other measures to a varying degree. It is therefore important to consider the whole picture.
In the longer term the debt ratio should be less than 0.75. As a result of major acquisitions the ratio may temporarily exceed 0.75, but the ratio is then expected to soon decrease beneath 0.75 due to positive cash flows and results from the acquired activity.
In order to maintain a good capital structure the Group may for instance raise new loans or amortise on existing loans, adjust the amount of dividends paid to shareholders, return capital to shareholders, repurchase own shares, issue new shares or sell assets.
As examples on the Group's active work with managing its capital the following can be mentioned:
The repurchases of shares should be viewed in light of that the consolidated cash flows from operations are large enough to finance the build up of working capital and the mid-size acquisitions of businesses that have been made as well as the dividend to the shareholders.
Financial risks are referring to financial instruments. Alfa Laval has the following instruments: cash and bank, deposits, trade receivables, bank loans, trade payables and a limited number of derivative instruments to hedge primarily currency rates or interests, but also the price of metals and electricity. These include currency forward contracts, currency options, interest-rate swaps, metal forward contracts and electricity futures. See Notes 13 and 14 for more information on these financial instruments.
In order to control and limit the financial risks, the Board of the Group has established a financial policy. The Group has an aversive attitude toward financial risks. This is expressed in the policy. It establishes the distribution of responsibility between the local companies and the central finance function in Alfa Laval Treasury International, what financial risks the Group can accept and how the risks should be limited.
There are three different types of price risks: currency risk, interest risk and market risk. See below.
Due to the Alfa Laval Group's international business activities and geographical spread the Group is exposed to currency risks. The exchange rate movements in the major currencies for the Group during the last years are presented below (SEK/foreign currency):
Currency risk is divided into transaction exposure that relates to exchange rate fluctuations that affects the currency flows that arise due to the business activities and translation exposure that relates to the translation of the subsidiaries' statements on financial position from local currency to SEK.
During 2013 Alfa Laval's sales to countries outside Sweden amounted to 96.9 (97.1) percent of total sales.
Alfa Laval's local sales companies normally sell in domestic currency to local end customers and have their local cost base in local currency. Exports from production and logistical centres to other Group companies are invoiced in the exporting companies' domestic currencies, except for Sweden, Denmark and UK where the exports are denominated in EUR.
The Group is principally exposed to currency risk from potential changes in contracted and projected flows of payments and receipts. The objective of foreign exchange risk management is to reduce the impact of foreign exchange movements on the Group's income and financial position.
The Group normally has natural risk coverage through sales as well as costs in local currencies. The financial policy states that the local companies are responsible for identifying and hedging exchange rate exposures on all commercial flows via Alfa Laval Treasury International. Contract based exposures must be fully hedged. In addition, the balance of projected flows the next 12 months must be hedged to at least 50 percent. The remaining part of the projected flows can be partially hedged after conferring with the Group's central finance function. Alfa Laval Treasury International can add to or reduce the total hedging initiated by the local companies in the currencies that Alfa Laval has commercial exposure up to but not exceeding 100 percent of one year's commercial exposure for each currency.
The Group's net transaction exposure at December 31, 2013 in different currencies before and after derivatives for the coming 12 months amounts to:
This is a reflection of the fact that a substantial part of the production within the Group is located in Sweden and Denmark with costs denominated in local currencies.
Currency contracts for projected flows are entered into continuously during the year with 12 months maximum duration. For contract based exposures the derivatives follow the duration of the underlying contract. This means that the company experiences the effects from the market currency rate movements with a varying degree of delay.
If the currency rates between SEK and the most important foreign currencies are changed by +/- 10 % it has the following effect on operating income, if no hedging measures are taken:
Effect on operating income by exchange rate fluctuations excluding hedging measures
| Consolidated | |||||
|---|---|---|---|---|---|
| SEK millions | 2013 | 2012 | |||
| Exchange rate change against SEK | + 10% | - 10% | + 10% | - 10% | |
| USD | 192 | -192 | 245 | -245 | |
| EUR | 96 | -96 | 72 | -72 | |
| CAD | 52 | -52 | 47 | -47 | |
| NOK | 35 | -35 | 31 | -31 | |
| DKK | -95 | 95 | -98 | 98 | |
| JPY | 2 | -2 | -14 | 14 | |
| Other | 40 | -40 | 41 | -41 | |
| Total | 322 | -322 | 324 | -324 |
Outstanding currency forward contracts and currency options for the Group amounted to the following at the end of the year:
Outstanding currency forward contracts and currency options
| Consolidated | ||||
|---|---|---|---|---|
| Millions | 2013 | 2012 | ||
| Original | Original | |||
| currency | SEK | currency | SEK | |
| Outflows: | ||||
| USD | -590 | -3,844 | -577 | -3,750 |
| EUR | -526 | -4,715 | -134 | -1,157 |
| KRW | – | – | -93,436 | -567 |
| CAD | -26 | -155 | -50 | -329 |
| JPY | -1,402 | -87 | – | – |
| BRL | – | – | -2 | -6 |
| RUB | -13 | -3 | -117 | -25 |
| Other | -28 | -19 | ||
| Total | -8,832 | -5,853 | ||
| Inflows: | ||||
| SEK | 2,926 | 2,926 | 5,480 | 5,480 |
| DKK | 605 | 727 | 84 | 96 |
| NOK | 4,771 | 5,062 | 104 | 121 |
| CNY | 151 | 162 | 5 | 5 |
| SGD | 16 | 84 | 4 | 24 |
| GBP | 10 | 103 | 14 | 148 |
| JPY | – | – | 1,892 | 142 |
| AUD | 8 | 47 | 8 | 53 |
| Other | 0 | 0 | ||
| Total | 9,111 | 6,069 |
When the subsidiaries' statements of financial position in local currency are translated into SEK a translation difference arises that is due to the current year being translated at a different closing rate than last year and that the comprehensive income statement is translated at the average rate during the year whereas the statement of financial position is translated at the closing rate at December 31. The translation differences are reported against other comprehensive income. The translation exposure consists of the risk that the translation difference represents in terms of impact on comprehensive income. The risk is largest for the currencies where the Group has the largest net assets and where the exchange rate movements against SEK are largest. The Group's net assets or liabilities for the major currencies are distributed as follows:
Net assets and liabilities by currency
The translation differences are a central responsibility and are managed by distributing the loans on different currencies based on the net assets in each currency and through currency forward contracts. Loans taken in the same currency as there are net assets in the Group, decrease these net assets and thereby decrease the translation exposure.
These hedges of net investments in foreign operations work in the following way. Exchange gains and losses on loans denominated in foreign currencies that finance acquisitions of foreign subsidiaries are reported as a part of other comprehensive income if the loans act as a hedge to the acquired net assets. In other comprehensive income they offset the translation adjustments resulting from the consolidation of the foreign subsidiaries. In the Group, net exchange differences of SEK -83 (214) million relating to debts in foreign currencies have been charged to other comprehensive income as hedges of net investments in foreign operations. The loans that hedge net investments in foreign operations are denominated in EUR and USD since these foreign currencies have the largest impact on the statement of financial position. Since the Group uses part of its cash flows to amortise the loans in order to improve the financial net, the extent of this hedge tends to decrease over time. A change in the net assets of the foreign subsidiary over time can have the same effect.
By interest risk is meant how changes in the interest level affect the financial net of the Group and how the value of financial instruments vary due to changes in market interest rates. The Group attempts to manage interest-rate risk by matching fixed interest periods of financial assets and liabilities and through the use of derivative financial instruments such as interest-rate swaps.
The financial policy states that the interest rate risk and duration are measured by each main currency. The minimum interest duration for the loans should be 10 months and the maximum interest duration should be 24 months according to the policy.
The senior credit facility and the bilateral term loans accrue interest at floating rate. The Group has chosen to hedge 53 (36) percent of the loans to fixed interest rate, with a duration of 19.0 (26.3) months. The average interest and currency duration including derivatives is 12.6 (12.8) months at the end of 2013.
Calculated on an overall increase of market rates by 100 basis points (1 percentage unit), the interest net of the Group would change according to the bar chart below.
In total this means that the Group has a comparably low interest risk.
Market risk is defined as the risk for changes in the value of a financial instrument due to changed market prices. This applies only to financial instruments that are listed or otherwise traded, which for Alfa Laval concern bonds and other securities and other long-term securities totalling SEK 255 (140) million. The market risk for these is perceived as low. For other financial instruments, the price risk only consists of currency risk and interest risk.
Liquidity risk is defined as the risk that the Group would incur increased costs due to lack of liquid funds.
Refinancing risk is defined as the risk that the refinancing of maturing loans becomes difficult or costly. The loans of the Group are mainly long term and only mature when the agreed loan period expires. Since the maturity of the loans is distributed over time the refinancing risk is reduced.
In 2006 Alfa Laval made a private placement in the U.S. The offer was over-subscribed and was closed at USD 110 million, corresponding to SEK 716 million. The loan matures in April 2016.
In connection with the acquisition of Tranter Alfa Laval signed a bilateral term loan with SHB of EUR 25 million. The loan was repaid on the maturity date at December 30, 2013.
Alfa Laval has a senior credit facility of EUR 301 million and USD 420 million, corresponding to SEK 5,437 million with a banking syndicate. At December 31, 2013 SEK 704 million of the facility was utilised. The facility matures in April 2017.
Alfa Laval has a bilateral term loan from Swedish Export Credit split on one loan of EUR 100 million that matures in June 2014 and one loan of EUR 100 million that matures in June 2021, corresponding to SEK 1,793 million in total.
Alfa Laval also has a bilateral term loan from the European Investment Bank of EUR 130 million, corresponding to SEK 1,165 million. The loan matures in March 2018. In December 2013 Alfa Laval has made an agreement with the European Investment Bank of a loan facility of EUR 115 million with a duration of seven years. This loan has not been utilised at December 31, 2013.
In summary the maturity structure of the loans and the loan facilities is as follows:
Maturity structure of Group funding
Cash flow risk is defined as the risk that the size of future cash flows linked to financial instruments is fluctuating. This risk is mostly linked to changed interest and currency rates. To the extent that this is perceived as a problem, different derivative instruments are used to fix rates. See description of exposure and hedging measures under interest risk. See the maturity structure of currency derivatives, interest derivatives, metal futures and electricity futures below.
Financial instruments that potentially subject the Group to significant concentrations of credit risk consist principally of cash, deposits and derivatives.
The Group maintains cash and bank and short and long-term investments with various financial institutions approved by the Group. These financial institutions are located in major countries throughout the world and the Group's policy is designed to limit exposures to any one institution. The risk for a counterpart not fulfilling its commitments is limited through the selection of financially solid counterparts and by limiting the engagement per counterpart. The Group performs periodic evaluations of the relative credit standing of those financial institutions that are considered in its investment strategy. The Group does not require collateral on these financial instruments.
The Group is exposed to credit risk in the event of non-performance by counterparts to derivative instruments. The Group limits this exposure by diversifying among counterparts with high credit ratings and by limiting the volume of transactions with each counter party.
In total it is the Group's opinion that the counterpart risks are limited and that there is no concentration of risk in these financial instruments.
Maturity structure of interest derivatives
Maturity structure of metal derivatives
Negative cash flows
Maturity structure of electricity futures
The risk for bad debts is referring to the risk that the customer cannot pay for delivered goods due to financial difficulties. The Group sells to a large number of customers in countries all over the world. That some of these customers from time to time face payment problems or go bankrupt is unfortunately part of reality in an operation of Alfa Laval's magnitude. All customers except Tetra Laval represent less than 1 percent of net sales and thereby represent a limited risk. Alfa Laval regularly collects credit information on new customers and, if needed, on old customers. Earlier payment habits have an impact on the acceptance of new orders. On markets with political or financial risks, the Group strives to attain credit insurance solutions. Accounts receivable constitutes the single largest financial asset according to Note 13. With reference to the above description it is management's opinion that there is no material concentration of risk in this financial asset.
The amount of accounts receivable being overdue is an indication of the risk the company runs for ending up in a bad debt situation.
The Group's costs for bad debts and the overdues in percent of accounts receivable are presented in the following graph:
The risk for claims refers to the costs Alfa Laval would incur to rectify faults in products or systems and possible costs for penalties. Alfa Laval strives to minimize these costs through an ISO certified quality assurance. The major risks for claim costs appear in connection with new technical solutions and new applications. The risks are limited through extensive tests at the manufacturing site and at the customer site. The Group's net claim costs and their relation to net sales are found in the following graph:
Claim costs in SEK millions and in % of sales
This risk refers to the risk that some competitor develops a new technical solution that makes Alfa Laval's products technically obsolete and therefore difficult to sell. Alfa Laval addresses this risk by a deliberate investment in research and development aiming at being in the absolute frontline of technical development.
The Group operates in competitive markets. In order to address this competition the Group has for instance:
a strategy for acquisition of businesses in order to for instance reinforce the presence on certain markets or widen the Group's product offering,
worked with creating a competitive cost level based on its international presence and
In an overall economic downturn the Group tends to be affected with a delay of six to twelve months depending on customer segment. The same applies with an economic upturn. The fact that the Group is operating on a large number of geographical markets and within a wide range of customer segments means a diversification that limits the effects of fluctuations in the business climate. Historically, fluctuations in the business climate have not generated decreases in orders received by more than 10 percent. The downturn in the business climate in 2009 and 2010 however meant a considerably larger decline in order intake. This was partly due to the fact that the decline happened abruptly from a very high level of demand that was the culmination of a long-lasting boom and that the price level in connection with this peak was inflated by substantial increases in raw material prices.
The Group depends on deliveries of stainless steel, carbon steel, copper and titanium etc for the manufacture of products. The prices in some of these markets are volatile and the supply of titanium has occasionally been limited. There are a limited number of possible suppliers of titanium. The risk for severely increased prices or limited supply constitutes serious risks for the operations. The possibilities to pass on higher input prices to an end customer vary from time to time and between different markets depending on the competition. The Group is addressing this risk by securing long-term supply commitments and through fixed prices from the suppliers during six to twelve months. During periods of large price increases the customer price on titanium products has been linked to Alfa Laval's procurement costs for titanium. Primarily in the period 2006 to 2011 the Group has experienced large price fluctuations for many raw materials, but in particular for stainless steel, carbon steel, copper and titanium.
Nickel
USD/ton
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000
The Group uses metal futures to secure the price on strategic metals. The graph below shows how much of the purchases of nickel, copper and aluminium that have been hedged during 2013 and how much of the expected purchases during 2014 that were hedged at the end of 2013. The graph also presents to what extent the Group's costs for these purchases would be affected if the prices would double from the current levels.
0 2,000 4,000 6,000 8,000 10,000 12,000
Copper
USD/ton
This risk relates to the costs that the Group may incur to reduce emissions according to new or stricter environmental legislation, to restore land at previously or currently owned industrial sites, to arrange more effective waste disposal, to obtain prolonged or new concessions etc. The Group has an ambition to be well within the boundaries that local legislation sets, which should reduce the risks. The operations of the Group are not considered to have a significant environmental impact. For more information on Alfa Laval's environmental impact, see the section on "Sustainability" on page 42.
Year Year Year
06 07 08 10 11 12 13 09 06 07 08 10 11 12 13 09 06 07 08 10 11 12 13 09
Political risk is the risk that the authorities, in the countries where the Group is operating, by political decisions or administration make continued operations difficult, expensive or impossible for the Group. The Group is mainly operating in countries where the political risk is considered to be negligible or minor. The operations that are performed in countries where the political risk is deemed to be higher are not material.
This risk pertains to the costs the Group may incur in managing litigations, costs in connection with settlements and costs for imposed penalties. The Group is involved in a few litigations, mainly with customers. Any estimated loss risks are provided for.
0 500 1,000 1,500 2,000 2,500 3,000 3,500
Aluminium
USD/ton
The Alfa Laval Group was as of December 31, 2013, named as a co-defendant in a total of 759 asbestos-related lawsuits with a total of approximately 819 plaintiffs. Alfa Laval strongly believes the claims against the Group are without merit and intends to vigorously contest each lawsuit.
Based on current information and Alfa Laval's understanding of these lawsuits, Alfa Laval continues to believe that these lawsuits will not have a material adverse effect on the Group's financial condition or results of operation.
This risk refers to the costs Alfa Laval may incur in connection with a product delivered by the Group breaking down and causing damages to life and property. The main risk in this context concerns high-speed separators, due to the large forces that are involved when the bowl in the separator spins with a very high number of revolutions. In a breakdown the damages can be extensive. Alfa Laval addresses these risks through extensive testing and an ISO certified quality assurance. The Group has product liability insurance. The number of damages is low and few damages have occurred historically.
These risks refer to the risk that single units or functions within the Group can be hit by business interruption due to:
Alfa Laval has a well developed dialog with the local unions, which reduces the risk for conflicts and strikes where Alfa Laval is directly involved. It is however more difficult to protect the company against conflicts in other parts of the labour market, for instance within transportation.
Alfa Laval is minimizing the following two risks through an active preventive work at each site in line with the developed global policies in each area under supervision of manufacturing management, the Group's Risk Management function, Real Estate Management, IT and HR.
Problems at major sub-suppliers are minimized by Alfa Laval trying to use several suppliers of input goods that when needed can cover up for a drop in production somewhere else. The wish for long term and competitive delivery agreements however puts restrictions on the level of flexibility that can be achieved. When there is a shortage the total supply may be too limited to allow exchangeability.
HPR stands for "Highly Protected Risk" and is the insurance industry's highest rating for risk quality. This rating is reserved for those commercial properties where the exposure for physical damages is reduced to a minimum considering building construction, operations and local conditions. HPR means that all physical risks in and around the facility are documented and that these are kept within certain limits. Alfa Laval's production facility in Lund in Sweden, which is the Group's largest and most important facility is HPR classified, as well as the production facilities in Richmond, Lykens, Chesapeake, Sarasota and Newburyport in the U.S. A number of other key production facilities are being evaluated and may eventually become HPR classified.
A HPR classification means that the facility has state of the art fire and machinery protection systems and that the responsible personnel has adequate security routines to make sure that these protection systems
are maintained and in function. In addition, known possible sources of ignition are under strict control to prevent a fire from starting. For an HPR facility the risk for a physical damage is brought to a minimum, which minimises the risk for business interruption that could have extensive consequences for Alfa Laval and its customers. For other production facilities, not HPRclassified, the aim is also to reduce the risk for damage and business interruption to a minimum by keeping, among other things, ignition sources under strict control. Loss prevention visits are conducted according to a schedule based on size and importance for Alfa Laval.
These risks refer to the costs that Alfa Laval may incur due to an inadequate insurance coverage for property, business interruption, liability, transport, life and pensions. The Group strives to maintain an insurance coverage that keeps the risk level at an acceptable level for a Group of Alfa Laval's size and is still cost efficient. As a part in this Alfa Laval has an own captive. At the same time a continuous work is going on to minimise the risks in the operations through proactive measures.
This risk is referring to the limited freedom of action that can be imposed on the Group through restrictions connected to credit terms in loan agreements. The loan agreement with the banking syndicate does not contain any such restrictions.
Alfa Laval's business is divided into three business divisions "Equipment", "Process Technology" and "Marine & Diesel" that sell to external customers and one division "Other" covering procurement, production and logistics as well as corporate overhead and non-core businesses. These four divisions constitute Alfa Laval's four operating segments.
The three business divisions (operating segments) are in turn split into a number of customer segments. The customers to the Equipment division purchase products whereas the customers to the Process Technology division purchase solutions for processing applications. The customers to the Marine & Diesel division purchase products and solutions for marine and off-shore applications and for diesel power plants. The Equipment division consists of four customer segments: Industrial Equipment, OEM (Original Equipment Manufacturers), Sanitary Equipment and the aftermarket segment Service. The Process Technology division consists of four customer segments: Energy & Environment, Food Technology, Process Industry and the aftermarket segment
| Orders received | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 |
| Equipment | 9,604 | 9,701 |
| Process Technology | 13,935 | 14,081 |
| Marine & Diesel | 6,796 | 6,557 |
| Other | 0 | 0 |
| Total | 30,335 | 30,339 |
| Order backlog | ||
| Consolidated | ||
| SEK millions | 2013 | 2012 |
| Equipment | 1,495 | 1,583 |
| Process Technology | 8,393 | 8,358 |
| Marine & Diesel | 4,680 | 4,527 |
| Other | 0 | 0 |
| Total | 14,568 | 14,468 |
| Net sales | ||
| Consolidated | ||
| SEK millions | 2013 | 2012 |
| Equipment | 9,595 | 9,476 |
| Process Technology | 13,813 | 12,812 |
| Marine & Diesel | 6,526 | 7,525 |
| Other | 0 | 0 |
Total 29,934 29,813
Service. The Marine & Diesel division consists of three customer segments: Marine & Diesel Equipment, Marine & Offshore Systems and the aftermarket segment Service.
In 2013 Alfa Laval has renamed its three former "Parts & Service" segments to only "Service" in order to emphasize the importance of service and get focus on what is outside parts.
The operating segments are only responsible for the result down to and including operating income excluding comparison distortion items and for the operating capital they are managing. This means that financial assets and liabilities, pension assets, provisions for pensions and similar commitments and current and deferred tax assets and liabilities are a Corporate responsibility and not an operating segment responsibility. This also means that the financial net and income taxes are a Corporate responsibility and not an operating segment responsibility.
The operating segments are only measured based on their transactions with external parties.
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 * |
| Equipment | 1,306 | 1,389 |
| Process Technology | 2,479 | 2,194 |
| Marine & Diesel | 1,243 | 1,458 |
| Other | -581 | -541 |
| Total | 4,447 | 4,500 |
| Reconciliation with Group total: | ||
| Comparison distortion items | – | -51 |
| Consolidation adjustments | -94 | -53 |
| Total operating income | 4,353 | 4,396 |
| Financial net | -181 | 133 |
| Result after financial items | 4,172 | 4,529 |
* Restated to the new IAS 19.
Operating income in management accounts is very close to operating income under IFRS. There are only two differences. Operating income in management accounts does not include comparison distortion items nor all the consolidation adjustments that are made in the official accounts.
| Consolidated | Assets | Liabilities | ||
|---|---|---|---|---|
| SEK millions | 2013 | 2012 * | 2013 | 2012 * |
| Equipment | 5,955 | 5,804 | 910 | 986 |
| Process Technology | 10,828 | 10,608 | 4,029 | 4,304 |
| Marine & Diesel | 8,101 | 8,309 | 2,167 | 2,043 |
| Other | 5,236 | 5,395 | 2,442 | 2,188 |
| Subtotal | 30,120 | 30,116 | 9,548 | 9,521 |
| Corporate | 4,818 | 4,872 | 9,228 | 11,014 |
| Total | 34,938 | 34,988 | 18,776 | 20,535 |
* Restated to the new IAS 19.
Corporate refers to items in the statement on financial position that are interest bearing or are related to taxes
| Investments | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 |
| Equipment | 57 | 46 |
| Process Technology | 98 | 110 |
| Marine & Diesel | 49 | 38 |
| Other | 291 | 337 |
| Total | 495 | 531 |
| Total | 1,010 | 934 |
|---|---|---|
| Other | 336 | 318 |
| Marine & Diesel | 204 | 224 |
| Process Technology | 297 | 230 |
| Equipment | 173 | 162 |
| SEK millions | 2013 | 2012 |
| Consolidated | ||
| Depreciation |
Countries with more than 10 percent of either of net sales, non-current assets or investments are reported separately.
| Consolidated | |||||
|---|---|---|---|---|---|
| 2013 | 2012 | ||||
| SEK | SEK | ||||
| millions | % | millions | % | ||
| To customers in: | |||||
| Sweden | 916 | 3.1 | 856 | 2.9 | |
| Other EU | 8,176 | 27.4 | 7,911 | 26.5 | |
| Other Europe | 2,702 | 9.0 | 2,521 | 8.5 | |
| USA | 4,857 | 16.2 | 4,626 | 15.5 | |
| Other North America | 1,117 | 3.7 | 921 | 3.1 | |
| Latin America | 1,797 | 6.0 | 1,950 | 6.5 | |
| Africa | 299 | 1.0 | 330 | 1.1 | |
| China | 2,992 | 10.0 | 3,298 | 11.1 | |
| Other Asia | 6,646 | 22.2 | 6,969 | 23.4 | |
| Oceania | 432 | 1.4 | 431 | 1.4 | |
| Total | 29,934 | 100.0 | 29,813 | 100.0 |
Net sales are reported by country on the basis of invoicing address, which is normally the same as the delivery address.
| Consolidated | ||||
|---|---|---|---|---|
| 2013 | 2012* | |||
| SEK | SEK | |||
| millions | % | millions | % | |
| Sweden | 1,445 | 7.7 | 1,504 | 7.9 |
| Denmark | 4,493 | 23.9 | 4,385 | 23.3 |
| Other EU | 4,079 | 21.6 | 4,057 | 21.4 |
| Other Europe | 298 | 1.6 | 312 | 1.6 |
| USA | 3,890 | 20.6 | 3,631 | 19.2 |
| Other North America | 110 | 0.6 | 120 | 0.6 |
| Latin America | 366 | 1.9 | 429 | 2.3 |
| Africa | 1 | 0.0 | 1 | 0.0 |
| Asia | 2,680 | 14.2 | 2,890 | 15.3 |
| Oceania | 77 | 0.4 | 93 | 0.5 |
| Subtotal | 17,439 | 92.5 | 17,422 | 92.1 |
| Other long-term | ||||
| securities | 8 | 0.0 | 9 | 0.0 |
| Pension assets | 11 | 0.1 | 3 | 0.0 |
| Deferred tax asset | 1,401 | 7.4 | 1,497 | 7.9 |
| Total | 18,859 | 100.0 | 18,931 | 100.0 |
* Restated to the new IAS 19.
| Consolidated | ||||
|---|---|---|---|---|
| 2013 | 2012 | |||
| SEK | SEK | |||
| millions | % | millions | % | |
| Sweden | 68 | 13.7 | 66 | 12.4 |
| Denmark | 82 | 16.5 | 41 | 7.7 |
| Other EU | 111 | 22.4 | 99 | 18.6 |
| Other Europe | 17 | 3.5 | 13 | 2.5 |
| USA | 91 | 18.4 | 32 | 5.9 |
| Other North America | 3 | 0.7 | 6 | 1.2 |
| Latin America | 14 | 2.8 | 22 | 4.1 |
| Africa | 0 | 0.0 | 0 | 0.1 |
| China | 56 | 11.3 | 113 | 21.4 |
| India | 36 | 7.3 | 103 | 19.4 |
| Other Asia | 16 | 3.2 | 33 | 6.2 |
| Oceania | 1 | 0.2 | 3 | 0.5 |
| Total | 495 | 100.0 | 531 | 100.0 |
| Net sales by product/service | |||
|---|---|---|---|
| ------------------------------ | -- | -- | -- |
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Own products within: | ||
| Separation | 6,709 | 6,646 |
| Heat transfer | 16,001 | 16,010 |
| Fluid handling | 3,254 | 3,046 |
| Other | 799 | 919 |
| Associated products | 1,848 | 1,828 |
| Services | 1,323 | 1,364 |
| Total | 29,934 | 29,813 |
The split of own products within separation, heat transfer and fluid handling is a reflection of the current three main technologies. Other is own products outside these main technologies. Associated products are mainly purchased products that compliment Alfa Laval's product offering. Services cover all sorts of service, service agreements etc.
Alfa Laval does not have any customer that accounts for 10 percent or more of net sales. Tetra Pak within the Tetra Laval Group is Alfa Laval's single largest customer with a volume representing 4.8 (3.3) percent of net sales. See Note 32 for more information.
| Consolidated | ||||||
|---|---|---|---|---|---|---|
| Number of female | Total number of | |||||
| employees | employees | |||||
| 2013 | 2012 | 2013 | 2012 | |||
| Parent company | – | – | – | – | ||
| Subsidiaries in | ||||||
| Sweden (9) | 501 | 497 | 2,160 | 2,158 | ||
| Total in Sweden (9) | 501 | 497 | 2,160 | 2,158 | ||
| Total abroad (132) | 2,581 | 2,511 | 14,122 | 13,902 | ||
| Total (141) | 3,082 | 3,008 | 16,282 | 16,060 |
The figures in brackets in the text column state how many companies had employees as well as salaries and remunerations in 2013.
Average number of employees – in Sweden by municipality
| Total | 2,160 | 2,158 |
|---|---|---|
| Other * | 90 | 91 |
| Vänersborg | 134 | 139 |
| Stockholm | 11 | 9 |
| Ronneby | 254 | 261 |
| Lund | 1,014 | 1,006 |
| Eskilstuna | 214 | 212 |
| Botkyrka | 443 | 440 |
| 2013 | 2012 | |
| Consolidated |
* "Other" refers to municipalities with less than 10 employees and also includes employees at branch offices abroad.
Average number of employees – by country
Consolidated
| Number of female employees | Total number of employees | |||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| Argentina | 10 | 10 | 38 | 38 |
| Australia | 17 | 17 | 109 | 110 |
| Belgium | 2 | 2 | 29 | 28 |
| Brazil | 54 | 52 | 582 | 579 |
| Bulgaria | 7 | 11 | 23 | 40 |
| Chile | 11 | 8 | 45 | 38 |
| Colombia | 10 | 8 | 20 | 19 |
| Denmark | 394 | 412 | 1,740 | 1,715 |
| Philippines | 4 | 3 | 12 | 11 |
| Finland | 44 | 43 | 249 | 250 |
| France | 160 | 159 | 902 | 894 |
| United Arab Emirates | 19 | 19 | 182 | 175 |
| Greece | 6 | 6 | 20 | 20 |
| Hong Kong | 7 | 8 | 20 | 22 |
| India | 79 | 71 | 1,455 | 1,462 |
| Indonesia | 17 | 17 | 84 | 73 |
| Iran | 1 | 2 | 5 | 9 |
| Italy | 150 | 142 | 866 | 843 |
| Japan | 60 | 57 | 267 | 282 |
| Canada | 19 | 17 | 95 | 86 |
| Kazakhstan | 0 | 2 | 2 | 6 |
| China | 577 | 548 | 2,700 | 2,831 |
| Korea | 58 | 66 | 305 | 355 |
| Latvia | 5 | 6 | 13 | 14 |
| Malaysia | 32 | 27 | 102 | 87 |
| Mexico | 16 | 15 | 57 | 60 |
| Netherlands | 56 | 51 | 312 | 297 |
| Norway | 8 | 7 | 39 | 38 |
| New Zeeland | 5 | 5 | 18 | 18 |
| Panama | 3 | 3 | 9 | 7 |
| Peru | 7 | 7 | 26 | 28 |
| Poland | 45 | 46 | 226 | 229 |
| Portugal | 3 | 4 | 10 | 12 |
| Qatar | - | - | 8 | 8 |
| Romania | 4 | 5 | 13 | 13 |
| Russia | 117 | 116 | 348 | 333 |
| Switzerland | 4 | 4 | 16 | 15 |
| Singapore | 49 | 43 | 169 | 154 |
| Slovakia | 2 | 2 | 10 | 10 |
| Spain | 20 | 20 | 79 | 81 |
| UK | 56 | 48 | 354 | 312 |
| Sweden | 501 | 497 | 2,160 | 2,158 |
| South Africa | 9 | 4 | 42 | 36 |
| Taiwan | 13 | 13 | 37 | 39 |
| Thailand | 12 | 11 | 59 | 67 |
| Czech Republic | 8 | 8 | 38 | 39 |
| Turkey | 7 | 7 | 43 | 41 |
| Germany | 75 | 75 | 392 | 385 |
| Ukraine | 9 | 9 | 19 | 20 |
| Hungary | 4 | 4 | 13 | 15 |
| USA | 280 | 247 | 1,837 | 1,438 |
| Venezuela | 1 | 3 | 6 | 7 |
| Vietnam | 20 | 36 | 54 | 188 |
| Austria | 5 | 5 | 23 | 25 |
| Total | 3,082 | 3,008 | 16,282 | 16,060 |
Gender distribution among managers
| 2013 2012 Total Male Female Total Male number % % number % % Board members (excluding deputies) 12 75.0 25.0 11 72.7 27.3 11 90.9 9.1 11 90.9 9.1 President and other executive officers Managers in Sweden 269 80.7 19.3 241 82.2 17.8 Managers outside Sweden 1,728 84.1 15.9 1,664 84.7 15.3 Managers total 1,997 83.6 16.4 1,905 84.4 15.6 Employees in Sweden 2,160 76.8 23.2 2,158 77.0 23.0 |
Consolidated | |||
|---|---|---|---|---|
| Female | ||||
| Employees outside Sweden 14,122 81.7 18.3 13,902 81.9 18.1 |
||||
| Employees total 16,282 81.1 18.9 16,060 81.3 18.7 |
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Board of Directors, Presidents | ||
| and Vice Presidents | 229 | 220 |
| - out of which, variable | 40 | 32 |
| Other | 5,430 | 5,186 |
| Total salaries and remunerations | 5,659 | 5,406 |
| Social security costs | 968 | 953 |
| Pension costs, defined benefit plans | 102 | 100 |
| Pension costs, defined contribution plans | 415 | 394 |
| Total costs of personnel | 7,144 | 6,853 |
The Group's pension costs and pension liabilities relating to the Board of Directors, presidents and vice presidents amounts to SEK 37 (34) million and SEK 298 (274) million respectively. SEK 130 (134) million of the pension liabilities is covered by the Alfa Laval Pension Fund.
During the period 2012 to 2013 no equity related benefits existed within Alfa Laval.
All employees have either a fixed salary or a fixed base salary. For certain personnel categories the remuneration package also includes a variable element. This relates to personnel categorises where it is customary or part of a market offer to pay a variable part. Variable remunerations are most common in sales related jobs and on higher managerial positions. Normally the variable part constitutes a minor part of the total remuneration package.
The Annual General Meetings 2008 to 2010 decided to implement step one to three of a cash-based long term incentive programme. The Annual General Meetings 2011 to 2013 decided to implement step one to three of a modified cash-based long term incentive programme. The difference between the programmes is that the modified programme allows a higher outcome and a more centred range within which an award is made.
The long term incentive programme is targeting maximum 85 senior managers in the Group including the Chief Executive Officer and the persons defined as executive officers.
Each of the steps stretches over three years and the awards under each step are divided into three tranches (one for each year). The award under each tranche is set independently from the other two tranches. Since each step stretches over three years, three steps of the programmes will always run in parallel. In 2013 step one, two and three of the modified programme are running in parallel.
The final award for each step is calculated on the employee's yearly base salary at the end of the three year period. The maximum award is set to a percentage of the employee's annual maximum variable remuneration according to the following:
Maximum long term incentive
The outcome of the programme is linked to the development of earnings per share (EPS) for Alfa Laval. The EPS targets for the three tranches within each step are set by the Board of Directors. The modified programme opens up for setting more aggressive EPS targets.
15% 12%
For the modified programme the award is calculated in the following way. When the EPS is within the range of -10 percent to +10 percent of the target EPS the employee gets 5 percent of one third of the maximum outcome per year for each percent that the EPS exceeds the bottom level of 90 percent of the target EPS up to the maximum level of 110 percent of the target EPS.
To be eligible for payout the employees must be in service on the award date and the vesting date (except in case of termination of employment due to retirement, death or disability). If the employee resigns or is dismissed before the end of the three year period, the awards will lapse and the employee will not be entitled to any payout. If the employee moves to a position that is not eligible for this programme the tranches that already have been earned are paid out upon the change of position. Paid remunerations from the long term incentive programme do not affect the pensionable income or the holiday pay.
Based on the reported EPS during the period 2008 to 2013, the different steps have resulted in the following awards:
| Consolidated | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SEK millions, unless otherwise stated | Per year | Accumulated | |||||||||||||
| Decided | Covering period | Payable in per Actual outcome in % of maximum outcome Awards cent of base |
|||||||||||||
| Plan | Step | by Annual General Meeting |
January 1 – December 31 | Payable in April |
2013 | 2012 | 2011 | 2010 | 2009 | 2008 | To date | salary based on 15% in variable remuneration |
Paid Estimated | ||
| Original plan | |||||||||||||||
| One | 2008 | 2008 | 2010 | 2011 | N/A | N/A | N/A | 11.00% | 0.00% 100.00% | 37.00% | 2.78% | 5 | N/A | ||
| Two | 2009 | 2009 | 2011 | 2012 | N/A | N/A | 51.92% | 80.25% | 58.50% | N/A | 63.56% | 4.77% | 9 | N/A | |
| Three | 2010 | 2010 | 2012 | 2013 | N/A | 100.00% 100.00% 100.00% | N/A | N/A 100.00% | 7.50% | 15 | N/A | ||||
| Modified plan | |||||||||||||||
| One | 2011 | 2011 | 2013 | 2014 | 33.65% | 100.00% 100.00% | N/A | N/A | N/A | 77.88% | 9.35% | N/A | 23 | ||
| Two | 2012 | 2012 | 2014 | 2015 | 23.57% | 99.06% | N/A | N/A | N/A | N/A | 61.32% | 4.91% | N/A | 13 | |
| Three | 2013 | 2013 | 2015 | 2016 | 100.00% | N/A | N/A | N/A | N/A | N/A 100.00% | 4.00% | N/A | 11 | ||
| Awards per year | 17 | 25 | 17 | 9 | 3 | 5 | Total | 29 | 47 |
The costs for the awards per step and per year are based on estimated base salaries at the future time of payment.
The remunerations to the Chief Executive Officer/Managing Director are decided by the Board of Directors based on proposals from the Remuneration Committee according to the guidelines established by the Annual General Meeting. The remunerations to the other members of Group Management are decided by the Remuneration Committee according to the same guidelines. The principle used when deciding the remunerations to executive officers is to offer a competitive remuneration where the remuneration package is mainly based on a fixed monthly salary, with an option for a company car and in addition to that a variable remuneration of up to 40 percent of the salary (managing director up to 60 percent of the salary). The size of the variable remuneration depends on the outcome of a number of financial measurements and the result of special projects, all compared with the objectives that have been established for the year.
The guidelines for pension, termination and severance pay differ between the Chief Executive Officer/Managing Director and the other executive officers and are presented in the respective sections below.
The Annual General Meetings 2008 to 2010 decided to implement step one to three of a cash-based long term incentive programme for maximum 85 senior managers in the Group including the Chief Executive Officer and the persons defined as executive officers. The Annual General Meetings 2011 to 2013 decided to implement step one to three of a modified cash-based long term incentive programme. The Board of Directors will propose the Annual General Meeting 2014 to implement step four of this modified cash-based long term incentive programme for the period January 1, 2014 – December 31, 2016. No other changes of these guidelines are proposed by the Board of Directors.
The Chief Executive Officer and Managing Director Lars Renström receives a remuneration of SEK 16,954,683 (16,007,287), out of which SEK 4,329,832 (5,100,000) represent the variable part and SEK 2,652,000 (1,632,002) the payment from the cash-based long term incentive programme. The variable part refers to what was paid during the year. The remuneration contains the value of company car, taxable daily allowances, holiday pay and payment for vacation taken in cash.
Lars Renström has a base salary of SEK 9,280,000 (8,840,000) per annum. In his remuneration package there is a variable element with an un-guaranteed target of 30 (30) percent of the base salary and with a maximum opportunity of 60 (60) percent. He is covered by the cash based long term incentive programme and based on the estimated base salary at the future time of payment the award for 2013 was SEK 2,283,141 (3,656,535). The vested unpaid awards at December 31, 2013 amounted to SEK 6,500,901. He does not have an agreement on early retirement. The ordinary ITP up to a salary of 30 base amounts is funded in order to achieve full ITP benefits at the age of 65. On top of the ordinary ITP he has a defined contribution benefit comprising 50 percent of the base salary. If Alfa Laval terminates his employment before the age of 63 he will receive twenty four months' remuneration. If Alfa Laval terminates his employment after the age of 63 he will receive twenty four months' remuneration reduced with the number of months that has passed since his 63rd birthday.
During the year, Alfa Laval has recorded costs for pension premiums for retirement and survivors' pension of SEK 5,409,899 (5,681,143). In addition the company has incurred costs for life insurance, disability insurance and health care insurance of SEK 99,278 (174,286).
The employment contract for Lars Renström is valid until 2016.
Other executive officers are the ten members of Group Management in addition to the Chief Executive Officer. Their remunerations were SEK 41 (38) million, out of which the variable part was SEK 7 (9) million and SEK 5 (3) million the payment from the cash based long term incentive programme. The variable part refers to what was paid during the year. They are covered by the cash based long term incentive programme and based on estimated base salaries at the future time of payment the award for 2013 was SEK 4 (6) million. The vested unpaid awards at December 31, 2013 amounted to SEK 12 million. During 2013, Alfa Laval has recorded costs for pension premiums for retirement and survivors' pension of SEK 16 (16) million for them. In addition the company has incurred costs for life insurance, disability insurance and health care insurance of SEK 0 (1) million.
For these executive officers, early retirement has in some cases been committed from the age of 62. What is offered is a defined contribution solution for early retirement with a premium of 15 percent of the pensionable salary. Early retirement is offered selectively and only after a specific decision in the Remuneration Committee. For salaries above 30 base amounts there is a defined contribution pension solution with a premium of 30 percent of the pensionable salary above 30 base amounts. Until May 1, 2012 the executive officers also had a special family pension that represented a supplement between the old age pension and the family pension according to ITP. For the persons that were executive officers on May 1, 2012 the special family pension has been converted to a premium based supplementary retirement pension based on the premium level in December 2011. In addition, they may exchange salary and variable remunerations for a temporary old age and family pension.
Alfa Laval has made commitments for severance pay to a limited group of senior executives. The commitments are restricted to a maximum amount of two annual salaries. The commitments define the conditions that must be fulfilled in order for them to become valid.
For 2013, the Board of Directors receive a total fixed remuneration of SEK 4,895,000 (4,275,000), which is distributed among the members elected at the Annual General Meeting that are not employed by the company. These Directors do not receive any variable remuneration.
| Consolidated |
|---|
| 2013 | 2012 |
|---|---|
| 1,175,000 | 1,150,000 |
| 460,000 | 450,000 |
| 150,000 | 125,000 |
| 100,000 | 75,000 |
| 50,000 | 50,000 |
| 50,000 | 50,000 |
| 1,225,000 | 1,200,000 |
| 560,000 | 525,000 |
| 460,000 | 450,000 |
| 510,000 | 500,000 |
| 560,000 | 525,000 |
| 610,000 | 575,000 |
| 510,000 | 500,000 |
| 460,000 | – |
| 4,895,000 | 4,275,000 |
* Elected at the Annual General Meeting and not employed by the company
The reported remunerations refer to the period between two Annual General Meetings.
The Chairman of the Board does not have any agreement on future retirement or severance pay with Alfa Laval.
The audit committee and the remuneration committee have had the following members during the last two years:
| 2013 | 2012 | |
|---|---|---|
| Audit Committee: | ||
| Chairman | Finn Rausing | Finn Rausing |
| Other member | Gunilla Berg | Gunilla Berg |
| Other member | Ulla Litzén | Ulla Litzén |
| Remuneration committee: | ||
| Chairman | Anders Narvinger | Anders Narvinger |
| Other member | Björn Hägglund | Björn Hägglund |
| Other member | Jörn Rausing | Jörn Rausing |
The members of the committees are appointed at the constituent meeting of the Board of Directors directly after the Annual General Meeting.
The Annual General Meeting 2013 decided to re-elect Ernst & Young as the Group's auditors for the coming year.
| Fees and expense compensation | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 |
| Audit engagements | ||
| Ernst & Young | 28 | 29 |
| Other audit firms | 1 | 1 |
| Total | 29 | 30 |
| Audit related services | ||
| Ernst & Young | 3 | 16 |
| Other audit firms | 5 | 3 |
| Total | 8 | 19 |
| Tax services | ||
| Ernst & Young | 5 | 3 |
| Other audit firms | 3 | 4 |
| Total | 8 | 7 |
| Other services | ||
| Ernst & Young | 2 | 1 |
| Other audit firms | 2 | 3 |
| Total | 4 | 4 |
| Expenses | ||
| Ernst & Young | 1 | 1 |
| Other audit firms | 0 | 0 |
| Total | 1 | 1 |
| Total | ||
| Ernst & Young | 39 | 50 |
| Other audit firms | 11 | 11 |
| Total | 50 | 61 |
An audit engagement includes examining the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. It also includes an examination in order to give an opinion on the Board's discharge from liability. Audit related services are audit services that are outside the audit engagement. Tax services refer to advices given in connection with various tax matters. All other assignments are defined as other services. Expenses refer to reimbursements of travel costs, secretarial services etc.
Comparison distortion items are reported gross in the consolidated comprehensive income statement as a part of other operating income and other operating costs.
| Comparison distortion items | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 * |
| Operational | ||
| Other operating income | 453 | 384 |
| Comparison distortion items | – | – |
| Total other operating income | 453 | 384 |
| Other operating costs | -882 | -873 |
| Comparison distortion items | – | -51 |
| Total other operating costs | -882 | -924 |
* Restated to the new IAS 19.
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Loss on: | ||
| Write down of goodwill in Onnuri | – | -48 |
| Sale of real estate | – | -3 |
| Subtotal losses/costs | – | -51 |
| Net total | – | -51 |
The comparison distortion cost during 2012 of SEK -51 million related to write down of the goodwill relating to the acquisition of Onnuri with SEK -48 million and a realised loss on sale of a property in Korea that was used by Onnuri with SEK -3 million.
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Cost of goods sold | -838 | -782 |
| Sales | -38 | -37 |
| Administration | -59 | -68 |
| Research and development | -8 | -7 |
| Other income and costs | -67 | -40 |
| Total | -1,010 | -934 |
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Patents and unpatented know-how, trade | ||
| marks, etc. | -513 | -439 |
| Machinery and equipment | -388 | -384 |
| Financial leasing machinery and equipment | -4 | -4 |
| Buildings and ground installations | -98 | -100 |
| Financial leasing buildings | -7 | -7 |
| Total | -1,010 | -934 |
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Dividends from other | 7 | 2 |
| Fair value changes in securities | 1 | 6 |
| Total | 8 | 8 |
| Split on type of income/expense or gain/loss | Split on type of income/expense or gain/loss | ||||
|---|---|---|---|---|---|
| Consolidated | Parent company | ||||
| SEK millions | 2013 | 2012 | SEK millions | 2013 | 2012 |
| Interest income | Interest income | ||||
| Financial leasing | 0 | 0 | External companies | 2 | 0 |
| Other interest | 147 | 112 | Subsidiaries | 69 | 115 |
| Exchange rate gains | Exchange rate gains | ||||
| Unrealised | 163 | 122 | Unrealised | 8 | 3 |
| Realised | 48 | 267 | Total | 79 | 118 |
| Total | 358 | 501 | Interest costs | ||
| Interest expenses | External companies | – | 0 | ||
| Financial leasing | 0 | 0 | Exchange rate losses | ||
| Other interest | -245 | -246 | Unrealised | -4 | -4 |
| Exchange rate losses | Total | -4 | -4 | ||
| Unrealised | -175 | -72 | |||
| Realised | -127 | -58 | |||
| Total | -547 | -376 |
In the Group, reported net exchange differences of SEK -83 (214) million relating to debts in foreign currencies have been charged to other comprehensive income. These debts finance the acquisition of shares in foreign subsidiaries and act as a hedge to the acquired net assets. The amount is charged with tax resulting in a net after tax impact on other comprehensive income of SEK -65 (158) million.
Non-controlling interests relates to seven subsidiaries in Brazil, China, France, India, Kazakhstan, Russia and Singapore with owners with non-controlling interests.
| Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Loans and | Available for sale | ||||||||||
| Financial assets at fair value through profit or loss: | receivables | financial assets | |||||||||
| Valuation | Designated upon | Derivatives used for | |||||||||
| hierarchy level | initial recognition | Held for trading | hedging | ||||||||
| SEK millions | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |
| Non-current assets | |||||||||||
| Other non-current | |||||||||||
| assets | |||||||||||
| Other long-term securities | 1 and 2 | – | – | – | – | – | – | – | – | 8 | 9 |
| Current assets | |||||||||||
| Current receivables | * | ||||||||||
| Accounts receivable | * | – | – | – | – | – | – | 5,059 | 5,211 | – | – |
| Notes receivable | * | – | – | – | – | – | – | 296 | 304 | – | – |
| Other receivables | * | – | – | – | – | – | – | 778 | 783 | – | – |
| Accrued income | * | – | – | – | – | – | – | 55 | 39 | – | – |
| Derivative assets | 1 | – | – | 61 | 92 | 158 | 233 | – | – | – | – |
| Current deposits | |||||||||||
| Deposits with banks | * | – | – | – | – | – | – | 348 | 283 | – | – |
| Bonds and other securities | 1 | 247 | 131 | – | – | – | – | – | – | – | – |
| Other deposits | * | – | – | – | – | – | – | 16 | 13 | – | – |
| Cash and bank | * | – | – | – | – | – | – | 1,454 | 1,404 | – | – |
| Total financial assets | 247 | 131 | 61 | 92 | 158 | 233 | 8,006 | 8,037 | 8 | 9 |
* Valued at amortised cost. The book value is the same as the fair value.
Valuation hierarchy level 1 is according to quoted prices in active markets for identical assets and liabilities.
Valuation hierarchy level 2 is out of directly or indirectly observable market data outside level 1.
The Group does not have any financial assets that represent held-to-maturity investments.
| Consolidate |
|---|
| ------------- |
| Consolidated | |||||||
|---|---|---|---|---|---|---|---|
| Financial liabilities at fair value through profit or loss: | Loans | ||||||
| Valuation | |||||||
| hierarchy level | Held for trading | Derivatives used for hedging | |||||
| SEK millions | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 * | |
| Non-current liabilities | |||||||
| Liabilities to credit institutions | * | – | – | – | – | 2,813 | 4,679 |
| Private placement | * | – | – | – | – | 716 | 714 |
| Current liabilities | |||||||
| Liabilities to credit institutions | * | – | – | – | – | 1,049 | 610 |
| Accounts payable | * | – | – | – | – | 2,250 | 2,198 |
| Notes payable | * | – | – | – | – | 144 | 135 |
| Other liabilities | * | – | – | – | – | 1,448 | 1,284 |
| Accrued costs | * | – | – | – | – | 1,714 | 1,652 |
| Derivative liabilities | 1 | 100 | 60 | 134 | 127 | – | – |
| Total financial liabilities | 100 | 60 | 134 | 127 | 10,134 | 11,272 |
* Valued at amortised cost. The book value is the same as the fair value.
Valuation hierarchy level 1 is according to quoted prices in active markets for identical assets and liabilities.
Valuation hierarchy level 2 is out of directly or indirectly observable market data outside level 1.
The Group does not have any financial liabilities at fair value through profit and loss designated upon initial recognition.
All of the financial instruments above sum up either to the corresponding item in the statement on financial position or to the item specified in the notes referred to in the statement on financial position. The risks linked to these financial instruments including any concentrations of risk are presented in the sections on risks on pages 97–103.
The result of the financial assets designated upon recognition is found in Note 10 as fair value changes in securities.
The result of the financial assets held for trading of SEK 1 (45) million has affected cost of goods sold with SEK 0 (2) million, exchange gains in Note 11 with SEK - (43) million and interest income in Note 11 with the remaining SEK 1 (-) million.
The result of the assets under loans and receivables is presented in Note 11 as other interest income for deposits with banks, other deposits and cash and bank. The other assets under loans and receivables do not generate a result but only a cash-in of the principal amount.
The result of the available for sale financial assets is reported as part of other comprehensive income in the consolidated comprehensive income statement.
The result of the financial liabilities held for trading of SEK -31 (-13) million has affected cost of goods sold with SEK -5 (-1) million and exchange losses in Note 11 with SEK -26 (-12) million.
The result of the liabilities under loans is presented in Note 11 as other interest costs for the liabilities to credit institutions and the private placement. The other liabilities under loans do not generate a result but only a cash-out of the principal amount.
The result of the derivative assets and liabilities used for hedging is reported as part of other comprehensive income in the consolidated comprehensive income statement.
The fair value changes in shares in external companies are made under other comprehensive income and amounts to SEK -0 (-0) million, see the comments to the consolidated comprehensive income statement.
The fair value changes in marketable securities are made on the line dividends and changes in fair value in the consolidated comprehensive income statement and amounts to SEK 1 (6) million, see Note 10.
| Consolidated | ||||||||
|---|---|---|---|---|---|---|---|---|
| Difference between | ||||||||
| current rate | contracted rate and | |||||||
| Currency pairs | ||||||||
| SEK millions Derivative assets/liabilities |
2013 | 2012 | ||||||
| Foreign exchange | ||||||||
| forward contracts: | EUR | USD | 37 | 40 | ||||
| EUR | SEK | -38 | 62 | |||||
| EUR | AUD | 4 | 0 | |||||
| EUR | CAD | 6 | 0 | |||||
| EUR | DKK | -1 | -2 | |||||
| EUR | JPY | 4 | 1 | |||||
| USD | CAD | 1 | -2 | |||||
| USD | DKK | 10 | 3 | |||||
| USD | GBP | – | -1 | |||||
| USD | SEK | -19 | 36 | |||||
| USD | JPY | 1 | -12 | |||||
| DKK | SEK | 4 | 6 | |||||
| USD | KRW | -14 | -17 | |||||
| NOK | EUR | -7 | – | |||||
| NOK | SEK | -1 | – | |||||
| NOK | USD | -3 | 1 | |||||
| CNY | USD | 1 | – | |||||
| Other | Other | -1 | 0 | |||||
| Subtotal | -16 | 115 | ||||||
| Currency options | -1 | 3 | ||||||
| Interest Rate Swaps | 20 | 15 | ||||||
| Metal forward contacts | -14 | 5 | ||||||
| Electricity futures | -4 | 0 | ||||||
| Total, corresponding to a net | ||||||||
| derivative asset (+) or liability (-) | -15 | 138 |
For currency options and electricity futures hedge accounting has not been applied. For foreign exchange forward contracts, interest rate swaps and metal forward contracts hedge accounting has been applied when the conditions for hedge accounting have been fulfilled.
The fair value adjustment of derivatives is made through other comprehensive income if hedge accounting can be applied and the derivatives are effective. In all other cases the fair value adjustment is made above net income. The corresponding entries are made on derivative assets and liabilities and not on the underlying financial instruments in the statement on financial position.
Tax on this year's net income and other taxes
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 * |
| Major components of the Group's tax costs | ||
| Current tax cost | -1,319 | -1,426 |
| Adjustment for current taxes on prior periods | -1 | 4 |
| Deferred tax costs/income on changes in temporary differences | 222 | 44 |
| Deferred tax costs/income on changes in tax rates or new taxes | 0 | 99 |
| Tax income from previously unrecognised tax losses or tax credits on temporary differences of prior periods | 0 | 0 |
| Deferred tax income from previously unrecognised tax losses or tax credits on temporary differences of prior periods | 0 | 0 |
| Deferred tax cost from the write down or reversal of a previous write down of a deferred tax asset | 0 | 0 |
| Other taxes | -34 | -27 |
| Total tax cost | -1,132 | -1,306 |
| SEK millions Major components |
2013 | 2012 * |
|---|---|---|
| Deferred tax on cash flow hedges | -14 | -50 |
| Deferred tax on revaluations of defined benefit obligations | -81 | 35 |
| Total tax cost | -95 | -15 |
* Restated to the new IAS 19.
The difference between the tax costs of the group and the tax cost based upon applicable tax rates can be explained as follows:
Temporary differences exist when there is a difference between the book value and the tax base of assets and liabilities. The Group's temporary differences have resulted in a deferred tax asset or a deferred tax liability relating to the following assets and liabilities:
| Total tax costs | -1,132 | -1,306 |
|---|---|---|
| Other | -34 | -27 |
| Adjustment for current tax on prior periods | -1 | 4 |
| Tax losses and tax credits | -13 | 2 |
| Differences between reported other official appropriations and other appropriations according to tax rules |
8 | 130 |
| Differences between reported official depreci ation and depreciation according to tax rules |
0 | -8 |
| Non-taxable income | 110 | 79 |
| Tax effect of: Non-deductible costs |
-76 | -129 |
| Tax according to applicable tax rates | -1,126 | -1,357 |
| Result after financial items | 4,172 | 4,529 |
| SEK millions | 2013 | 2012 * |
| Consolidated |
* Restated to the new IAS 19.
Other taxes are mainly referring to wealth tax.
| Consolidated | |||||
|---|---|---|---|---|---|
| 2013 | 2012 * | ||||
| SEK millions | assets | liabilities | assets | liabilities | |
| Relating to: | |||||
| Intangible non-current | |||||
| assets | 22 | 795 | 33 | 927 | |
| Tangible non-current | |||||
| assets | 67 | 242 | 67 | 257 | |
| Inventory | 183 | 28 | 187 | 19 | |
| Other current assets | 1 | 5 | 4 | 6 | |
| Financial assets | 1 | 0 | 15 | 5 | |
| Short term liabilities | 1,159 | 77 | 944 | 119 | |
| Tax losses and tax credits ** | 40 | – | 39 | – | |
| Other | 10 | 696 | 292 | 683 | |
| Subtotal | 1,483 | 1,843 | 1,581 | 2,016 | |
| Possible to net | -82 | -82 | -84 | -84 | |
| Total deferred taxes | 1,401 | 1,761 | 1,497 | 1,932 |
* Restated to the new IAS 19.
** The Group has reported a deferred tax asset on unused tax losses and tax grants of SEK 113 (92) million. These unused tax losses and tax grants are essentially not restricted in time.
In the Group there are temporary differences and unused tax losses and tax credits of SEK 618 (849) million that have not resulted in corresponding deferred tax assets, since these are not likely to be used. The temporary differences are mainly relating to pensions, where the date of payment is so far into the future that considering discounting and uncertainty concerning future tax rules and profit levels no asset is deemed to exist. The unused tax losses and tax grants are essentially not restricted in time, but the tax losses that can be utilised per year can be restricted to a certain proportion of the taxable result or be limited by up-coming structural changes.
The nominal tax rate has changed in the following countries during 2012 and 2013.
| Tax rates by country | ||
|---|---|---|
| Consolidated | ||
| Percent | 2013 | 2012 |
| Greece | 26 | 20 |
| India | 34 | 32 |
| Mexico | 30 | 35 |
| UK | 23 | 24 |
| Sweden | 22 | 26 |
| Thailand | 20 | 23 |
| Ukraine | 19 | 21 |
The Group's normal effective tax rate is approximately 28 (29) percent based on taxable result, and it is calculated as a weighted average based on each subsidiary's part of the result before tax.
The allocation of step up values to tangible and intangible assets and the residual goodwill in effect means that all acquisitions are valued at market. In order to separate out this valuation effect Alfa Laval focuses on EBITA, where any amortisation of step up values is excluded. The development of these step up values and any goodwill is shown in the table below.
| Consolidated | ||||||
|---|---|---|---|---|---|---|
| Adjustment | ||||||
| of last year's | Planned | |||||
| Opening | purchase | deprecia | Closing | |||
| balance | price | tion/ amorti | Translation | balance | ||
| SEK millions | 2013 | allocation | Acquired | sation | difference | 2013 |
| Buildings | 470 | – | – | -31 | -8 | 431 |
| Land and land improvements | -59 | – | – | – | 25 | -34 |
| Equipment | 54 | – | – | -27 | 0 | 27 |
| Patents and unpatented know-how | 1,922 | – | 202 | -274 | 21 | 1,871 |
| Trademarks | 1,819 | – | – | -229 | 28 | 1,618 |
| Subtotal step-up values | 4,206 | – | 202 | -561 | 66 | 3,913 |
| Goodwill | 9,792 | -62 | 236 | – | 95 | 10,061 |
| Total | 13,998 | -62 | 438 | -561 | 161 | 13,974 |
The Group has not recorded any impairment losses related to neither goodwill nor any other step up values in 2013.
There is no deferred tax liability calculated on the goodwill. The deferred tax liability on the other step-up values is SEK 734 (830) million.
For assets sold, net gains or losses are recognised on the costs basis including any related step-up value.
The next table shows each acquisition separately. Any later adjustments to the allocations are referred to the original year of the acquisition. The figures for the allocations are based on the prevailing rates at the time the transactions took place and any change in exchange rates until December 31, 2013 is shown as a translation difference. The corresponding presentation by asset type is found in Notes 17 and 18.
| Consolidated | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Land and | ||||||||||
| land | Patents and | |||||||||
| SEK millions | improve | unpatented | Total step | |||||||
| Year/Businesses | Buildings | ments | Equipment | Inventory | know-how | Trademarks | Other | up values | Goodwill | Total |
| 2000 | ||||||||||
| Alfa Laval Holding | 1 058 | -228 | 452 | 340 | 1 280 | 461 | 660 | 4,023 | 3,683 | 7,706 |
| 2002 | ||||||||||
| Danish Separation Systems | – | – | – | – | – | – | – | – | 118 | 118 |
| 2003 | ||||||||||
| Toftejorg | 1 | – | – | – | – | – | – | 1 | 35 | 36 |
| 2005 | ||||||||||
| Packinox | – | – | – | 6 | 99 | 183 | – | 288 | 253 | 541 |
| 2006 | ||||||||||
| Tranter | 17 | – | – | 6 | 180 | 265 | – | 468 | 530 | 998 |
| 2007 | ||||||||||
| AGC Engineering | – | – | – | – | – | 12 | – | 12 | 20 | 32 |
| Helpman | 9 | 8 | – | – | 36 | – | – | 53 | 4 | 57 |
| Public offer Alfa Laval (India) | – | – | – | – | – | – | – | – | 441 | 441 |
| DSO Fluid Handling | – | – | – | – | – | 39 | – | 39 | 42 | 81 |
| Fincoil | – | – | – | – | 233 | – | – | 233 | 241 | 474 |
| 2008 | ||||||||||
| Høyer Promix A/S | – | – | – | – | – | – | – | – | 16 | 16 |
| Nitrile India Pvt Ltd | – | – | – | – | – | – | – | – | 6 | 6 |
| Standard Refrigeration | – | – | – | 5 | 166 | – | – | 171 | 152 | 323 |
| Pressko AG | – | – | – | 1 | – | – | – | 1 | 69 | 70 |
| Hutchison Hayes Separation | – | – | – | 1 | 95 | 49 | – | 145 | 46 | 191 |
| P&D's Plattvärmeväxlarservice | – | – | – | – | – | – | – | – | 10 | 10 |
| Ageratec | – | – | – | – | – | – | – | – | 44 | 44 |
| 2009 | ||||||||||
| Two providers of parts & service | – | – | – | – | – | 291 | – | 291 | 210 | 501 |
| Onnuri Industrial Machinery | – | – | – | – | 40 | 39 | – | 79 | 48 | 127 |
| HES Heat Exchanger Systems | – | – | – | – | 83 | – | – | 83 | 59 | 142 |
| Public offer Alfa Laval (India) | – | – | – | – | – | – | – | – | 311 | 311 |
| Termatrans | – | – | – | – | – | 7 | – | 7 | 6 | 13 |
| Tranter acquisitions in Latin America | – | – | – | – | – | 20 | – | 20 | 16 | 36 |
| ISO Mix | – | – | – | – | 22 | – | – | 22 | – | 22 |
| LHE | – | – | – | – | 298 | 297 | – | 595 | 344 | 939 |
| 2010 | ||||||||||
| Champ Products | – | – | – | – | 15 | 14 | – | 29 | 2 | 31 |
| A leading U.S. service provider | – | – | – | – | – | 134 | – | 134 | 82 | 216 |
| G.S Anderson | – | – | – | – | 35 | – | – | 35 | 23 | 58 |
| Astepo | – | – | – | – | 24 | 15 | – | 39 | 8 | 47 |
| Si Fang Stainless Steel Products | – | – | – | – | 27 | 16 | – | 43 | 42 | 85 |
| Definox | – | – | – | – | 4 | 5 | – | 9 | 2 | 11 |
| Olmi | – | – | – | 37 | 58 | 32 | – | 127 | – | 127 |
| 2011 | ||||||||||
| Service company in the U.S. | – | – | – | – | – | 150 | – | 150 | 126 | 276 |
| Aalborg Industries | 248 | – | – | – | 430 | 860 | – | 1,538 | 3,630 | 5,168 |
| 2012 | ||||||||||
| Vortex Systems | – | – | – | – | 148 | – | – | 148 | 225 | 373 |
| Ashbrook Simon-Hartley | – | – | – | – | 86 | – | – | 86 | 55 | 141 |
| Gamajet Cleaning Systems | – | – | – | – | 47 | – | – | 47 | 37 | 84 |
| Air Cooled Exchangers (ACE) | – | – | – | – | 585 | – | – | 585 | 346 | 931 |
| 2013 | ||||||||||
| Niagara Blower Company | – | – | – | – | 202 | – | – | 202 | 236 | 438 |
| Accumulated during the period | ||||||||||
| Realised | -524 | 122 | -24 | -397 | – | – | -99 | -922 | – | -922 |
| Write down | – | – | – | – | – | – | – | – | -48 | -48 |
| Planned depreciation/amortisation | -344 | – | -395 | – | -2,286 | -1,177 | -571 | -4,773 | -612 | -5,385 |
| Translation difference | -34 | 64 | -6 | 1 | -36 | -94 | 10 | -95 | -797 | -892 |
| Closing balance | 431 | -34 | 27 | – | 1,871 | 1,618 | – | 3,913 | 10,061 | 13,974 |
The acquisition of the Alfa Laval Holding AB group in connection with the acquisition by Industri Kapital of the Alfa Laval Group from Tetra Laval on August 24, 2000 is shown on the first row.
"Other" relates to step up values from 2000 for "Machinery" of SEK 548 million that has been fully depreciated or realised, for "Research and development" of SEK 54 million and "Capital gain (Industrial Flow)" of SEK 42 million that have been fully realised and for "Construction in process" of SEK 16 million that has been transferred to "Machinery".
On May 29, 2013 Alfa Laval acquired the U.S. based Niagara Blower Company, a manufacturer of energy-efficient niche heat transfer solutions. The company's products are engineered-to-order, and particularly suited for use in the oil and gas processing industries. They are also used in a wide range of other industries, such as power, food & beverage and pharmaceuticals. Lars Renström, President and CEO of the Alfa Laval Group, comments on the reasons for the acquisition: "The acquisition of Niagara Blower brings in new and complementary heat-transfer products, mainly air-cooled heat exchangers, which further strengthen our offering to the oil and gas processing industries. They strengthen our U.S. portfolio and will gradually also be added to our product offering on a global scale." Niagara Blower Company is located in Buffalo, New York. The intention is to integrate Niagara Blower into the segment Energy & Environment, within the Process Technology Division. The purchase price is SEK 444 million, out of which SEK 379 million has been paid in cash and SEK 65 million is retained for a period of 1-1.5 years. The retained part of the purchase price is contingent on certain warranties in the contract not being triggered or that certain profitability goals are fulfilled. The outcome can be anything between SEK 0 million and SEK 199 million, but the probable outcome is SEK 65 million, which is also the fair value since the contingent consideration is to be paid in cash. The costs directly linked to the acquisition (fees to lawyers, due diligence and assisting counsel) come in addition to this and have amounted to SEK 1 million, which is reported as other operating costs. Liquid assets of SEK 8 million in the acquired company were taken over. The impact on the cash flow is thus SEK -372 million. Out of the difference between the purchase price paid and the net assets acquired SEK 202 million is allocated to patents and un-patented know-how, while the residual SEK 236 million is allocated to goodwill. The goodwill is relating to estimated synergies in procurement, logistics and corporate overheads and the company's ability to over time recreate its intangible assets. The value of the goodwill is still preliminary. The step up value for patents and un-patented know-how is amortised over 10 years. From the date of the acquisition the company has added SEK 41 million in orders received, SEK 119 million in invoicing and SEK 17 million in adjusted EBITA to Alfa Laval. If the company had been acquired at January 1, 2013 the corresponding figures would have been SEK 127 million, SEK 289 million and SEK 63 million respectively. At the end of December 2013 the number of employees was 98.
a gas combustion unit from the company Snecma (Safran). The product, which will be included in the offering from the Marine & Offshore Systems segment, is expected to generate sales of about SEK 40 million in 2013. Lars Renström, President and CEO of the Alfa Laval Group, comments on the acquisition: "With this acquisition we expand and further strengthen our offer to the growing gas transportation business, a business which typically has high barriers to entry. Few companies can offer this type of safety equipment." The purchase price of SEK 42 million has been paid in cash. The impact on the cash flow is thus SEK -42 million.
In a press release on September 19, 2011 Alfa Laval communicated its proposal to buy all outstanding shares in its subsidiary Alfa Laval (India) Ltd and seek delisting of the shares from Bombay Stock Exchange Limited and National Stock Exchange of India Limited. The proposal came on the back of regulatory changes in India which requires Alfa Laval (India) Ltd to have a minimum public float of 25 percent or seek delisting. In a reverse book building process that was finalised on February 23, 2012 minority shareholders together holding more than the necessary 50 percent of the public float were willing to sell to Alfa Laval at a price of INR 4,000 per share. Through the acquisition of the 1.03 million shares Alfa Laval achieved an ownership of 94.5 percent, which enabled Alfa Laval (India) Ltd to delist from both stock exchanges on April 12, 2012. The cost for the acquisition of the shares was SEK 553 million. As a part of the process the remaining minority owners could sell their shares to Alfa Laval for INR 4,000 during the next 12 months. During this period minority owners with an additional 0.68 million shares have sold their shares to Alfa Laval for SEK 340 million, which has increased Alfa Laval's ownership to 98.2 percent. This means that the total acquisition cost was SEK 893 million. The purchase price for the purchases made in 2013 of SEK 62 million has been paid in cash. The costs directly linked to the acquisition (fees to lawyers, due diligence and assisting counsel) come in addition to this and have amounted to SEK 1 million, which is reported as other operating costs. The impact on the cash flow is thus SEK -63 million. The difference of SEK 50 million between the purchase price paid and the net assets acquired is reported against equity.
On February 22, 2013 Alfa Laval acquired the remaining minority shares in the company Tranter Solarice GmbH in Germany. The purchase price of SEK 0 million has been paid in cash. The impact on the cash flow is thus SEK -0 million. The difference of SEK -1 million between the purchase price paid and the net assets acquired is reported against equity.
Payment of retained parts of the purchase price from previous acquisitions constitutes the remaining part of the cash flow related to acquisition of businesses.
On February 28, 2013 Alfa Laval acquired the assets and technology for
The acquisitions during 2013 can be summarized as follows:
| Consolidated |
|---|
| -------------- |
| Minority in subsidiaries | Others | Total | |||||
|---|---|---|---|---|---|---|---|
| Adjustment to | Adjustment to | ||||||
| SEK millions | Book value | fair value | Fair value | Book value | fair value | Fair value | Fair value |
| Property, plant and equipment | – | – | – | 13 | – | 13 | 13 |
| Patents and unpatented know-how 1) | – | – | – | 32 | 202 | 234 | 234 |
| Inventory | – | – | – | 14 | – | 14 | 14 |
| Accounts receivable and other receivables | – | – | – | 24 | – | 24 | 24 |
| Liquid assets | – | – | – | 8 | – | 8 | 8 |
| Accounts payable and other liabilities | – | – | – | -62 | – | -62 | -62 |
| Deferred tax | – | – | – | 2 | – | 2 | 2 |
| Acquired net assets | – | – | – | 31 | 202 | 233 | 233 |
| Goodwill 2) | – | 236 | 236 | ||||
| Equity attributable to owners of parent | -49 | – | -49 | ||||
| Currency translation | -8 | – | -8 | ||||
| Equity attributable to non-controlling interests | -5 | – | -5 | ||||
| Purchase price | -62 | -469 | -531 | ||||
| Costs directly linked to the acquisitions 3) | -1 | -1 | -2 | ||||
| Retained part of purchase price 4) | – | 66 | 66 | ||||
| Liquid assets in the acquired businesses | – | 8 | 8 | ||||
| Payment of amounts retained in prior years | – | -36 | -36 | ||||
| Effect on the Group's liquid assets | -63 | -432 | -495 |
1) The step up value for patents and un-patented know-how is amortised over 10 years.
2) The goodwill is relating to estimated synergies in procurement, logistics and corporate overheads and the companies' ability to over time recreate its intangible assets.
The value of the goodwill is still preliminary.
3) Refers to fees to lawyers, due diligence and assisting counsel. Has been expensed as other operating costs.
4) Contingent on certain warranties in the contract not being triggered or that certain profitability goals are fulfilled. The probable outcome has been calculated.
Alfa Laval acquired the US-based company Air Cooled Exchangers, LLC (ACE), a leading manufacturer of custom-engineered air-cooled heat exchangers, used to cool air, natural gas, oil and water in the natural gas market as well as other energy-related end markets. Lars Renström, President and CEO of the Alfa Laval Group, commented: "The acquisition of ACE brings a new product range into our heat transfer offering, at a time when demand for air-cooled heat exchangers is accelerating – especially in the natural gas industry. Together, Alfa Laval's overall position is further strengthened and we are even better positioned to serve the energy-related industries." The intention is to integrate Air Cooled Exchangers, LLC into Alfa Laval's Energy & Environment segment, within the Process Technology division. The company was acquired on December 31, 2012. The company is located in Broken Arrow, Oklahoma, the U.S. The purchase price was SEK 1,027 million, out of which everything was paid in cash. The costs directly linked to the acquisition (fees to lawyers, due diligence and assisting counsel) came in addition to this and amounted to SEK 1 million, which was reported as other operating costs. The impact on the cash flow was thus SEK -1,028 million. Out of the difference between the purchase price paid and the net assets acquired SEK 585 million was allocated to patents and un-patented know-how, while the residual SEK 357 million was allocated to goodwill. The goodwill was relating to estimated synergies in procurement, logistics and corporate overheads and the company's ability to over time recreate its intangible assets. In connection with the finalisation of the purchase price allocation in 2013 the value of the goodwill has been decreased by SEK 11 million to SEK 346 million. The step up value for patents and un-patented know-how is amortised over 10 years. From the date of the acquisition the company added SEK - million in orders received, SEK - million in invoicing and SEK - million in adjusted EBITA to Alfa Laval during 2012, since the acquisition was made at December 31, 2012. If the company had been acquired at January 1, 2012 the corresponding figures would have been SEK 410 million, SEK 394 million and SEK 124 million respectively. At the end of December 2012 the number of employees was 230.
On November 27, 2012 Alfa Laval acquired the remaining 10 percent of the shares in the subsidiary LHE Co Ltd in South Korea from the minority shareholder. The purchase price was SEK 102 million, out of which everything was paid in cash. The impact on the cash flow was SEK -102 million. The difference of SEK 51 million between the purchase price paid and the net assets acquired was reported against equity.
Alfa Laval acquired Gamajet Cleaning Systems, Inc., a leading provider of tank cleaning machines as well as self-contained and portable cleaning systems for the industrial and sanitary markets in North America. Gamajet is headquartered in Exton, Pennsylvania. Lars Renström, President and CEO of the Alfa Laval Group, commented on the acquisition: "We have built the leading position within tank cleaning equipment over the past 10 years. Gamajet fits very well with our ambitions and it expands our product portfolio. It will especially extend our offer to the industrial market and also strengthen our position in North America." Gamajet Cleaning Systems will be integrated into Alfa Laval. The company was consolidated from August 23, 2012. The purchase price was SEK 116 million, out of which SEK 82 million was paid in cash and SEK 34 million was retained for a period of 1-2 years. The retained part of the purchase price was contingent on certain warranties in the contract not being triggered or that certain profitability goals were fulfilled. The outcome could be anything between SEK 0 million and SEK 34 million, but the probable outcome was SEK 34 million, which was also the fair value since the contingent consideration is to be paid in cash. The costs directly linked to the acquisition (fees to lawyers, due diligence and assisting counsel) came in addition to this and amounted to SEK 1 million, which was reported as other operating costs. The impact on the cash flow was thus SEK -83 million. Out of the difference between the purchase price paid and the net assets acquired SEK 47 million was allocated to patents and un-patented know-how, while the residual SEK 37 million was allocated to goodwill. The goodwill was relating to estimated synergies in procurement, logistics and corporate overheads and the company's ability to over time recreate its intangible assets. The value of the goodwill has been finalised in 2013. The step up value for patents and un-patented know-how is amortised over 10 years. From the date of the acquisition the company added SEK 23 million in orders received, SEK 24 million in invoicing and SEK 4 million in adjusted EBITA to Alfa Laval during 2012. If the company had been acquired at January 1, 2012 the corresponding figures would have been SEK 61 million, SEK 59 million and SEK 7 million respectively. At the end of December 2012 the number of employees was 31.
Alfa Laval acquired Ashbrook Simon-Hartley, a leading provider of belt filter presses, which is a complement and alternative to Alfa Laval's decanter range in the dewatering of municipal and industrial wastewater. Ashbrook Simon-Hartley is headquartered in Houston, Texas, USA, with offices in the UK, Chile and Brazil, and has an installed base in many countries around the world. Lars Renström, President and CEO of the Alfa Laval Group, commented on the acquisition: "I'm very pleased that we have been able to acquire Ashbrook Simon-Hartley. With this acquisition we are adding a complementary and expanded range of products and solutions further strengthening our offer for municipal and industrial wastewater treatment applications." Ashbrook Simon-Hartley was founded more than 100 years ago. The intention is to integrate Ashbrook Simon-Hartley into Alfa Laval. The company was consolidated into Alfa Laval from August 1, 2012. The purchase price was SEK 318 million, out of which SEK 263 million was paid in cash and SEK 55 million was retained for a period of 1-2 years. The retained part of the purchase price was contingent on that certain profitability goals were fulfilled. The outcome could be anything between SEK 0 million and SEK 55 million, but the probable outcome was
SEK 55 million, which was also the fair value since the contingent consideration is to be paid in cash. The costs directly linked to the acquisition (fees to lawyers, due diligence and assisting counsel) came in addition to this and amounted to SEK 5 million, which was reported as other operating costs. At the acquisition cash of SEK 11 million was taken over. The impact on the cash flow was thus SEK -257 million. Out of the difference between the purchase price paid and the net assets acquired SEK 86 million was allocated to patents and un-patented know-how, while the residual SEK 112 million was allocated to goodwill. The goodwill was relating to estimated synergies in procurement, logistics and corporate overheads and the company's ability to over time recreate its intangible assets. In connection with the finalisation of the purchase price allocation in 2013 the value of the goodwill has been decreased by SEK 57 million to SEK 55 million. The step up value for patents and un-patented know-how is amortised over 10 years. From the date of the acquisition the company added SEK 171 million in orders received, SEK 170 million in invoicing and SEK -19 million in adjusted EBITA to Alfa Laval during 2012. If the company had been acquired at January 1, 2012 the corresponding figures would have been SEK 462 million, SEK 398 million and SEK -25 million respectively. At the end of December 2012 the number of employees was 228.
Alfa Laval acquired the US based company Vortex Systems, a leading manufacturer of innovative mixing and blending solutions for the oil and gas industry. Lars Renström, President and CEO of the Alfa Laval Group, commented on the acquisition: "The acquisition of Vortex Systems will further strengthen our offering to the interesting oil and gas industry, both for onshore and offshore applications." Vortex Systems is located in Houston, Texas, the U.S. The intention is to integrate Vortex Systems into Alfa Laval. The company was consolidated into Alfa Laval from June 30, 2012. The purchase price was SEK 350 million, out of which everything was paid in cash. The costs directly linked to the acquisition (fees to lawyers, due diligence and assisting counsel) came in addition to this and amounted to SEK 3 million, which was reported as other operating costs. The impact on the cash flow was thus SEK -353 million. Out of the difference between the purchase price paid and the net assets acquired SEK 148 million was allocated to patents and un-patented know-how, while the residual SEK 219 million was allocated to goodwill. The goodwill was relating to estimated synergies in procurement, logistics and corporate overheads and the company's ability to over time recreate its intangible assets. In connection with the finalisation of the purchase price allocation in 2013 the value of the goodwill has been increased by SEK 6 million to SEK 225 million. The step up value for patents and un-patented know-how is amortised over 10 years. From the date of the acquisition the company added SEK 49 million in orders received, SEK 52 million in invoicing and SEK 23 million in adjusted EBITA to Alfa Laval during 2012. If the company had been acquired at January 1, 2012 the corresponding figures would have been SEK 109 million, SEK 111 million and SEK 32 million respectively. At the end of December 2012 the number of employees was 19.
In a press release on September 19, 2011 Alfa Laval communicated its proposal to buy all outstanding shares in its subsidiary Alfa Laval (India) Ltd and seek delisting of the shares from Bombay Stock Exchange Limited and National Stock Exchange of India Limited. The proposal came on the back of regulatory changes in India which requires Alfa Laval (India) Ltd to have a minimum public float of 25 percent or seek delisting. At the time, Alfa Laval held 88.8 percent of the share capital of Alfa Laval (India), meaning the public float was 11.2 percent. The objective is to achieve full ownership of the subsidiary, which will provide Alfa Laval with increased operational flexibility to support the business and meet the customers' needs. In a reverse book building process that was finalised on February 23, 2012 minority shareholders together holding more than the necessary 50 percent of the public float were willing to sell to Alfa Laval at a price of INR 4,000 per share. The Board of Directors of Alfa Laval AB therefore decided to proceed with the delisting process. Through the acquisition of the 1.03 million shares Alfa Laval has achieved an ownership of 94.5 percent, which enabled Alfa Laval (India) Ltd to apply for delisting from both stock exchanges. The applications have been approved and Alfa Laval (India) Ltd was delisted on April 12, 2012. The cost for the acquisition of the shares has been SEK 553 million. As a part of the process the remaining minority owners can sell their shares to Alfa Laval for INR 4,000 during the next 12 months. During the first eight months until December 31, 2012 minority owners with an additional 0.55 million shares have sold their shares to Alfa Laval for SEK 278 million, which has increased Alfa Laval's ownership to 97.5 percent. If all shareholders in the end sell their shares to Alfa Laval at this exit price the acquisition will incur a consideration of approximately SEK 1,065 million.
The purchase price of SEK 830 million was paid in cash. The costs directly linked to the acquisition (fees to lawyers, due diligence and assisting counsel) came in addition to this and amounted to SEK 8 million, which was reported as other operating costs. The impact on the cash flow was thus SEK -838 million. The difference of SEK 694 million between the purchase price paid and the net assets acquired was reported against equity.
If Alfa Laval had not succeeded in achieving an ownership of 94.4 percent the company would have been required to increase the public float to 25 percent latest in June 2013.
During 2012 an additional purchase price of SEK 2 million was paid in cash to the former minority owner in a Bulgarian subsidiary, which impacted the cash flow with SEK -2 million. The difference of SEK 2 million between the purchase price paid and the net assets acquired was reported against equity.
Payment of retained parts of the purchase price from previous acquisitions constitutes the remaining part of the cash flow related to acquisition of businesses. The acquisitions during 2012 can be summarized as follows:
| Consolidated | |||||||
|---|---|---|---|---|---|---|---|
| Minority in subsidiaries | Others | Total | |||||
| Adjustment to | Adjustment to | ||||||
| SEK millions | Book value | fair value | Fair value | Book value | fair value | Fair value | Fair value |
| Property, plant and equipment | – | – | – | 96 | – | 96 | 96 |
| Patents and unpatented know-how 1) | – | – | – | – | 866 | 866 | 866 |
| Inventory | – | – | – | 89 | – | 89 | 89 |
| Accounts receivable and other receivables | – | – | – | 220 | – | 220 | 220 |
| Liquid assets | – | – | – | 11 | – | 11 | 11 |
| Accounts payable and other liabilities | – | – | – | -134 | – | -134 | -134 |
| Deferred tax | – | – | – | – | -61 | -61 | -61 |
| Acquired net assets | – | – | – | 282 | 805 | 1,087 | 1,087 |
| Goodwill (2) | – | 725 | 725 | ||||
| Equity attributable to owners of parent | -747 | – | -747 | ||||
| Currency translation | -80 | – | -80 | ||||
| Equity attributable to non-controlling interests | -107 | – | -107 | ||||
| Purchase price | -934 | -1,812 | -2,746 | ||||
| Costs directly linked to the acquisitions 3) | -8 | -9 | -17 | ||||
| Retained part of purchase price 4) | – | 90 | 90 | ||||
| Liquid assets in the acquired businesses | – | 11 | 11 | ||||
| Payment of amounts retained in prior years | – | -115 | -115 | ||||
| Effect on the Group's liquid assets | -942 | -1,836 | -2,778 |
1) The step up values for patents and unpatented know-how are amortised over 10 years.
2) The goodwill is relating to estimated synergies in procurement, logistics and corporate overheads and the companies' ability to over time recreate its intangible assets. The value of the goodwill is still preliminary.
3) Refers to fees to lawyers, due diligence and assisting counsel. Has been expensed as other operating costs.
4) Contingent on certain warranties in the contract not being triggered or that certain profitability goals are fulfilled. The probable outcome has been calculated.
All acquired assets and liabilities were reported according to IFRS at the time of the acquisition. The acquisitions of minority shares in different subsidiaries and other acquisitions are not reported per acquisition since such a reporting would have been too fragmented and rather would have burdened the presentation than increased clarity. Instead they are reported together split on acquisitions of minority shares in subsidiaries and other acquisitions.
An impairment test has been performed at the end of 2013 indicating that there is not any need to write down the goodwill.
Three of Alfa Laval's operating segments, the three divisions "Equipment", "Process Technology" and "Marine & Diesel" have been identified as the cashgenerating units within Alfa Laval. Technically a recently acquired business activity could be followed independently during an initial period, but acquired businesses are normally integrated into the divisions at a fast rate. This means that the independent traceability is lost fairly soon and then any independent measurement and testing becomes impracticable. Although Tranter is operating as a separate sales channel it is subject to a considerable co-ordination related to purchasing and some support functions.
The recoverable amount of the cash-generating units is based on their value in use, which is established by calculating the net present value of future cash flows. The net present value is based on the projected EBITDA figures for the next twenty years, less projected investments and changes in operating capital during the same period. This projection for the coming 20 years is based on the following components:
The reason why a longer period than 5 years has been used for the calculation of the net present value is that Management considers 5 years to be a too short period for an operation where applying the going concern concept can be justified.
The assumptions used for the projections reflect past experiences or information from external sources.
The used discount rate is the pre-tax weighted average cost of capital (WACC) of 8.95 (7.36) percent.
There exists no reasonably possible change in a key assumption in the impairment test that would cause the carrying amount to exceed the recoverable amount. The reason is that the recoverable amounts with a very good margin exceed the carrying amounts. Due to this a sensitivity analysis is not presented.
Alfa Laval does not have any intangible assets with indefinite useful lives other than goodwill.
The three cash-generating units have been allocated the following amounts of goodwill:
| Goodwill | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 |
| Equipment | 2,408 | 2,271 |
| Process Technology | 3,370 | 3,346 |
| Marine & Diesel | 4,283 | 4,175 |
| Total | 10,061 | 9,792 |
Patents and unpatented know-how
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Accumulated acquisition values | ||
| Opening balance | 3,876 | 3,129 |
| Purchases | 2 | 0 |
| Acquisition of businesses | 32 | – |
| Sales/disposals | -6 | -3 |
| Step-up values | 202 | 866 |
| Translation difference | 52 | -116 |
| Closing balance | 4,158 | 3,876 |
| Accumulated amortisation | ||
| Opening balance | -1,933 | -1,802 |
| Sales/disposals | 3 | 2 |
| Reclassifications | – | 0 |
| Amortisation of step-up value | -274 | -193 |
| Amortisation for the year | -2 | -3 |
| Translation difference | -25 | 63 |
| Closing balance | -2,231 | -1,933 |
| Closing balance, net book value | 1,927 | 1,943 |
Licenses, renting rights and similar rights Consolidated
| SEK millions | 2013 | 2012 |
|---|---|---|
| Accumulated acquisition values | ||
| Opening balance | 224 | 223 |
| Purchases | 3 | 11 |
| Sales/disposals | -13 | -6 |
| Reclassifications | 20 | 3 |
| Translation difference | -10 | -7 |
| Closing balance | 224 | 224 |
| Accumulated amortisation | ||
| Opening balance | -179 | -178 |
| Sales/disposals | 0 | 4 |
| Reclassifications | -1 | -23 |
| Amortisation for the year | -8 | -10 |
| Translation difference | 1 | 28 |
| Closing balance | -187 | -179 |
| Closing balance, net book value | 37 | 45 |
Alfa Laval does not have any internally generated intangible assets.
| Goodwill | ||||
|---|---|---|---|---|
| Trademarks | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 |
| Accumulated acquisition values | ||
| Opening balance | 2,750 | 2,858 |
| Translation difference | 43 | -108 |
| Closing balance | 2,793 | 2,750 |
| Accumulated amortisation | ||
| Opening balance | -931 | -728 |
| Amortisation of step-up values | -229 | -233 |
| Translation difference | -15 | 30 |
| Closing balance | -1,175 | -931 |
| Closing balance, net book value | 1,618 | 1,819 |
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Accumulated acquisition values | ||
| Opening balance | 10,318 | 10,095 |
| Goodwill in connection with | ||
| acquisition of businesses | 174 | 734 |
| Write down of goodwill | – | -48 |
| Translation difference | 91 | -463 |
| Closing balance | 10,583 | 10,318 |
| Accumulated amortisation | ||
| Opening balance | -526 | -552 |
| Translation difference | 4 | 26 |
| Closing balance | -522 | -526 |
| Closing balance, net book value | 10,061 | 9,792 |
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Accumulated acquisition values | ||
| Opening balance | 2,802 | 2,755 |
| Purchases | 56 | 106 |
| Acquisition of businesses | 0 | 41 |
| Sales/disposal | -26 | -37 |
| Reclassifications | 75 | 69 |
| Translation difference | -54 | -132 |
| Closing balance | 2,853 | 2,802 |
| Accumulated depreciation | ||
| Opening balance | -1,222 | -1,152 |
| Sales/disposals | 11 | 7 |
| Reclassifications | -6 | -38 |
| Depreciation of step-up value | -31 | -32 |
| Depreciation for the year | -67 | -68 |
| Translation difference | 6 | 61 |
| Closing balance | -1,309 | -1,222 |
| Closing balance, net book value | 1,544 | 1,580 |
Within Alfa Laval these assets are normally relating to real estate.
Alfa Laval Aalborg BV has moved to Alfa Laval's office in Breda in the Netherlands in the first half of 2013. The vacated property in Spijkenisse in the Netherlands is to be sold, but it is not expected to be sold within the next year. One small property in France is planned for sale. It is empty and has been for sale for several years. It is not expected to be sold within the next year. Alfa Laval Aalborg's factory in Vietnam is for sale since the Vietnamese company is under closure. It is not expected to be sold within the next year. This means that none of these properties have been re-classified as current assets held for sale.
In addition to the property that was sold during 2012 Onnuri had an additional property in South Korea that was empty and planned to be sold during the beginning of 2013. Due to this it was re-classified as a current asset held for sale with SEK 9 million.
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Accumulated acquisition values | ||
| Opening balance | 4,614 | 4,494 |
| Purchases | 160 | 192 |
| Acquisition of businesses | 13 | 37 |
| Sales/disposal | -153 | -108 |
| Reclassifications | 147 | 227 |
| Translation difference | -40 | -228 |
| Closing balance | 4,741 | 4,614 |
| Accumulated depreciation | ||
| Opening balance | -3,198 | -3,073 |
| Sales/disposals | 132 | 88 |
| Acquisition of businesses | -3 | -33 |
| Reclassifications | -8 | -80 |
| Depreciation for the year | -255 | -249 |
| Translation difference | 14 | 149 |
| Closing balance | -3,318 | -3,198 |
| Closing balance, net book value | 1,423 | 1,416 |
| Closing balance | -1,547 | -1,493 |
|---|---|---|
| Translation difference | 20 | 61 |
| Depreciation for the year | -106 | -106 |
| Depreciation of step-up value | -27 | -29 |
| Reclassifications | -20 | 8 |
| Acquisition of businesses | 0 | -5 |
| Sales/disposals | 79 | 58 |
| Opening balance | -1,493 | -1,480 |
| Accumulated depreciation | ||
| Closing balance | 2,105 | 2,032 |
| Translation difference | -25 | -81 |
| Reclassifications | 31 | 20 |
| Sales/disposal | -85 | -71 |
| Acquisition of businesses | 0 | 9 |
| Purchases | 152 | 122 |
| Opening balance | 2,032 | 2,033 |
| Accumulated acquisition values | ||
| SEK millions | 2013 | 2012 |
| Consolidated | ||
| bonocrimig property, plant and equipment | ||
|---|---|---|
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Accumulated acquisition values | ||
| Opening balance | 150 | 208 |
| Purchases | 122 | 100 |
| Reclassifications | -137 | -150 |
| Translation difference | 2 | -8 |
| Closing balance | 137 | 150 |
| Closing balance, net book value | 137 | 150 |
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Accumulated acquisition values | ||
| Opening balance | 147 | 150 |
| Reclassifications | – | 2 |
| Translation difference | 6 | -5 |
| Closing balance | 153 | 147 |
| Accumulated depreciation | ||
| Opening balance | -25 | -19 |
| Depreciation for the year | -7 | -7 |
| Translation difference | -1 | 1 |
| Closing balance | -33 | -25 |
| Closing balance, net book value | 120 | 122 |
Leased machinery
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Accumulated acquisition values | ||
| Opening balance | 33 | 34 |
| Reclassifications | – | 0 |
| Translation difference | 1 | -1 |
| Closing balance | 34 | 33 |
| Accumulated depreciation | ||
| Opening balance | -19 | -16 |
| Depreciation for the year | -3 | -3 |
| Translation difference | 0 | 0 |
| Closing balance | -22 | -19 |
| Closing balance, net book value | 12 | 14 |
Leased equipment, tools and installations
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Accumulated acquisition values | ||
| Opening balance | 3 | 6 |
| Sales/disposal | 0 | -4 |
| Reclassifications | – | 0 |
| Translation difference | 0 | 1 |
| Closing balance | 3 | 3 |
| Accumulated depreciation | ||
| Opening balance | -1 | -4 |
| Sales/disposals | 0 | 3 |
| Reclassifications | 1 | 1 |
| Depreciation for the year | -1 | -1 |
| Translation difference | 0 | 0 |
| Closing balance | -1 | -1 |
| Closing balance, net book value | 2 | 2 |
Leased real estate, machinery and equipment relate to fixed assets which are leased and where the leasing agreement has been considered to be a financial lease. These financial leases are capitalised in the statement on financial position.
Shares in subsidiaries and other companies
| Consolidated | Parent company | |||
|---|---|---|---|---|
| SEK millions | 2013 | 2012 | 2013 | 2012 |
| Shares in subsidiaries | – | – | 4,669 | 4,669 |
| Shares in other companies | 8 | 9 | – | – |
| Total | 8 | 9 | 4,669 | 4,669 |
The below specification of shares contains some simplifications, for instance in connection with ownership in multiple layers or when the ownership is split on several owners or at cross-holdings. This is in order not to unnecessarily burden the presentation. A complete specification of shares can be ordered by contacting Alfa Laval's head office in Lund or via the Swedish Companies Registration Office (Bolagsverket).
| Registration | Number of | Share of | Book value | ||
|---|---|---|---|---|---|
| Company name | number | Domicile | shares | capital % | SEK millions |
| Alfa Laval Holding AB | 556587-8062 | Lund, Sweden | 8,191,000 | 100 | 4,461 |
| Alfa Laval NV | Maarssen, Netherlands | 887,753 | 100 | – | |
| Alfa Laval Inc. | Newmarket, Canada | 1,000,000 | 67 | – | |
| Alfa Laval S.A. DE C.V. | Tlalnepantla, Mexico | 45,057,057 | 100 | – | |
| Alfa Laval S.A. | San Isidro, Argentina | 1,223,967 | 95 | – | |
| Alfa Laval Ltda | Sao Paulo, Brazil | 21,129,068 | 100 | – | |
| Alfa Laval SpA | Santiago, Chile | 2,735 | 100 | – | |
| Ashbrook Chile S.A. | Santiago, Chile | 579,999 | 100 | – | |
| Ashbrook Do Brasil Ltda | Pinhais, Brazil | 1,000 | 100 | – | |
| Alfa Laval S.A. | Bogota, Colombia | 12,195 | 100 | – | |
| Alfa Laval S.A. | Lima, Peru | 4,346,832 | 100 | – | |
| Alfa Laval Venezolana S.A. | Caracas, Venezuela | 10,000 | 100 | – | |
| Alfa Laval Oilfield C.A. | Caracas, Venezuela | 203 | 81 | – | |
| Alfa Laval Taiwan Ltd | Taipei, Taiwan | 1,499,994 | 100 | – | |
| Alfa Laval (China) Ltd Alfa Laval (Jiangyin) Manufacturing Co Ltd |
Hong Kong, China Jiang Yin, China |
79,999 | 100 100 |
– – |
|
| Alfa Laval Flow Equipment (Kunshan) Co Ltd | Jiangsu, China | 75 | – | ||
| Alfa Laval Flow Equipment (Kunshan) Co Ltd | Jiangsu, China | 25 | – | ||
| Alfa Laval (Shanghai) Technologies Co Ltd | Shanghai, China | 100 | – | ||
| Wuxi MCD Gasket Co Ltd | Jiang Yin, China | 100 | – | ||
| Tranter Heat Exchangers (Beijing) Co Ltd | Beijing, China | 100 | – | ||
| Liyang Sifang Stainless Steel Products Co., Ltd | Liyang City, China | 65 | – | ||
| Alfa Laval Iran Ltd | Teheran, Iran | 32,983 | 100 | – | |
| Alfa Laval Industry (PVT) Ltd | Lahore, Pakistan | 119,110 | 100 | – | |
| Alfa Laval Philippines Inc. | Makati, Philippines | 72,000 | 100 | – | |
| Alfa Laval Singapore Pte Ltd | Singapore | 5,000,000 | 100 | – | |
| Alfa Laval (Thailand) Ltd | Bangkok, Thailand | 792,000 | 100 | – | |
| Alfa Laval Middle East Ltd | Nicosia, Cyprus | 40,000 | 100 | – | |
| Alfa Laval Service Operations Qatar LLC | Doha, Qatar | 9,800 | 49 | – | |
| Alfa Laval Benelux NV/SA | Brussels, Belgium | 98,284 | 100 | – | |
| Alfa Laval EOOD | Sofia, Bulgaria | 100 | 100 | – | |
| Alfa Laval Slovakia S.R.O. | Bratislava, Slovakia | 1 | – | ||
| Alfa Laval Spol S.R.O. | Prague, Czech Republic | 20 | – | ||
| Alfa Laval Nordic OY | Espoo, Finland | 20,000 | 100 | – | |
| Alfa Laval Vantaa OY | Vantaa, Finland | 7,000 | 100 | – | |
| Alfa Laval Nederland BV | Maarssen, Netherlands | 10,000 | 100 | – | |
| Alfa Laval Benelux BV | Maarssen, Netherlands | 20,000 | 100 | – | |
| Helpman Capital BV | Breda, Netherlands | 35,578 | 100 | – | |
| Helpman Holding BV | Naarden, Netherlands | 80 | 100 | – | |
| Alfa Laval Groningen BV | Groningen, Netherlands | 15,885 | 100 | – | |
| PHE Holding AB | 556306-2404 | Lund, Sweden | 2,500 | 100 | – |
| Tranter Heat Exchangers Canada Inc. | Edmonton, Canada | 100 | 100 | – | |
| Tranter Latin America S.A. de C.V. | Queretaro, Mexico | 49,999 | 100 | – | |
| Tranter Indùstria e Comércio de Equipamentos Ltda | Sao Paulo, Brazil | 100 | – | ||
| MCD Nitrile India Pvt Ltd | Falta, India | 2,432 | 9 | – | |
| Tranter India Pvt Ltd | Poona, India | 3,009,999 | 100 | – | |
| Alfa Laval Korea Ltd | Seoul, South Korea | 36,400 | 10 | – | |
| Alfa Laval Korea Holding Company Ltd | Chungnam, South Korea | 13,318,600 | 100 | – | |
| Alfa Laval Korea Ltd | Seoul, South Korea | 327,600 | 90 | – | |
| LHE Co. Ltd | Gim Hae, South Korea | 4,560,000 | 100 | – | |
| LHE (Qingdao) Heat Exchanger Co. Ltd | Jiaozhou City, China | 100 | – | ||
| Kenus LLP | Almaty, Kazakhstan | 90 | – | ||
| Tranter Heat Exchangers Middle East (Cyprus) Ltd | Nicosia, Cyprus | 20,000 | 100 | – | |
| MCD SAS | Guny, France | 7,130 | 10 | – | |
| Tranter Srl | Monza, Italy | 100 | |||
| Tranter International AB | 556559-1764 | Vänersborg, Sweden | 100,000 | 100 | – |
| Ageratec AB | 556662-3988 | Norrköping, Sweden | 2,723 | 100 | – |
| Breezewind AB | 556773-6532 | Lund, Sweden | 1,000 | 100 | – |
| OOO Tranter CIS | Moscow, Russia | 100 | – | ||
| Alfa Laval Nordic AB | 556243-2061 | Tumba, Sweden | 1,000 | 100 | – |
| Alfa Laval Corporate AB | 556007-7785 | Lund, Sweden | 13,920,000 | 100 | – |
| Alfa Laval S.A. | San Isidro, Argentina | 64,419 | 5 | – | |
| Definox (Beijing) Stainless Steel Equipment Ltd | Beijing, China | 100 | – | ||
| Alfa Laval (Kunshan) Manufacturing Co Ltd | Kunshan, China | 100 | – | ||
| Alfa Laval (India) Ltd | Poona, India | 17,832,739 | 98,2 | – | |
| Alfa Laval Support Services Pvt Ltd | Poona, India | 10 | 0 | – | |
| Tranter India Pvt Ltd | Poona, India | 1 | 0 | – | |
| PT Alfa Laval Indonesia | Jakarta, Indonesia | 1,249 | 100 | – |
Specification of shares in subsidiaries , continued
| Registration | Number of | Share of | Book value | ||
|---|---|---|---|---|---|
| Company name | number | Domicile | shares | capital % | SEK millions |
| Alfa Laval (Malaysia) Sdn Bhd | Shah Alam, Malaysia | 10,000 | 100 | – | |
| Alfa Laval Kolding A/S | Kolding, Denmark | 40 | 100 | – | |
| Alfa Laval Nordic A/S | Rödovre, Denmark | 1 | 100 | – | |
| Alfa Laval Copenhagen A/S | Söborg, Denmark | 1 | 100 | – | |
| Alfa Laval Nakskov A/S | Nakskov, Denmark | 242,713 | 100 | – | |
| Alfa Laval Tank Equipment A/S | Ishoej, Denmark | 61 | 100 | – | |
| Alfa Laval Aalborg A/S | Aalborg, Denmark | 2,560,972 | 100 | – | |
| Alfa Laval Aalborg Ltda | Petrópolis, Brazil | 5,969,400 | 99,5 | – | |
| Aalborg Industries Ltda | Itu, Brazil | 4,644,373 | 100 | – | |
| Alfa Laval Aalborg Ltd | Shanghai, China | 100 | – | ||
| Alfa Laval Qingdao Ltd | Jiaozhou City, China | 100 | – | ||
| Alfa Laval Aalborg Ltd | Hong Kong, China | 99 | 100 | – | |
| Aalborg Industries Engineering Bhd | Kuala Lumpur, Malaysia | 100 | – | ||
| Aalborg Industries Water Treatment Pte Ltd | Singapore | 4,800,000 | 60 | – | |
| Alfa Laval HaiPhong Co. Ltd | HaiPhong, Vietnam | 100 | – | ||
| Alfa Laval Aalborg Oy | Rauma, Finland | 3,000 | 100 | – | |
| Alfa Laval Aalborg Nijmegen BV | Nijmegen, Netherlands | 182 | 100 | – | |
| Alfa Laval Aalborg Nijmegen2 BV | Nijmegen, Netherlands | 200 | 100 | – | |
| Alfa Laval Aalborg Holding Pty Ltd | North Wyong, Australia | 11,500,000 | 100 | – | |
| Alfa Laval Aalborg Pty Ltd | North Wyong, Australia | 225,000 | 100 | – | |
| Alfa Laval SAS Alfa Laval Olmi SpA |
Saint-Priest, France Suisio, Italy |
46,700 500,000 |
7,7 100 |
– – |
|
| Alfa Laval Italy Srl | Milano, Italy | 100 | – | ||
| Alfa Laval Nordic A/S | Oslo, Norway | 100 | 100 | – | |
| Tranter Poland Sp.z.o.o. | Pruszków, Poland | 2,000 | 100 | – | |
| AlfaWall AB | 556723-6715 | Botkyrka, Sweden | 500 | 50 | – |
| Alfa Laval Oilfield C.A. | Caracas, Venezuela | 47 | 19 | – | |
| Alfa Laval Treasury International AB | 556432-2484 | Lund, Sweden | 50,000 | 100 | – |
| Alfa Laval Europe AB | 556128-7847 | Lund, Sweden | 500 | 100 | – |
| Alfa Laval Lund AB | 556016-8642 | Lund, Sweden | 100 | 100 | – |
| Alfa Laval International Engineering AB | 556039-8934 | Lund, Sweden | 4,500 | 100 | – |
| Alfa Laval Tumba AB | 556021-3893 | Tumba, Sweden | 1,000 | 100 | – |
| Alfa Laval Makine Sanayii ve Ticaret Ltd Sti | Istanbul, Turkey | 27,001,755 | 99 | – | |
| Alfa Laval SIA | Riga, Latvia | 125 | 100 | – | |
| Alfa Laval UAB Ltd | Vilnius, Lithuania | 2,009 | 100 | – | |
| Alfa Laval Australia Pty Ltd | Homebush, Australia | 2,088,076 | 100 | – | |
| Tranter Heat Exchanger Pty Ltd | Sydney, Australia | 600,000 | 100 | – | |
| Alfa Laval New Zeeland Pty Ltd | Hamilton, New Zeeland | 1,000 | 100 | – | |
| Alfa Laval Holding BV | Maarssen, Netherlands | 60,035,631 | 100 | – | |
| Alfa Laval (Pty) Ltd | Isando, South Africa | 2,000 | 100 | – | |
| Alfa Laval Slovakia S.R.O. | Bratislava, Slovakia | 99 | – | ||
| Alfa Laval Spol S.R.O. | Prague, Czech Republic | 80 | – | ||
| Alfa Laval France SAS | Saint-Priest, France | 2,000,000 | 100 | – | |
| Alfa Laval SAS | Saint-Priest, France | 560,000 | 92,3 | – | |
| Alfa Laval Moatti SAS | Elancourt, France | 24,000 | 100 | – | |
| Alfa Laval Spiral SAS | Nevers, France | 79,999 | 100 | – | |
| MCD SAS | Guny, France | 64,170 | 90 | – | |
| Alfa Laval Vicarb SAS | Grenoble, France | 200,000 | 100 | – | |
| Canada Inc. | Newmarket, Canada | 480,000 | 100 | – | |
| Alfa Laval Inc. | Newmarket, Canada | 481,600 | 33 | – | |
| SCI du Companil | Grenoble, France | 32,165 | 100 | – | |
| Alfa Laval HES SA | Lentilly, France | 150,000 | 100 | – | |
| Packinox SA | Paris, France | 348,115 | 100 | – | |
| Ziepack SA | Paris, France | 37,701 | 51 | – | |
| Tranter SAS | Nanterre, France | 100 | – | ||
| Definox SAS | Lyon, France | 10,000 | 100 | – | |
| Alfa Laval Holding GmbH | Glinde, Germany | 1 | 100 | – | |
| Alfa Laval Mid Europe GmbH | Wiener Neudorf, Austria | 1 | 100 | – | |
| Tranter Warmetauscher GmbH | Guntramsdorf, Austria | 100 | – | ||
| Alfa Laval Mid Europe GmbH | Glinde, Germany | 1 | 100 | – | |
| Alfa Laval Dortmund GmbH | Artern, Germany | 1 | 100 | – | |
| Tranter GmbH | Artern, Germany | 1 | 100 | – | |
| Tranter Solarice GmbH | Artern, Germany | 100 | – | ||
| Alfa Laval Mid Europe AG | Dietlikon, Switzerland | 647 | 100 | – | |
| Alfa Laval AEBE | Holargos, Greece | 807,000 | 100 | – | |
| Alfa Laval Kft | Budapest, Hungary | 1 | 100 | – | |
| Alfa Laval SpA | Monza, Italy | 1,992,276 | 99 | – | |
| Alfa Laval Polska Sp.z.o.o. | Warsaw, Poland | 7,600 | 100 | – | |
| Alfa Laval Kraków Sp.z.o.o. | Krakow, Poland | 80,080 | 100 | – | |
| Alfa Laval (Portugal) Ltd | Linda-A-Velha, Portugal | 1 | – | ||
| Alfa Laval SRL | Bucharest, Romania | 38,566 | 100 | – | |
| Alfa Laval Iberia SA | Madrid, Spain | 99,999 | 100 | – |
Specification of shares in subsidiaries , continued
| Company name Domicile shares capital % number Alfa Laval (Portugal) Ltd Linda-A-Velha, Portugal 1 99 Alfa Laval Holdings Ltd Camberley, UK 14,053,262 100 Alfa Laval Eastbourne Ltd Eastbourne, UK 10,000 100 Alfa Laval 2000 Camberley, UK 28,106 100 Alfa Laval Ltd Camberley, UK 11,700,000 100 Rolls Laval Heat Exchangers Ltd Wolverhampton, UK 5,000 50 Tranter Ltd Doncaster, UK 10,000 100 Ashbrook Simon-Hartley Ltd Newcastle-under-Lyme, UK 2 100 Alfa Laval Makine Sanayii ve Ticaret Ltd Sti Istanbul, Turkey 1 1 Alfa Laval USA Inc. Richmond, Virginia, USA 1,000 100 Alfa Laval US Holding Inc. Richmond, Virginia, USA 180 100 Alfa Laval Inc. Richmond, Virginia, USA 44,000 100 Alfa Laval Air Cooled Exchangers Inc 1,000 100 Broken Arrow, Oklahoma, USA Niagara Blower Company Inc. Buffalo, New York, USA 4,000,200 100 Alfa Laval US Treasury Inc. Richmond, Virginia, USA 1,000 100 DSO Fluid Handling Inc. Irvington, New Jersey, USA 100 100 AGC Heat Transfer Inc. Bristow, Virginia, USA 1,000 100 Tranter Inc. Wichita Falls, Texas, USA 1,000 100 MCD Gaskets Inc. Richmond, Virginia, USA 1,000 100 Hutchison Hayes Separation Inc. Houston, Texas, USA 1,000 100 Alfa Laval Champ Inc. Sarasota, Florida, USA 1,000 100 Definox Inc. 1,000 100 New Berlin, Wisconsin, USA Alfa Laval Aalborg Inc. Miramar, Florida, USA 200 100 Vortex Ventures Inc Houston, Texas, USA 1,000 100 Alfa Laval Ashbrook Simon-Hartley Inc Houston, Texas, USA 1 100 Alfa Laval Tank Equipment Inc Exton, Pennsylvania, USA 1,000 100 AO Alfa Laval Potok Koroljov, Russia 31,077,504 100 Alfa Laval Försäkrings AB 516406-0682 Lund, Sweden 50,000 100 Alfdex AB 556647-7278 Botkyrka, Sweden 1,000 50 Alfa Laval Support Services Pvt Ltd Poona, India 99,990 100 MCD Nitrile India Pvt Ltd Falta, India 24,593 91 Alfa Laval Ukraine Kiev, Ukraine 100 Alfa Laval SpA Monza, Italy 20,124 1 Alfa Laval KK Tokyo, Japan 1,200,000 100 Total |
Registration | Number of | Share of | Book value |
|---|---|---|---|---|
| SEK millions | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| – | ||||
| 208 | ||||
| 4,669 |
| Company name | Domicile | Number of shares | Share of capital % | Book value SEK thousands |
|---|---|---|---|---|
| Alfa Laval Aalborg Ltda | ||||
| Tractebel | Brazil | 1,268 | 106 | |
| Elektrobras | Brazil | 3,981 | 296 | |
| Alfa Laval Philippines Inc. | ||||
| Philippine Long Distance Telephone | Philippines | 820 | 12 | |
| Alfa Laval Nordic OY | ||||
| As Oy Koivulantie 7A | Finland | 1 | 278 | |
| Helsinki Halli | Finland | 4 | 125 | |
| Alfa Laval Vantaa OY | ||||
| Länsi-Vantaan Tenniskeskus | Finland | 4 | 0 | |
| Mikkelin Puhelin Oyj | Finland | 5 | 36 | |
| Alfa Laval Aalborg OY | ||||
| Finda OY | Finland | 1 | 54 | |
| Alfa Laval France SAS | ||||
| SEMACLA | France | 10 | 0 | |
| Alfa Laval HES SA | ||||
| Thermothec | France | 9,130 | 0 | |
| Alfa Laval Benelux BV | ||||
| Bordewes | Netherlands | 1 | 152 | |
| Helpman Holding BV | ||||
| Helpman Sofia OOD | Bulgaria | 500 | 49 | 5,997 |
| Alfa Laval NV | ||||
| Dalian Haven Automation Co Ltd | China | 102 | 43 | 798 |
| Alfa Laval Tumba AB | ||||
| Smedhälsan Ekonomisk Förening | Sweden | 0 | ||
| Alfa Laval Corporate AB | ||||
| European Development Capital | ||||
| Corporation (EDCC) NV | Curacao | 36,129 | 0 | |
| Multiprogress | Hungary | 100 | 3 | 0 |
| Kurose Chemical Equipment Ltd | Japan | 180,000 | 11 | 0 |
| Poljopriveda | former Yugoslavia | 0 | ||
| Tecnica Argo-Industrial S.A. | Mexico | 490 | 49 | 0 |
| Adela Investment Co S.A. (preference) | Luxembourg | 1,911 | 0 | 0 |
| Adela Investment Co S.A. | Luxembourg | 1,911 | 0 | 0 |
| Mas Dairies Ltd | Pakistan | 125,000 | 5 | 0 |
| Total | 7,854 |
Specification of shares in other companies
Type of inventory
| Total | 6,319 | 6,176 |
|---|---|---|
| Advance payments to suppliers | 132 | 124 |
| Finished goods & goods for resale, spare parts | 686 | 690 |
| Finished goods & goods for resale, new sales | 1,320 | 1,112 |
| Work in progress | 2,178 | 2,137 |
| Raw materials and consumables | 2,003 | 2,113 |
| SEK millions | 2013 | 2012 |
| Consolidated |
A considerable part of the inventory for spare parts is carried at fair value.
Obsolescence related to inventories amounts to and has changed as follows:
Consolidated
| SEK millions | January 1 | Translation difference |
Acquired | Write-down | Reversal of previous write-down |
December 31 |
|---|---|---|---|---|---|---|
| Year: | ||||||
| 2012 | 859 | -26 | 2 | 203 | -185 | 853 |
| 2013 | 853 | -3 | 2 | 166 | -136 | 882 |
The Group's inventories have been accounted for after deduction for inter-company gains in inventory due to internal sales within the Group. The inter-company profit reserve at the end of 2013 amounts to SEK 427 (419) million.
Accounts receivable with a maturity exceeding one year of SEK 202 (230) million have not been accounted for as non-current assets as they are not intended for permanent use.
Accounts receivable are reported net of provisions for bad debts. The provision for bad debts amounts to and has changed as follows:
| Bad Debts | ||||||||
|---|---|---|---|---|---|---|---|---|
| Consolidated | ||||||||
| New provisions and | Unused | |||||||
| Translation | increase of existing | Amounts | amounts | Change due to | ||||
| SEK millions | January 1 | difference | Acquired | provisions | used | reversed | discounting December 31 | |
| Year: | ||||||||
| 2012 | 352 | -12 | 1 | 106 | -54 | -53 | 0 | 340 |
| 2013 | 340 | 3 | 0 | 113 | -56 | -46 | 0 | 354 |
The amount of accounts receivable being overdue is an indication of the risk the company runs for ending up in bad debts. The percentage is in relation to the total amount of accounts receivable.
| Accounts receivable – overdue | |||||||
|---|---|---|---|---|---|---|---|
| Consolidated | |||||||
| SEK millions | 2013 | % | 2012 | % | |||
| Overdue: | |||||||
| Maximum 30 days | 536 | 10.6 | 494 | 9.5 | |||
| More than 30 days | |||||||
| but maximum 90 days | 279 | 5.6 | 315 | 6.0 | |||
| More than 90 days | 336 | 6.6 | 350 | 6.7 | |||
| Total | 1,151 | 22.8 | 1,159 | 22.2 |
Split on type and maturity
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Notes receivable | 296 | 304 |
| Financial leasing receivables | 11 | 11 |
| Other receivables | 778 | 783 |
| Total | 1,085 | 1,098 |
| Of which, not due within one year: | ||
| Notes receivable | 4 | 4 |
| Other receivables | 23 | 21 |
| Total | 27 | 25 |
| Total | 219 | 200 |
|---|---|---|
| Accrued income | 55 | 39 |
| Prepaid expenses | 164 | 161 |
| SEK millions | 2013 | 2012 |
| Consolidated | ||
| Split on type |
Split on type and maturity
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Deposits with banks | 348 | 283 |
| Bonds and other securities | 247 | 131 |
| Other deposits | 16 | 13 |
| Total | 611 | 427 |
| Of which, not due within one year: | ||
| Deposits with banks | 55 | 94 |
| Other deposits | 6 | 5 |
The item cash and bank in the statement on financial position and in the cash-flow statement is mainly relating to bank deposits. Cash and bank includes a bank deposit in the previously publicly listed subsidiary Alfa Laval (India) Ltd of about SEK 53 (59) million. The company is not a wholly owned subsidiary of the Alfa Laval Group. It is owned to 98.2 (97.5) percent.
The Group has defined benefit commitments to employees and former employees and their survivors. The benefits are referring to old age pension, survivor's pension, disability pension, health care and severance pay.
The defined benefit plans are in place in Austria, Belgium, Canada, France, Germany, India, Indonesia, Italy, Japan, Mexico, the Netherlands, Norway, Philippines, South Africa, Sweden, Taiwan, the United Kingdom and the United States. Most plans have been closed for new participants and replaced by defined contribution plans for new employees.
During 2013 the changes in IAS 19 "Employee Benefits" have been implemented. The changes mean substantial changes concerning the accounting for defined benefit pension schemes, for example:
The revised standard must be applied retroactively in accordance with IAS 8. For this reason a new opening balance has been established for January 1, 2012. The changes to IAS 19 mean that:
In figures the consequences of the changes to IAS 19 have been as follows:
The consolidated comprehensive income has been affected as follows:
| Full year | |
|---|---|
| SEK millions | 2012 |
| CONSOLIDATED COMPREHENSIVE INCOME | |
| Other operating costs | 24 |
| Operating income | 24 |
| Result after financial items | 24 |
| Taxes | -8 |
| Net income for the period | 16 |
| Other comprehensive income: | |
| Items that will subsequently be reclassified to net income | |
| Translation difference | 60 |
| Sum | 60 |
| Items that will subsequently not be reclassified to net income | |
| Revaluations of defined benefit obligations | -277 |
| Deferred tax on other comprehensive income | 35 |
| Sum | -242 |
| Comprehensive income for the period | -166 |
| Net income attributable to: | |
| Owners of the parent | 16 |
| Non-controlling interests | 0 |
| Earnings per share (SEK) | 0,03 |
| Comprehensive income attributable to: | |
| Owners of the parent | -166 |
| Non-controlling interests | 0 |
The consolidated financial position has been changed as follows:
| Opening balance | ||
|---|---|---|
| SEK millions | December 31, 2012 | January 1, 2012 |
| CONSOLIDATED FINANCIAL POSITION | ||
| Decrease of plan assets | -380 | -331 |
| Increase of defined benefit obligations | -898 | -752 |
| Increase of deferred tax assets | 289 | 266 |
| Decrease of deferred tax liabilities | 7 | 3 |
| Decrease of accrued costs | 48 | 46 |
| Decrease of equity relating to the owners of the parent | -934 | -768 |
The cost for defined benefit obligations are impacted by several factors that are outside the control of the company, such as the discount rate, the return on plan assets, future salary increases, the development of the average length of life and the claim rates under medical plans. The size of and the development of these costs are therefore difficult to predict. According to the new IAS 19 all of these remeasurements are reported in other comprehensive income and not in net income.
The following table presents how the net defined benefit liability is arrived at out of the present values of the different defined benefit plans, less the fair value of the plan assets.
* Restated to the new IAS 19.
The net plan cost for the defined benefit plans describes the different cost elements of the plans. The net plan cost is reported in the consolidated comprehensive income statement on the lines where personnel costs are reported. The interest cost/income is not part of the financial net, but instead just a way to categorize the components of the net plan cost. All remeasurements are reported in other comprehensive income and will never be reclassified to net income.
| Total plan cost | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 * |
| Net plan cost | ||
| Current service cost | -36 | -51 |
| Net interest cost/income | -60 | -59 |
| Past service cost/income from plan amendments and curtailments and gains and losses on settlements | -29 | -18 |
| Net plan (-) cost/(+) income | -125 | -128 |
| Remeasurements | ||
| Actuarial losses/gains arising from changes in demographic assumptions | 20 | -94 |
| Actuarial losses/gains arising from changes in financial assumptions | 102 | -176 |
| Actuarial losses/less gains arising from changes in experience | -60 | -111 |
| Return on plan assets less interest on plan assets | 172 | 104 |
| Other comprehensive income (OCI) | 234 | -277 |
| Total plan cost | 109 | -405 |
The following table presents how the present value of the defined benefit liability has changed during the year and lists the different components of the change.
| Present value of defined benefit liability | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 * |
| Present value of defined benefit liability at January 1 | -4,425 | -3,989 |
| Translation difference | -43 | 4 |
| Current service cost | -36 | -51 |
| Interest cost | -164 | -169 |
| Employee contributions | -4 | -3 |
| Actuarial losses/gains arising from changes in demographic assumptions | 20 | -94 |
| Actuarial losses/gains arising from changes in financial assumptions | 102 | -176 |
| Actuarial losses/gains arising from changes in experience | -60 | -111 |
| Past service cost/income from plan amendments and curtailments and gains and losses on settlements | -29 | -18 |
| Benefit payments | 205 | 170 |
| Settlement payments | 14 | 12 |
| (-) liability at December 31 | -4,420 | -4,425 |
The liability has the following duration and maturity:
| Duration and maturity | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 * |
| Weighted average duration of the defined benefit obligation (years) | 12 | 12 |
| Maturity analysis of benefit payments (non discounted amounts) SEK millions | ||
| maturity ≤ 1 year | 244 | 210 |
| maturity > 1 ≤ 5 years | 828 | 811 |
| maturity > 5 ≤ 10 years | 1,101 | 1,062 |
| maturity > 10 ≤ 20 years | 2,122 | 2,134 |
| maturity > 20 years | 3,445 | 3,390 |
The following table presents how the fair value of the plan assets has developed during the year and lists the components of the change.
| Fair value of plan assets | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 * |
| Fair value of plan assets at January 1 | 2,701 | 2,468 |
| Translation difference | 30 | 0 |
| Employer contributions | 110 | 152 |
| Employee contributions | 4 | 3 |
| Interest on plan assets | 104 | 110 |
| Return on plan assets less interest on plan assets | 168 | 106 |
| Benefit payments | -166 | -130 |
| Settlement payments | -14 | -8 |
| (+) asset at December 31 | 2,937 | 2,701 |
The plan assets are split on the following types of assets:
| Split of plan assets | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 * |
| Cash and cash equivalents | 83 | 71 |
| Equity instruments | 1,204 | 956 |
| Debt instruments | 1,244 | 1,243 |
| Real estate | 85 | 84 |
| Investment funds | 321 | 347 |
| Fair value at December 31 | 2,937 | 2,701 |
The table below presents how the net defined benefit liability has changed and the factors affecting the change.
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 * |
| Defined benefit liability/asset at January 1 | -1,724 | -1,522 |
| Translation difference | -17 | 7 |
| Net plan cost | -125 | -128 |
| Employer contributions | 110 | 152 |
| Remeasurements (other comprehensive income) | 234 | -277 |
| Benefit payments, unfunded plans | 39 | 40 |
| Settlement payments, unfunded plans | – | 4 |
| (-) liability/(+) asset at December 31 | -1,483 | -1,724 |
The gross plan assets and gross defined benefit liabilities of each plan are to be reported as a net amount. The following table shows how the net asset and the net liability are calculated.
| Provision in statement on financial position | -1,494 | -1,727 |
|---|---|---|
| Netting | 2,926 | 2,698 |
| Present value of defined benefit obligation at year end | -4,420 | -4,425 |
| Liabilities | ||
| Assets in statement on financial position | 11 | 3 |
| Netting | -2,926 | -2,698 |
| 2,937 | 2,701 | |
| Less disallowed assets due to asset ceiling | – | – |
| Fair value of plan assets | 2,937 | 2,701 |
| Assets | ||
| SEK millions | 2013 | 2012 * |
| Consolidated | ||
| Gross defined benefit liability/asset |
The weighted averages for the more significant actuarial assumptions that have been used at the year-end are:
| Consolidated | ||
|---|---|---|
| 2013 | 2012 | |
| Discount rate (%) | 4.2 | 3.6 |
| Expected average retirement age (years) | 63 | 63 |
| Claim rates under medical plans (%) | 5 | 5 |
| Expected rate of salary/wage increase (%) | 3 | 3 |
| Change in health care costs (%) | 5 | 8 |
| Index for future compensation increases (%) | 3 | 3 |
| Future contributions | |
|---|---|
| Consolidated | |
| SEK millions | 2014 |
| Expected employer contributions to the plan for the next calendar year | -114 |
| Expected employer contributions for the next calendar year to multi-employer plans reported as defined contribution plans | -39 |
The following table presents how the defined benefit pension schemes are distributed on different countries.
| Consolidated | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| United | United | Nether | |||||||
| SEK millions, unless otherwise stated | States | Kingdom | lands | Germany | Norway | Italy | Belgium | Other | Total |
| Net defined benefit liability | |||||||||
| Present value of the defined benefit obligation, unfunded |
-580 | – | – | -168 | -4 | -33 | – | -214 | -999 |
| Present value of the defined benefit obligation, funded |
-838 | -1,792 | -295 | – | -100 | – | -66 | -330 | -3,421 |
| Present value of the defined benefit | |||||||||
| obligation at year end | -1,418 | -1,792 | -295 | -168 | -104 | -33 | -66 | -544 | -4,420 |
| Fair value of plan assets | 799 | 1,435 | 285 | - | 80 | - | 48 | 290 | 2,937 |
| Defined benefit liability | -619 | -357 | -10 | -168 | -24 | -33 | -18 | -254 | -1,483 |
| Less disallowed assets due to asset ceiling | – | – | – | – | – | – | – | – | – |
| (-) liability/(+) asset | -619 | -357 | -10 | -168 | -24 | -33 | -18 | -254 | -1,483 |
| Net plan cost | -41 | -61 | -10 | -6 | -4 | -1 | -3 | 1 | -125 |
| Remeasurements (OCI) | 191 | 15 | 18 | 3 | -2 | 0 | 0 | 9 | 234 |
| Sensitivity analysis* | |||||||||
| Discount rate decreased by 1% point | -157 | -309 | -66 | -18 | -10 | – | -6 | -27 | -593 |
| Life expectancy increased by 1 year | -48 | -65 | -10 | -4 | – | – | -5 | -6 | -138 |
| Expected average retirement age decreased by 1 year |
-22 | 0 | -1 | 0 | 0 | – | 0 | -3 | -26 |
| Claim rates under medical plans | |||||||||
| increased by 1 % point | -66 | – | – | – | – | – | – | 0 | -66 |
| Expected rate of salary increases increased by 1% point |
0 | -19 | -18 | – | -4 | – | -13 | -20 | -74 |
| Medical costs increased by 1% point | -66 | – | – | – | – | – | – | -1 | -67 |
| Index for future compensation increases | |||||||||
| increased by 1% point | 0 | -42 | 0 | -16 | -10 | – | 0 | -10 | -78 |
| Cost for actuarial services | -1 | 0 | 0 | 0 | 0 | 0 | 0 | -1 | -2 |
| Number of participants in the plans at December 31 |
|||||||||
| Current employees (active members) | 724 | 0 | 111 | 11 | 24 | – | 28 | 2,685 | 3,583 |
| Current employees (only vested value for closed plans) |
36 | 134 | – | – | – | 252 | – | 12 | 434 |
| Former employees that are not yet | |||||||||
| pensioners | 278 | 529 | 193 | 14 | – | – | 44 | 4 | 1,062 |
| Pensioners | 1,891 | 603 | 65 | 329 | 41 | – | – | 124 | 3,053 |
| Total | 2,929 | 1,266 | 369 | 354 | 65 | 252 | 72 | 2,825 | 8,132 |
| Remaining service period | |||||||||
| Average remaining service period for active members (years) |
9 | 11 | 22 | 3 | 10 | – | 17 | 10 | 10 |
* How much would the present value of the defined benefit obligation at December 31 increase if the (all other things being equal):
| Consolidated | |||||||
|---|---|---|---|---|---|---|---|
| New provisions | Unused | ||||||
| Translation | and increase of | Amounts | amounts | ||||
| SEK millions | January 1 | difference | Acquired | existing provisions | used | reversed | December 31 |
| 2012 | |||||||
| Claims & warranty | 1,176 | -28 | 1 | 503 | -382 | -114 | 1,156 |
| Deferred costs | 192 | -6 | – | 50 | -35 | -34 | 167 |
| Restructuring | 220 | -2 | – | 100 | -106 | -21 | 191 |
| Onerous contracts | 66 | -2 | – | 27 | -15 | -10 | 66 |
| Litigations | 167 | -3 | – | 45 | -21 | -1 | 187 |
| Other | 311 | -9 | – | 151 | -130 | -14 | 309 |
| Total | 2,132 | -50 | 1 | 876 | -689 | -194 | 2,076 |
| Of which: | |||||||
| current | 1,612 | 1,603 | |||||
| non-current | 520 | 473 | |||||
| 2013 | |||||||
| Claims & warranty | 1,156 | -32 | 1 | 413 | -369 | -94 | 1,075 |
| Deferred costs | 167 | 4 | – | 61 | -24 | -18 | 190 |
| Restructuring | 191 | 1 | – | 3 | -57 | -31 | 107 |
| Onerous contracts | 66 | -1 | – | 46 | -19 | -7 | 85 |
| Litigations | 187 | -2 | – | 28 | -6 | -2 | 205 |
| Other | 309 | -16 | 2 | 175 | -128 | -34 | 308 |
| Total | 2,076 | -46 | 3 | 726 | -603 | -186 | 1,970 |
| Of which: | |||||||
| current | 1,603 | 1,539 | |||||
| non-current | 473 | 431 |
Unused amounts reversed refer to, among other items, changed classifications and reversals of provisions made in prior years that have not been used. Each type of provision entails everything from a few up to a large number of different items. It is therefore not practicable or particularly meaningful to
specify the provisions item by item. As indicated above a clear majority of the provisions will result in disbursements within the next year. Claims & warranty refers to claims from customers according to the conditions in issued warranties. The claims concern technical problems with the delivered goods or that promised performance has not been achieved.
Deferred costs are partly costs that are known but not yet debited at the time of invoicing, partly costs that are unknown but expected at the time of invoicing. The provision for deferred costs is charged to costs of goods sold in order to get a correct phasing of the gross margin.
Provisions for restructuring are usually relating to closure of plants or closure or move of production lines, businesses, functions etc. or reduction of the number of employees in connection with a downturn in the business climate. The provisions for restructuring are affecting approximately 180 (320) employees.
The provision for onerous contracts is relating to orders where a negative gross margin is expected. Provisions are made as soon as a final loss on the order can be expected. This can in exceptional cases happen already at the time when the order is taken. Normally this provision is relating to larger and complex orders where the final margin is more uncertain.
The provision for litigations refers to ongoing or expected legal disputes. The provision covers expected legal costs and expected amounts for damages or settlements. Other refers to miscellaneous provisions that do not fall within any of the above categories.
| Net debt | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 |
| Banking syndicate | 704 | 1,784 |
| Swedish Export Credit | 1,793 | 1,723 |
| European Investment Bank | 1,165 | 1,120 |
| Other credit institutions | 200 | 662 |
| Private placement | 716 | 714 |
| Capitalised financial leases | 84 | 97 |
| Interest-bearing pension liabilities | 0 | 1 |
| Total debt | 4,662 | 6,101 |
| Cash, bank and current deposits | -2,065 | -1,831 |
| Net debt | 2,597 | 4,270 |
Cash, bank and current deposits include bank and other deposits in the previously publicly listed subsidiary Alfa Laval (India) Ltd of SEK 275 (174) million. The company is not a wholly owned subsidiary of the Alfa Laval Group. It is owned to 98.2 (97.5) percent.
The loans from credit institutions and the private placement are distributed among currencies as follows:
| Consolidated | ||||
|---|---|---|---|---|
| Current | Non-current | |||
| SEK millions | 2013 | 2012 | 2013 | 2012 |
| Currency: | ||||
| BRL | 5 | 12 | – | – |
| CNY | – | 4 | – | – |
| DKK | – | 1 | 8 | 11 |
| EUR | 954 | 393 | 2,257 | 3,042 |
| INR | 5 | 11 | – | – |
| SEK | 6 | 95 | – | – |
| USD | 79 | 94 | 1,264 | 2,340 |
| Other | 0 | 0 | – | – |
| Total | 1,049 | 610 | 3,529 | 5,393 |
| Of which, not due within five years: | 2,062 | 1,981 |
The maturity structure of the loans is presented in the bar chart in the section "Liquidity risk and refinancing risk" under Financial risks.
Alfa Laval has a senior credit facility of EUR 301 million and USD 420 million, corresponding to SEK 5,437 million with a banking syndicate. At December 31, 2013 SEK 704 million of the facility was utilised. The facility matures in April 2017.
The interest is based on applicable IBOR plus a mark up based on the relation between net debt and EBITDA and how much of the facility that is utilised.
At year end the mark up is 55 (55) basis points. In connection with the acquisition of Tranter Alfa Laval signed a bilateral
term loan with SHB of EUR 25 million. The loan was repaid on the maturity date at December 30, 2013.
The transaction costs in connection with raising the loans have been capitalised and are being amortised over the maturity of the loans. At the end of the year the capitalised amount was SEK 17 (17) million. The current year's cost for the fee amortisation is SEK -5 (-4) million.
Alfa Laval has a bilateral term loan from Swedish Export Credit split on one loan of EUR 100 million that matures in June 2014 and one loan of EUR 100 million that matures in June 2021, corresponding to SEK 1,793 million in total. The loans accrue interest at floating rate based on IBOR plus a mark up of 55 basis points and 95 basis points respectively.
Alfa Laval also has a bilateral term loan from the European Investment Bank of EUR 130 million, corresponding to SEK 1,165 million. The loan matures in March 2018. The loan accrues interest at floating rate based on IBOR plus a mark up of 70 basis points. In December 2013 Alfa Laval has made an agreement with the European Investment Bank of a loan facility of EUR 115 million with a duration of seven years. This loan has not been utilised at December 31, 2013.
The senior credit facility and the bilateral term loans accrue interest at floating rate. At the end of 2013 the loans were accruing interest in the range of 0.76 % – 1.32 % (0.74 % – 1.27 %). The average interest rate at the end of 2013 was 2.04 (1.74) percent. The Group has chosen to hedge 53 (36) percent of the loans to fixed interest rate, with a duration of 19.0 (26.3) months. The average interest and currency duration including derivatives is 12.6 (12.8) months at the end of 2013.
In 2006 Alfa Laval made a private placement in the U.S. The offer was over-subscribed and was closed at USD 110 million, corresponding to SEK 716 million. The loan matures in April 2016. The interest was based on U.S. Treasury bills plus a mark-up of 95 basis points, which gave a fixed interest of 5.75 percent. The loan was raised on April 27, 2006.
The transaction costs in connection with raising the loan have been capitalised and are being amortised over the maturity of the loan. At the end of the year the capitalised amount was SEK 1 (1) million. The current year's cost for the fee amortisation is SEK -0 (-0) million.
The syndicated loan and the bilateral term loans are linked to three financial covenants that must be fulfilled throughout the life of the loans. These covenants refer to the relationship between net debt and EBITDA and between EBITDA and total interest expense as well as the debt ratio.
The private placement is linked to two financial covenants that must be fulfilled throughout the life of the loan. These covenants refer to the relationship between net debt and EBITDA and between EBITDA and total interest expense.
If the covenants are not fulfilled, the lenders are entitled to demand immediate repayment of the loans, provided that the breach is not temporary. Alfa Laval has fulfilled the covenants with a good margin ever since the loans were raised.
Split by type
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Financial lessee payable | 84 | 97 |
| Other non-interest bearing liabilities | 1,448 | 1,284 |
| Total | 1 532 | 1 381 |
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 * |
| Accruals for social security | 290 | 272 |
| Reserve for severance pay | 139 | 139 |
| Accrued interest expenses | 12 | 13 |
| Other accrued expenses | 1,273 | 1,228 |
| Prepaid income | 8 | 19 |
| Total | 1,722 | 1,671 |
| Of which, not due within one year: | ||
| Accruals for social security | 30 | 29 |
| Reserve for severance pay | 96 | 97 |
| Other accrued expenses | 2 | 2 |
| Total | 128 | 128 |
* Restated to the new IAS 19.
| Split by type | ||
|---|---|---|
| -- | --------------- | -- |
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Pledged assets | ||
| Other pledges and similar commitments | 17 | 10 |
| Total | 17 | 10 |
| Contingent liabilities | ||
| Discounted bills | 31 | 38 |
| Performance guarantees | 1,429 | 1,338 |
| For joint ventures | 34 | 33 |
| Other contingent liabilities | 456 | 606 |
| Total | 1,950 | 2,015 |
As of December 31, 2013 the Group had sold receivables with recourse totalling SEK 31 (38) million. These are disclosed as discounted bills above. Other contingent liabilities are among other items referring to bid guaran-
tees, payment guarantees to suppliers and retention money guarantees.
Tetra Pak within the Tetra Laval Group is Alfa Laval's single largest customer with 4.8 (3.3) percent of net sales. In June 1999, Tetra Pak entered into a purchasing agreement with Alfa Laval that governs the distribution, research and development, market and sales information, use of trademarks and intellectual property. The following areas shall be agreed upon from time to time between representatives of the parties: products that are subject to the agreement, prices and discounts of such products, geographical markets and product areas where Tetra Pak is Alfa Laval's preferred distributor, the right of Tetra Pak to affix its trademarks to Alfa Laval products, sales goals for Tetra Pak in defined geographical markets, products and technologies that are the focus of joint research and development and the ownership rights of the research and development result and use of market and sales information. The agreement aims at the applications within liquid food where Tetra Pak has a natural market presence through the deliveries of packaging equipment and packaging material.
The agreement was prolonged by two years from December 31, 2012. It has a 12 month period of notice. The prices Tetra Pak receives are not lower than the prices Alfa Laval would obtain when selling to a comparable third party. The prices are fixed on a calendar year basis.
Alfa Laval rents premises to DeLaval in Russia. The total rent income for this amounts to SEK 2 (2) million.
The Board of Directors for Alfa Laval AB has two representatives from Tetra Laval - Jörn Rausing and Finn Rausing.
At year-end, Alfa Laval has the following balance items against companies within the Tetra Laval group (Tetra Pak and DeLaval).
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Receivables: | ||
| Accounts receivable | 126 | 140 |
| Other receivables | 0 | 3 |
| Liabilities: | ||
| Accounts payable | 0 | 0 |
| Other liabilities | 5 | 16 |
Alfa Laval has had the following transactions with companies within the Tetra Laval group (Tetra Pak and DeLaval).
Revenues/expenses from related parties
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Net sales | 1,441 | 974 |
| Other operating income | 2 | 2 |
Alfa Laval owns 50 percent in three different joint ventures: Rolls Laval Heat Exchangers Ltd with Rolls Royce as partner, Alfdex AB with Haldex as partner and AlfaWall AB with Wallenius as partner.
These joint ventures are part of the consolidated financial position with the following assets and liabilities and of the consolidated comprehensive income with the following revenues and expenses:
Assets/liabilities
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Current assets | 55 | 54 |
| Non-current assets | 11 | 11 |
| Current liabilities | 28 | 30 |
| Non-current liabilities | 11 | 8 |
| Revenues/expenses | |||||
|---|---|---|---|---|---|
| -- | -- | -- | -- | ------------------- | -- |
| -4 | |
|---|---|
| -5 | |
| 0 | 0 |
| -61 | -57 |
| 26 | 29 |
| -81 | -83 |
| 133 | 131 |
| 2013 | 2012 |
| Impact of percentage of completion method | ||
|---|---|---|
| Consolidated | ||
| SEK millions | 2013 | 2012 |
| Result items | ||
| Amount of recognised project sales revenue | 2,056 | 2,024 |
| Work performed on ongoing projects | ||
| Aggregate amount of costs incurred and | ||
| recognised profits (less recognised losses) | 2,172 | 2,364 |
| Assets | ||
| Retentions | 52 | 72 |
| Gross amount due from customers | ||
| for work in progress | 472 | 392 |
| Liabilities | ||
| Advances received | 1,014 | 705 |
| Gross amount due to customers |
for work in progress 222 175
Alfa Laval has entered into non-cancellable operating leases mainly relating to premises and finance lease agreements regarding machinery and equipment with leasing periods of 1-20 years. The leasing fees for non-cancellable operating leases for premises were SEK 345 (326) million. During the year, the Group has entered into finance leases with a capitalised value of SEK - (-) million. See Note 18 for information on the capitalised value of finance leases.
The future minimum leasing fees concerning non-cancellable operating leases, distributed on maturity dates, amount to:
| Consolidated | ||
|---|---|---|
| SEK millions | 2013 | 2012 |
| Maturity in year: | ||
| 2012 | N/A | N/A |
| 2013 | N/A | 312 |
| 2014 | 281 | 250 |
| 2015 | 239 | 209 |
| 2016 | 192 | 139 |
| 2017 | 135 | 114 |
| 2018 | 104 | N/A |
| Later | 211 | 157 |
| Total | 1,162 | 1,181 |
The future minimum leasing fees concerning financial leasing agreements and their net present value, distributed on maturity dates, amount to:
| Consolidated | ||||
|---|---|---|---|---|
| Future minimum leasing fees for financial leases |
Present value of financial leases |
|||
| SEK millions | 2013 | 2012 | 2013 | 2012 |
| Maturity in | ||||
| year: | ||||
| 2012 | N/A | N/A | N/A | N/A |
| 2013 | N/A | 17 | N/A | 16 |
| 2014 | 16 | 15 | 16 | 15 |
| 2015 | 15 | 14 | 14 | 13 |
| 2016 | 13 | 13 | 13 | 12 |
| 2017 | 11 | 10 | 10 | 10 |
| 2018 | 10 | N/A | 9 | N/A |
| Later | 19 | 28 | 17 | 24 |
| Total | 84 | 97 | 79 | 90 |
| The unrestricted equity in Alfa Laval AB (publ) is SEK: | ||
|---|---|---|
| Profit brought forward | 6,817,374,353 | |
| Net income 2013 | 2,435,285,006 | |
| 9,252,659,359 |
The Board of Directors propose a dividend of SEK 3.75 (3.50) per share corresponding to SEK 1,572,961,181 (1,468,097,102) and that the remaining income of SEK 7,679,698,178 (6,817,374,353) be carried forward.
The undersigned certify that the annual report for the Group and the Parent company has been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted for use in the European Union, and generally accepted accounting principles respectively, and gives a true and fair view of the financial positions and results of the Group and the Parent company, and that the Board of Directors' report gives a fair review of the development of the operations, financial positions and results of the Group and the Parent company and describes substantial risks and uncertainties that the Group companies face.
Our Auditors' Report concerning this Annual Report has been issued on March 3, 2014.
Staffan Landén Johan Thuresson Authorised Public Accountant Authorised Public Accountant
To the annual meeting of the shareholders of Alfa Laval AB (publ), corporate identity number 556587-8054
We have audited the annual accounts and consolidated accounts of Alfa Laval AB (publ) for the year 2013. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 59–135.
The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts in accordance with the Annual Accounts Act and of the consolidated accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the annual accounts
and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2013 and of its financial performance and its cash flows for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2013 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.
We therefore recommend that the annual meeting of shareholders adopt the statement of income and statement of financial position for the parent company and statement of comprehensive income and statement of financial position for the group.
In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company's profit or loss and the administration of the Board of Directors and the Managing Director of Alfa Laval AB (publ) for the year 2013.
Lund March 3, 2014
Staffan Landén Authorized Public Accountant
Johan Thuresson Authorized Public Accountant
The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act.
Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company's profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden.
As a basis for our opinion on the Board of Directors' proposed appropriations of the company's profit or loss, we examined the Board of Directors' reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.
As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.
We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.
| Ten-year overview | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Consolidated | ||||||||||
| SEK millions, | ||||||||||
| unless otherwise stated | 2013 | 2012 * | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 ** |
| Profit and loss | ||||||||||
| Net sales | 29,934 | 29,813 | 28,652 | 24,720 | 26,039 | 27,850 | 24,849 | 19,802 | 16,330 | 14,986 |
| Comparison distortion items | - | -51 | -170 | 90 | -225 | -168 | 54 | -120 | -73 | 37 |
| Operating income | 4,353 | 4,396 | 4,691 | 4,401 | 4,030 | 5,736 | 4,691 | 2,552 | 1,377 | 1,438 |
| Financial net | -181 | 133 | -15 | -37 | -270 | -395 | -134 | -177 | -278 | -177 |
| Result after financial items | 4,172 | 4,529 | 4,676 | 4,364 | 3,760 | 5,341 | 4,557 | 2,375 | 1,099 | 1,261 |
| Taxes | -1,132 | -1,306 | -1,425 | -1,248 | -1,023 | -1,534 | -1,377 | -650 | -171 | -421 |
| Net income for the year | 3,040 | 3,223 | 3,251 | 3,116 | 2,737 | 3,807 | 3,180 | 1,725 | 928 | 840 |
| Financial position | ||||||||||
| Goodwill | 10,061 | 9,792 | 9,543 | 5,952 | 6,143 | 5,383 | 4,459 | 3,706 | 3,531 | 2,978 |
| Other intangible assets | 3,582 | 3,807 | 3,502 | 2,581 | 2,490 | 1,890 | 1,275 | 1,191 | 1,067 | 924 |
| Property, plant and equipment | 3,796 | 3,823 | 3,936 | 3,512 | 3,548 | 3,546 | 2,824 | 2,514 | 2,553 | 2,480 |
| Financial long-term assets | 1,420 | 1,509 | 1,664 | 1,568 | 1,542 | 1,376 | 1,128 | 784 | 676 | 601 |
| Inventories | 6,319 | 6,176 | 6,148 | 4,769 | 4,485 | 5,972 | 5,086 | 3,793 | 3,091 | 2,453 |
| Current receivables | 7,695 | 8,050 | 7,663 | 6,884 | 6,584 | 9,238 | 7,420 | 5,987 | 4,467 | 3,976 |
| Current deposits | 611 | 427 | 483 | 575 | 302 | 544 | 190 | 229 | 342 | 257 |
| Cash and bank | 1,454 | 1,404 | 1,564 | 1,328 | 1,112 | 1,083 | 856 | 546 | 479 | 415 |
| TOTAL ASSETS | 34,938 | 34,988 | 34,503 | 27,169 | 26,206 | 29,032 | 23,238 | 18,750 | 16,206 | 14,084 |
| Equity | 16,162 | 14,453 | 15,144 | 13,582 | 12,229 | 10,493 | 7,937 | 6,831 | 5,811 | 5,269 |
| Provisions for pensions etc. | 1,494 | 1,727 | 852 | 847 | 920 | 990 | 877 | 941 | 903 | 789 |
| Provisions for taxes | 1,761 | 1,932 | 1,930 | 1,617 | 1,390 | 1,161 | 1,090 | 949 | 767 | 760 |
| Other provisions | 1,970 | 2,076 | 2,132 | 2,128 | 2,365 | 2,252 | 1,810 | 1,281 | 957 | 948 |
| Non-current liabilities | 3,529 | 5,393 | 5,060 | 1,041 | 1,626 | 3,394 | 3,068 | 2,006 | 2,702 | 2,307 |
| Current liabilities | 10,022 | 9,407 | 9,385 | 7,954 | 7,676 | 10,742 | 8,456 | 6,742 | 5,066 | 4,011 |
| TOTAL EQUITY & LIABILITIES | 34,938 | 34,988 | 34,503 | 27,169 | 26,206 | 29,032 | 23,238 | 18,750 | 16,206 | 14,084 |
* Restated to the new IAS 19. ** Restated to IFRS.
A reader of the ten-year overview should observe that accounting standards have changed repeatedly over this period of time.
All listed companies within the European Union were obliged to change to IFRS as of January 1, 2005. International Financial Reporting Standards (IFRS) are issued by the International Accounting Standards Board (IASB).
Alfa Laval was a first time applicant under IFRS 1 in 2005. IFRS 1 covered the transitional provisions for the implementation of IFRS. The adoption to IFRS was however already in place since Alfa Laval had implemented all relevant IAS standards since year 2000, except IAS 39 that was implemented as of January 1, 2005. In 2013 the revised IAS 19 "Employee Benefits" has been implemented as per January 1, 2012, which has meant a restatement of the comparison figures for 2012.
Ten-year overview
| Consolidated | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| SEK millions, | ||||||||||
| unless otherwise stated | 2013 | 2012 * | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 ** |
| Key ratios | ||||||||||
| Orders received | 30,335 | 30,339 | 28,671 | 23,869 | 21,539 | 27,464 | 27,553 | 24,018 | 18,516 | 15,740 |
| Order backlog at year end | 14,568 | 14,468 | 13,736 | 11,552 | 11,906 | 14,310 | 14,730 | 12,359 | 7,497 | 4,763 |
| EBITA | 4,914 | 4,883 | 5,117 | 4,772 | 4,360 | 5,992 | 5,034 | 2,891 | 1,692 | 1,732 |
| EBITDA | 5,363 | 5,330 | 5,566 | 5,197 | 4,751 | 6,296 | 5,299 | 3,153 | 1,957 | 1,993 |
| EBITA-margin % | 16.4% | 16.4% | 17.9% | 19.3% | 16.7% | 21.5% | 20.3% | 14.6% | 10.4% | 11.6% |
| EBITDA-margin % | 17.9% | 17.9% | 19.4% | 21.0% | 18.2% | 22.6% | 21.3% | 15.9% | 12.0% | 13.3% |
| Adjusted EBITA | 4,914 | 4,934 | 5,287 | 4,682 | 4,585 | 6,160 | 4,980 | 3,010 | 1,765 | 1,695 |
| Adjusted EBITDA | 5,363 | 5,381 | 5,736 | 5,107 | 4,976 | 6,464 | 5,245 | 3,273 | 2,030 | 1,956 |
| Adjusted EBITA-margin % | 16.4% | 16.5% | 18.5% | 18.9% | 17.6% | 22.1% | 20.0% | 15.2% | 10.8% | 11.3% |
| Adjusted EBITDA-margin % | 17.9% | 18.0% | 20.0% | 20.7% | 19.1% | 23.2% | 21.1% | 16.5% | 12.4% | 13.1% |
| Profit margin % | 13.9% | 15.2% | 16.3% | 17.7% | 14.4% | 19.2% | 18.3% | 12.0% | 6.7% | 8.4% |
| Excl. goodwill and step-up values: | ||||||||||
| Capital turnover rate, times | 6.4 | 6.7 | 6.3 | 5.6 | 5.2 | 5.6 | 6.4 | 6.3 | 5.5 | 5.3 |
| Capital employed | 4,645 | 4,430 | 4,560 | 4,399 | 5,052 | 4,973 | 3,863 | 3,137 | 2,958 | 2,822 |
| Return on capital employed % | 105.8% | 110.2% | 112.2% | 108.5% | 86.3% | 120.5% | 130.3% | 92.2% | 57.2% | 61.4% |
| Incl. goodwill and step-up values: | ||||||||||
| Capital turnover rate, times | 1.6 | 1.7 | 1.8 | 1.9 | 2.0 | 2.5 | 2.7 | 2.5 | 2.2 | 2.0 |
| Capital employed | 18,586 | 17,833 | 16,324 | 12,752 | 12,976 | 11,144 | 9,289 | 8,062 | 7,470 | 7,317 |
| Return on capital employed % | 26.4% | 27.4% | 31.3% | 37.4% | 33.6% | 53.8% | 54.2% | 35.9% | 22.7% | 23.7% |
| Return on equity % | 20.4% | 22.9% | 22.9% | 24.4% | 24.5% | 42.8% | 44.1% | 25.3% | 16.0% | 15.9% |
| Solidity % | 46.3% | 41.3% | 43.9% | 50.0% | 46.7% | 36.1% | 34.2% | 36.4% | 35.9% | 37.4% |
| Net debt | 2,597 | 4,270 | 3,264 | -551 | 533 | 2,074 | 2,397 | 1,478 | 2,013 | 1,884 |
| Net debt to EBITDA, times | 0.48 | 0.80 | 0.59 | -0.11 | 0.11 | 0.33 | 0.45 | 0.47 | 1.03 | 0.95 |
| Debt ratio, times | 0.16 | 0.30 | 0.22 | -0.04 | 0.04 | 0.20 | 0.30 | 0.22 | 0.35 | 0.36 |
| Interest coverage ratio, times | 22.2 | 23.2 | 28.6 | 35.9 | 15.2 | 26.2 | 23.7 | 14.4 | 6.9 | 7.4 |
| Cash flow from: | ||||||||||
| operating activities | 4,228 | 3,586 | 3,429 | 4,098 | 5,347 | 4,062 | 3,264 | 2,619 | 1,617 | 1,203 |
| investing activities | -953 | -3,260 | -5,497 | -1,417 | -2,620 | -1,333 | -1,676 | -1,578 | -665 | 36 |
| financing activities | -3,191 | -407 | 2,317 | -2,431 | -2,667 | -2,599 | -1,291 | -935 | -973 | -1,353 |
| Investments | 495 | 531 | 555 | 429 | 451 | 747 | 556 | 373 | 324 | 388 |
| Average number of employees | 16,282 | 16,060 | 14,667 | 12,078 | 11,773 | 11,821 | 10,804 | 9,923 | 9,524 | 9,400 |
| Earnings per share, SEK *** | 7.22 | 7.64 | 7.68 | 7.34 | 6.42 | 8.83 | 7.12 | 3.78 | 1.98 | 1.78 |
| Free cash flow per share, SEK *** | 7.81 | 0.78 | -4.93 | 6.38 | 6.46 | 6.38 | 3.60 | 2.33 | 2.13 | 2.78 |
* Restated to the new IAS 19. ** Restated to IFRS. *** The fi gures for 2008 until 2004 have been recalculated due do the 4:1 split.
Alfa Laval AB (publ) Box 73 SE-221 00 Lund Corporate Registration Number: 556587-8054
Visiting address: Rudeboksvägen 1 Phone: + 46 (0)46 36 65 00 Website: www.alfalaval.com
Revenues from goods sold and services performed that are part of the ordinary operations of the Group, after deduction for given discounts, value added tax and other tax directly linked to the sales.
Items that do not have any link to the normal operations of the Group or that are of a non-recurring nature, where a reporting together with other items in the consolidated comprehensive income statement would have given a comparison distortion effect that would have made it difficult to judge the development of the ordinary operations for an outside viewer.
Incoming orders during the year, calculated in the same way as net sales. The orders received give an indication of the current demand for the Group's products and services, that with a varying delay appear in net sales.
Incoming orders that not yet have been invoiced. The order backlog at the end of the year is equal to the sum of the order backlog at the beginning of the year plus the orders received during the year less the net sales for the year. It gives an indication of how the net sales can be expected to develop in the future.
"Earnings Before Interest, Taxes and Amortisation" or operating income before amortisation of step-up values. This measure of result is fully comparable over time independent of the financing costs and the amortisation of step-up values that from time to time burden the Group.
"Earnings Before Interest, Taxes, Depreciation and Amortisation" or operating income before depreciation and amortisation of step-up values. This measure of result is fully comparable over time independent of the financing costs and the depreciation and amortisation of step-up values that from time to time burden the Group.
Operating income before amortisation of step-up values (EBITA) in relation to net sales, expressed in percent.
Operating income before depreciation and amortisation of step-up values (EBITDA) in relation to net sales, expressed in percent.
Same as EBITA, but adjusted for comparison distortion items.
Same as EBITDA, but adjusted for comparison distortion items.
Same as EBITA-margin, but adjusted for comparison distortion items.
Same as EBITDA-margin, but adjusted for comparison distortion items.
Result after financial items in relation to net sales, expressed in percent.
Net sales in relation to average capital employed, expressed as a multiple of capital employed. Shown excluding and including goodwill, step-up values and the corresponding deferred tax liability.
Average total assets less liquid funds, other long-term securities, accrued interest income, operating liabilities and other non-interest bearing liabilities, including tax and deferred tax, but excluding accrued interest costs. Shown excluding and including goodwill and step-up values and the corresponding deferred tax liability. Shows the capital that is used in the operations. The capital employed for the Group differs from the net capital for the segments concerning taxes, deferred taxes and pensions.
EBITA in relation to average capital employed, expressed in percent. Shown excluding and including goodwill and step-up values and the corresponding deferred tax liability.
Net income for the year in relation to average equity, expressed in percent.
Equity in relation to total assets, expressed in percent.
Interest-bearing liabilities including interest-bearing pension liabilities and capitalised finance leases less liquid funds.
Net debt in relation to EBITDA is one of the covenants of Alfa Laval's syndicated loan and an important key figure when reviewing the proposed dividend.
Net debt in relation to equity, expressed as a multiple of the equity.
EBITDA plus financial net increased by interest costs in relation to interest costs. Expressed as a multiple of interest costs. Gives an expression for the Group's ability to pay interest. The reason EBITDA is used as the starting point is that this forms the starting point for a cash flow perspective on the ability to pay interest. Financial items classified as comparison distorting are excluded from the calculation.
Shows the Group's cash flow from operating activities, that is the cash flow generated in the daily operational activities.
Shows the Group's cash flow from investing activities, i.e. the cash flow generated by mainly the Group's divestments and acquisitions of businesses and divestments of real estate.
Shows the Group's cash flow from financing activities, that is mainly the cash flow impact of the Group's loans in terms of interest payments and amortisation.
Investments represent an important component in the cash flow for the Group. The level of investments during a couple of years gives a picture of the capacity build up in the Group.
The costs that are related to the number of employees represent a large part of the total costs for the Group. The development of the average number of employees over time in relation to the development of the net sales therefore gives an indication of the cost rationalisation that is taking place.
Net income for the year attributable to the equity holders of the parent divided by the average number of shares.
The sum of cash flows from operating and investing activities for the year divided by the average number of shares. This represents the cash flow available for interest payments, amortisation and dividends to investors.
Alfa Laval uses a number of channels to provide information about the company's operations and financial development. The website – www.alfalaval.com/ investors – is updated continuously with annual reports, quarterly reports, press releases and presentations. Annual reports are also sent to those shareholders who have notified the company that they wish to receive a copy.
Conference calls with analysts, investors and the media are arranged by Alfa Laval in conjunction with the publication of the company's quarterly reports. A capital markets day is organized each year, during which representatives from the financial market are offered more in-depth information regarding
Financial information during 2014
Alfa Laval will publish quarterly reports on the following dates in 2014:
| Year-end report 2013 | February 5 |
|---|---|
| First-quarter report | April 28 |
| Second-quarter report | July 17 |
| Third-quarter report | October 28 |
the company's operations. In addition, representatives of Group management meet with analysts, investors and journalists on an ongoing basis to ensure that they have correct and current information. Pursuant to the company's agreement with NASDAQ OMX Stockholm, information that could have an effect on the share price and that is not yet publicly known is never disclosed in conjunction with these types of meetings or contacts. Alfa Laval employs a so-called silent period of three weeks prior to the publication of a quarterly report. The President and Chief Financial Officer do not meet or speak to representatives from the financial market during this period.
Gabriella Grotte Investor Relations Manager Tel: +46 (0)46 36 74 82 Mobile: +46 (0)709 78 74 82 E-mail: [email protected] or [email protected]
ABG Sundal Collier Anders Idborg [email protected] Tel: +46 8 5662 8674
Bank of America Merrill Lynch Ben Maslen [email protected] Tel: +44 20 7996 4783
Barclays Capital Allan Smylie [email protected] Tel: +44 20 7773 4873
Carnegie Kenneth Toll Johansson [email protected] Tel: +46 8 588 689 11
Commerzbank Sebastian Growe [email protected] Tel.: +49 69 136 89800
Credit Suisse Andre Kukhnin [email protected] Tel: +44 20 7888 0350
Danske Bank Oscar Stjerngren [email protected] Tel: +46 8 568 806 06
DNB Markets Lars Brorson [email protected] Tel: +44 20 7621 6149
Espirito Santo Investment Bank Nick Wilson [email protected]
Tel: +44 20 3364 6766 Goldman Sachs International
Aaron Ibbotson [email protected] Tel: +44 20 7774 6661
Handelsbanken Capital Markets Jon Hyltner
[email protected] Tel: +46 8 701 12 75
HSBC Bank Colin Gibson [email protected] Tel: +44 20 7991 6592
JP Morgan Glen Liddy [email protected] Tel: +44 20 7155 6113
Kepler Cheuvreux Joakim Höglund [email protected] Tel: +46 8 723 51 63
Morgan Stanley Markus Almerud [email protected] Tel: +44 20 7425 9870
Nordea Bank Andreas Koski [email protected] Tel: +46 8 534 917 20
Pareto Securities David Jacobsson [email protected] Tel: +46 8 402 52 72
SEB Enskilda Daniel Schmidt [email protected] Tel: +46 8 522 296 75
Swedbank Anders Roslund [email protected] Tel: +46 8 585 900 93
UBS Sven Weier [email protected] Tel: +49 69 1369 8278
Ålandsbanken Lars Söderfjell [email protected] Tel: +46 8 791 46 57
The Annual General Meeting of Alfa Laval AB (publ) will be held on Monday, April 28, 2014 at 4:00 p.m. at Färs & Frosta Sparbank Arena, Klostergården's sports area, Stattenavägen, in Lund. Light refreshments will be served after the Meeting. In accordance with the company's Articles of Association, notice of the Annual General Meeting will be inserted as an announcement in the Swedish Official Gazette and on the company's website not more than six and not less than four weeks prior to the Meeting. An announcement that notification has been issued will be placed in Dagens Nyheter. As a service to existing shareholders, information about the Annual General Meeting will be sent to them by mail. The following information concerning the Meeting does not constitute legal notice.
Shareholders who wish to participate in the Meeting and be entitled to vote must be entered in the share register maintained by Euroclear AB not later than Tuesday, April 22, 2014, and register their intention to participate, along with any assistants, not later than Tuesday, April 22, 2014 at 12:00 noon. Shareholders whose shares are held in trust must temporarily re-register their shares in their own names not later than April 22. Shareholders must request such registration from the trustee a few working days prior to the deadline.
– Alfa Laval AB, Group Staff Legal, Box 73, SE-221 00 Lund, Sweden
Shareholders must state their name, personal identity number and telephone number on the notice of participation. If participation is by proxy, a power of attorney or authorization must be submitted to the company prior to the Meeting.
1:30 p.m. Bus departs from Färs & Frosta Sparbank Arena for Alfa Laval's production unit for heat exchangers in Lund 3:30 p.m. Registration starts 4:00 p.m. Start of Meeting
Prior to the Annual General Meeting, participants will have an opportunity to view the production of plate heat exchangers at the plant in Lund. The tour will begin with assembly at Färs & Frosta Sparbank Arena, Klostergården's sports area, Stattenavägen in Lund not later than 1:30 p.m. Buses will be provided for transportation to the plant and back to the Meeting venue. Registration for the tour must be made in conjunction with registration for participation in the Annual General Meeting. Please note that the number of participants is limited.
The Board of Directors and the President propose to the Annual General Meeting that a dividend of SEK 3.75 per share be paid. The proposed record date for this dividend is Friday, May 2, 2014. If the Meeting approves the proposal, the dividend is expected to be distributed on Wednesday, May 7, 2014. However, the record date and dividend payment date may be postponed due to the technical procedures required for executing the payment.
Alfa Laval is a leading global provider of specialized products and engineered solutions.
The company's equipment, systems and services are dedicated to helping customers optimize the performance of their processes. Time and time again.
Alfa Laval helps customers to heat, cool, separate and transport products such as oil, water, chemicals, beverages, foodstuffs, starch and pharmaceuticals.
Alfa Laval's worldwide organization works closely with customers in 100 countries to help optimize their processes.
Alfa Laval's website is continuously updated with new information, including contact details for all countries.
Read more at www.alfalaval.com and www.alfalaval.com/investors
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.