The Board of Directors and the President of Alfa Laval AB (publ) hereby submit their annual report for the year of operation January 1, 2008 to December 31, 2008.
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 published by sending the printed annual report to the shareholders in week 13, 2009 starting at March 26, 2009 and by publishing the annual report on Alfa Laval’s website on March 26, 2009 at 8.30 CET.
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.
Financial statements
The following parts of the annual report are financial statements: the Board of Directors Report, the ten-year overview, the cash-flow statement, income statement, balance sheet, changes in equity capital for both the consolidated Group and the parent company and the notes. All of these have been audited. The rest of the annual report has been reviewed by the auditors.
Ownership and legal structure
Alfa Laval AB (publ) is the parent company of the Alfa Laval Group.
The company had 28,078 (16,090) shareholders on December 31, 2008. The largest owner is Tetra Laval B.V., the Netherlands who owns 18.4 (17.7) percent. The increase in ownership is due to the cancellation of the shares repurchased by the company. Next to the largest owner there are nine institutional investors with ownership in the range of 5.9 to 1.3 percent. These ten largest shareholders own 45.9 (48.2) percent of the shares.
Operations
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 primary segments are the two divisions ”Equipment” and ”Process Technology”, where the sales and marketing activities are performed. The divisions are based on ten customer segments. The customers to the Equipment division purchase products whereas the customers to the Process Technology division purchase solutions for processing applications. The Group also has a common function “Operations” for procurement, production and logistics. The Group’s secondary segments are geographical markets.
Material factors of risk and uncertainty
The main factors of risk and uncertainty facing the Group concern the price development and availability of strategic metals, fluctuations in major currencies, the turmoil in the financial markets and when the business cycle driven downturn in the demand for the company’s products comes and how deep the downturn will be. 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.
Public offer to purchase an additional 13 percent of Alfa Laval (India) Ltd
In a press release on October 23, 2008 Alfa Laval announced a public offer to increase its share of Alfa Laval (India) Ltd, which is listed on the stock exchange in Mumbai and has some 11,700 shareholders. Eleven institutional investors hold approximately 9 percent of the total number of shares. Through a public offer of 950 rupees per share Alfa Laval intended to increase its share to 89.99 percent of the company. The offer concerns approximately 2.4 million shares.
The public offer to purchase an additional 13 percent of Alfa Laval (India) Ltd opened on January 14, 2009 and closed on February 2, 2009. The initial offer of 950 rupees per share was raised to 1,000 rupees per share on January 20, 2009. The result of the offer was that owners of about 2.2 million shares corresponding to approximately 12 percent of the total number of shares have accepted to sell their shares. This means that the ownership in the Indian subsidiary will increase from 76.7 percent to about 89 percent. The total cost for the acquisition is estimated to approximately SEK 380 million.
The whole process is estimated to be finalized during the first quarter 2009.
Alfa Laval has been present in India since 1937. During 2008 Alfa Laval (India) Ltd. had an order intake of SEK 1,030 million and an average of 1,190 employees.
Acquisition of businesses
During 2008
On August 15, 2008 Alfa Laval acquired the US company Hutchison Hayes Separation, which is a leading provider of separation equipment, parts and services, mainly to the US energy related industries. Hutchison Hayes will operate as a separate organisation and adds a complementary channel for centrifugal separation equipment and service, primarily to the energy related industries in the US. The purchase price is SEK 227 million, out of which all 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 3 million. The impact on the cash flow was thus SEK -230 million. Out of the difference between the purchase price paid and the net assets acquired SEK 95 million was allocated to patents and un-patented know-how, SEK 49 million was allocated to the Hutchison Hayes Separation trademark and SEK 1 million to accrued gross margin in work in progress, while the residual SEK 46 million was allocated to goodwill. The goodwill is relating to estimated synergies in procurement, logistics and corporate overheads and Hutchison Hayes Separation’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 knowhow as well as the step up value for the trademark are depreciated over 10 years. The step up for accrued gross margin in work in progress was expensed during 2008. Hutchison Hayes Separation’s net sales and adjusted EBITA for 2008 from the date of the acquisition are SEK 66 million and SEK 10 million respectively. If Hutchison Hayes Separation had been acquired at January 1, 2008 the corresponding figures would have been SEK 139 million and SEK 26 million respectively.
On July 31, 2008 Alfa Laval acquired the German company Pressko AG, which is specialized in developing and manufacturing fully welded heat exchangers. Pressko AG will be integrated into Tranter, which is a separate organisation within the Alfa Laval Group. The purchase price is SEK 80 million, out of which SEK 68 million has been paid in cash and the rest is retained for a period of 1-2 years. 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 4 million. The impact on the cash flow was thus SEK -72 million. Out of the difference between the purchase price paid and the net assets acquired SEK 1 million was allocated to accrued gross margin in work in progress, while the residual SEK 69 million was allocated to goodwill. The goodwill is relating to estimated synergies in procurement, logistics and corporate overheads. The value of the goodwill is still preliminary. The step up for accrued gross margin in work in progress was expensed during 2008. Pressko’s net sales and adjusted EBITA for 2008 from the date of the acquisition are SEK 18 million and SEK 5 million respectively. If Pressko had been acquired at January 1, 2008 the corresponding figures would have been SEK 44 million and SEK 7 million respectively.
On June 13, 2008 Alfa Laval acquired about 44 percent of the Swedish company Ageratec that develops innovative process solutions for the biodiesel industry. On December 29 Alfa Laval increased its ownership to about 68 percent and Ageratec became a subsidiary. The purchase price is SEK 50 million 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. After deducting acquired cash and bank the impact on the cash flow was SEK -39 million. Out of the difference between the purchase price paid and the net assets acquired of SEK 44 million all was allocated to goodwill. The goodwill is relating to estimated synergies in procurement, logistics and corporate overheads and Ageratec’s ability to over time recreate its intangible assets. The value of the goodwill is still preliminary. Ageratec’s net sales and adjusted EBITA for 2008 from the date of the original acquisition when the company became an associated company until it became a subsidiary are SEK 46 million and SEK -8 million respectively. Ageratec’s net sales and adjusted EBITA for 2008 from the date when the company became a subsidiary are SEK 0 million and SEK 0 million respectively. If Ageratec had been acquired at January 1, 2008 the corresponding figures would have been SEK 58 million and SEK -18 million respectively.
On June 1, 2008 Alfa Laval acquired the US company Standard Refrigeration, a leading supplier of shell-and-tube heat exchangers for a variety of refrigeration, air-conditioning and industrial applications in the North American market. Standard Refrigeration will be integrated into Alfa Laval in order to capture synergies such as a wider product portfolio combined with an enhanced market presence. The purchase price is SEK 369 million, out of which SEK 351 million has been paid in cash and the rest is retained for a period of 18 months. 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 4 million. After deducting acquired cash and bank the impact on the cash flow was SEK -350 million. Out of the difference between the purchase price paid and the net assets acquired SEK 166 million was allocated to patents and unpatented know-how and SEK 5 million to accrued gross margin in work in progress, while the residual SEK 152 million was allocated to goodwill. The goodwill is relating to estimated synergies in procurement, logistics and corporate overheads and Standard Refrigeration’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 depreciated over 10 years. The step up for accrued gross margin in work in progress was expensed during 2008. Standard Refrigeration’s net sales and adjusted EBITA for 2008 from the date of the acquisition are SEK 140 million and SEK 34 million respectively. If Standard Refrigeration had been acquired at January 1, 2008 the corresponding figures would have been SEK 249 million and SEK 51 million respectively.
On February 11, 2008 Alfa Laval acquired the Danish company Høyer Promix A/S. The company develops, produces and markets agitators mainly for the food and pharma industry. The company has been merged into Alfa Laval Tank Equipment A/S. The purchase price is SEK 19 million 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 0 million. After deducting acquired cash and bank the impact on the cash flow was SEK -19 million. Out of the difference between the purchase price paid and the net assets acquired of SEK 16 million all was allocated to goodwill. The goodwill is relating to estimated synergies in procurement, logistics and corporate overheads. The value of the goodwill is still preliminary. The company’s net sales and adjusted EBITA for 2008 from the date of the acquisition are SEK 14 million and SEK 3 million respectively. If the company had been acquired at January 1, 2008 the corresponding figures would have been SEK 16 million and SEK 3 million respectively.
In addition two minor acquisitions have been made during 2008:
On September 1, 2008 Alfa Laval acquired the business in the Swedish company P&D’s Plattvärmeväxlarservice AB that performs service on heat exchangers. The purchase price is SEK 10 million, out of which 3 million has been paid in cash and the rest is retained for a period of 1-2 years. 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 0 million. The impact on the cash flow was thus SEK -3 million. Out of the difference between the purchase price paid and the net assets acquired of SEK 10 million all has been allocated to goodwill. The goodwill is relating to estimated synergies in procurement, logistics and corporate overheads. The value of the goodwill is still preliminary. The company’s net sales and adjusted EBITA for 2008 from the date of the acquisition are SEK 3 million and SEK 1 million respectively. If the company had been acquired at January 1, 2008 the corresponding figures would have been SEK 12 million and SEK 4 million respectively.
On April 1, 2008 Alfa Laval acquired 91 percent of the Indian company Nitrile India Pvt Ltd that manufactures rubberized gaskets mainly for the food processing industry. The acquisition is part of Alfa Laval’s double branding strategy and the company has thus been renamed to MCD Nitrile India Pvt Ltd. The company has 12 employees and 15-20 temporary employees. The purchase price is SEK 7 million 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 0 million. The impact on the cash flow was SEK -7 million. Out of the difference between the purchase price paid and the net assets acquired of SEK 6 million all was allocated to goodwill. The goodwill is relating to estimated synergies in procurement, logistics and corporate overheads. The company’s net sales and adjusted EBITA for 2008 from the date of the acquisition are SEK 1 million and SEK 0 million respectively. If Nitrile India Pvt Ltd had been acquired at January 1, 2008 the corresponding figures would have been SEK 1 million and SEK 0 million respectively.
During 2007
On December 1, 2007 Alfa Laval finalized the acquisition of the Finnish company Fincoil. The acquisition of Fincoil is in line with Alfa Laval’s strategy to expand the presence in the European air heat exchanger market. The company has 150 employees. Fincoil has a well-established position in the Nordic countries, the Baltic countries and Russia. Approximately 80 percent of the sales are exported. Fincoil has one manufacturing site outside Helsinki in Finland. The intention is to fully integrate Fincoil into