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):

Transaction exposure relates to currency risks that arise due to exchange rate fluctuations that affect the currency flows that are generated by the business activities.

During 2023 Alfa Laval’s sales to countries outside Sweden amounted to 97.8 (97.7) percent of total sales.

The Group’s net transaction exposure at December 31, 2023 in the most important currencies before and after derivatives for the coming 12 months amounts to:

The positive bars are a reflection of:

– subsidiaries in Sweden and Denmark exporting in EUR;

– subsidiaries in Norway exporting mainly in USD but also in JPY; and

– subsidiaries in China exporting in EUR.

The negative bars are a reflection of subsidiaries in mainly the U.S. and Japan importing in EUR.

Currency contracts for projected flows are entered into continuously during the year. For contract-based exposures the aim for the derivatives is to 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:

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 the 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 treasury policy states that the local companies are responsible for identifying and hedging exchange rate exposures on all commercial flows via Alfa Laval Treasury International.

Transaction exposure from firm committed orders shall be hedged to 100 percent when the value of the net exposure exceeds EUR 200,000. Furthermore, companies with yearly net exposure exceeding EUR 1,000,000 must hedge at least 50 percent of the next 12 months net exposure concerning all uncommitted flows and committed flows below EUR 200,000. The total hedge must never exceed 100 percent. Longer hedging contracts of 13-24 months for uncommitted exposures require special approval.

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 and down to but not below 50 percent of the commercial exposure for each currency in a given time period.

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.

At December 31, 2023, the total debt portfolio of SEK 13,273 (15,062) million was split on loans with fixed interest of SEK 10,921 (11,392) and loans with floating interest rates of SEK 2,352 (3,670) million.

The Group has chosen not to hedge the loans with floating interest to fixed interest rate.

The average interest rate for all loans was 1.73 (1.30) during 2023.

The average interest duration for all loans including derivatives was 25.7 (29.1) months at the end of 2023.

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. The reason why it was an income in 2023 was that large parts of the cash and cash equivalents and the current deposits had floating interest rates at the same time as the loans with floating interest rates were of a lower magnitude.

The Group attempts to manage the interest risk by:

– seeking a balance between floating and fixed interest rates in the debt portfolio and

– through the use of derivative financial instruments such as interest rate swaps.

The high portion of loans with fixed interest rate at December 31, 2023 meant a low interest risk.

The treasury policy states that:

– the interest rate risk is measured separately for each main currency and for the total debt; and

– the average interest duration for the total portfolio should be between 6 and 36 months.

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 416 (387) 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.

In summary the maturity structure of the loans and the loan facilities is as follows:

Alfa Laval Treasury International is responsible for ensuring that:

– the Group has a sufficient liquidity reserve, including cash and cash equivalents, short-term investments and unutilized committed credit facilities,

– a too large part of the outstanding debt is not maturing within the coming 12 month period and

– the remaining average credit duration of the total debt portfolio is not too short.

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.

Alfa Laval has two loans of EUR 100 million from Svensk Exportkredit that matures in 2027 and 2028 respectively. The loan of EUR 100 million from Svenska Handelsbanken with maturity in June 2024, was repaid already on December 22, 2023.

Alfa Laval has a revolving credit facility of EUR 700 million corresponding to SEK 7,736 million on December 31, 2023 with a banking syndicate. The facility has a maturity of five years from April 2023 and it includes a possibility to increase by EUR 200 million. At December 31, 2023 the facility was not utilised.

The commercial paper programme of SEK 4,000 million, was not utilised at December 31, 2023.

On December 31, 2023, Alfa Laval has four tranches of corporate bonds listed on the Irish stock exchange. Three of them of EUR 300 million each that matures in June 2024, in February 2026 and in February 2029 respectively, whereas the fourth of SEK 1,000 million was raised in May 2023 and matures in November 2025.

Counterpart risk is defined as the risk that the counterpart is not able to fulfill its contractual obligations.

Financial instruments that potentially subject the Group to significant concentrations of credit risk consist principally of cash and cash equivalents, deposits and derivatives.

Received bank guarantees and letters of credit move the credit risk from the customer to the bank, but can still contain a credit risk, but now towards the bank.

The Group has a bank strategy with the objective to establish, maintain and develop strong bank relations at Group level. This in order to provide the Group with long- term banking support, a relevant product range and geographical coverage. The banks at Group level must have a credit rating from two rating institutions of minimum A.

The Group maintains cash and cash equivalents and current and non-current 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 counterparty. Furthermore, the Group has entered into ISDA agreements (International Swaps and Derivatives Association) with the counterparts in order to be able to offset assets and liabilities in case of a counterparty default. Alfa Laval has never encountered a counterparty default, which means that such an offset never has been made.

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.