Alternative performance measures

Alfa Laval follows the guidelines for alternative performance measures issued by ESMA (European Securities and Markets Authority). An alternative performance measure is a financial measure of historical financial performance, financial position or cash flows, other than a financial measure defined or specified in the financial reporting framework.

In the annual report, the below alternative performance measures have been used.

Measures to achieve full comparability over time

These measures are mainly related to the impact from amortization of step-up values both over time and compared to external companies. For the same reasons adjustments are also made for comparison distortion items. How they are calculated is exhibited in the Income analysis table on page 93, except for the last one.

  • EBITA or Earnings Before Interests, Taxes and Amortization is defined as operating income before amortization of step-up values. This measure of result is fully comparable over time, independent of the financing costs and the amortization of step-up values that from time to time burden the Group.
  • EBITA margin (%) is defined as EBITA in relation to net sales and expressed in percent.
  • EBITDA or Earnings Before Interest, Taxes, Depreciation and Amortization is defined as operating income before depreciation and amortization of step-up values. This measure of result is fully comparable over time independent of the financing costs, the depreciation and the amortization of step-up values that from time to time burden the Group.
  • EBITDA margin (%) is defined as EBITDA in relation to net sales and expressed in percent.
  • Adjusted EBITA or Adjusted Earnings Before Interests, Taxes and Amortization is defined as operating income before amortization of step-up values, adjusted for comparison distortion items. This measure of result is fully comparable over time independent of the comparison distortion items, the financing costs and the amortization of step-up values that from time to time burden the Group.
  • Adjusted EBITA margin (%) is defined as Adjusted EBITA in relation to net sales and expressed in percent.
  • Adjusted EBITDA or Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization is defined as operating income before depreciation and amortization of step-up values, adjusted for comparison distortion items. This measure of result is fully comparable over time independent of the comparison distortion items, the financing costs, the depreciation and the amortization of step-up values that from time to time burden the Group.
  • Adjusted EBITDA margin (%) is defined as Adjusted EBITDA in relation to net sales and expressed in percent.
  • Adjusted gross profit is defined as gross profit excluding amortization of step-up values. This measure of result is fully comparable over time independent of the amortization of step-up values that from time to time burden the Group.
  • Adjusted gross margin (%) is defined as Adjusted gross profit in relation to net sales and expressed in percent.
  • Earnings per share, excluding amortization of step-up values and the corresponding tax is defined as net income attributable to the owners of the parent, excluding amortization of step-up values and the corresponding tax divided by the average number of shares. The net income attributable to the owners of the parent is presented in the consolidated comprehensive income statement and the amortization of step-up values is exhibited in the Income analysis table on page 93. This key figure is fully comparable over time independent of the amortization of step-up values that from time to time burden the Group.

Measures to show how the Group is funded and manages its capital

  • Return on capital employed (%) is defined as EBITA in relation to average capital employed, calculated on 12 months’ revolving basis and expressed in percent. Capital employed is defined as 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. The measure shows how well the capital that is used in the operations is managed.
  • Net debt is defined as interest-bearing liabilities and lease liabilities less cash and cash equivalents and current deposits. The calculation of net debt is exhibited in the Net debt table in Note 29. The measure shows the net financial indebtedness.
  • Net debt to EBITDA, times is defined as Net debt in relation to EBITDA, calculated on 12 months’ revolving basis and expressed as a multiple of EBITDA. This is one of the covenants of Alfa Laval’s loans and an important key figure when reviewing the proposed dividend. EBITDA or Earnings Before Interest, Taxes, Depreciation and Amortization is defined as operating income before depreciation and amortization of step-up values.
  • Debt ratio, times is defined as Net debt in relation to equity at the end of the period and expressed as a multiple of the equity. This is another measure of how the Group is funded.
  • Interest coverage ratio, times is defined as 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.
  • Free cash flow per share is sum of cash flows from operating activities, investments and divestments of fixed assets for the year divided by the average number of shares. This represents the cash flow available for interest payments, acquisition of businesses and dividends to investors.

Definitions of other performance measures

Net sales

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.

Comparison distortion items

Items that are not directly related to the group’s normal operations or that are of a non-recurring nature, where reporting together with other items in the consolidated comprehensive income statement would have caused a comparison distortion effect, making it more difficult to assess the development of normal operations. Distorting items are reported gross on the income statement lines to which they relate and are specified in a note.

Orders received

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.

Order backlog at year-end

Incoming orders that not yet have been invoiced, translated at the current closing rate. 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.

Profit margin %

Result after financial items in relation to net sales, expressed in percent.

Capital turnover rate, times

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.

Capital employed

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 operating segments concerning taxes, deferred taxes and pensions.

Return on equity %

Net income for the year in relation to average equity, expressed in percent.

Solidity %

Equity in relation to total assets, expressed in percent.

Cash flow from operating activities

Shows the Group’s cash flow from operating activities, that is the cash flow generated in the daily operational activities.

Cash flow from investing activities

Shows the Group’s cash flow from investing activities, i.e. the cash flow generated by mainly the Group’s investments in fixed assets, divestments and acquisitions of businesses and divestments of real estate.

Cash flow from financing activities

Shows the Group’s cash flow from financing activities, that is mainly dividends, increase and amortization of loans and the cash flow components of the financial net.

Investments

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.

Average number of employees

The number of employees is measured and reported as full time equivalents. The average number of employees is calculated based on the number of employees at the end of the last 5 quarters. 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.

Earnings per share

Net income for the year attributable to the equity holders of the parent divided by the average number of shares.