Financial risks

During 2024 Alfa Laval’s sales to countries outside Sweden amounted to 98.2 (97.8) percent of total sales.

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.

Graphs and tables related to this are presented below, next to item 1.

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 may hedge uncommitted exposures coming 12 months under certain circumstances. 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.

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.

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 -184 (89) 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 since this foreign currency has the largest impact on the statement of financial position. Since the Group uses part of its cash flows to amortize 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.

At December 31, 2024, the total debt portfolio of SEK 10,274 (13,273) million was split on loans with fixed interest of SEK 7,867 (10,921) and loans with floating interest rates of SEK 2,407 (2,352) 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 2.02 (1.73) during 2024.

The average interest duration for all loans was 23 (26) months at the end of 2024.

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 3. The reason why it was an income in 2024 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. A sensitivity analysis of interest rates is presented below, next to item 3.

• 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, 2024 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.

Refinancing risk is defined as the risk that the refinancing of maturing loans becomes difficult or costly.

The maturity structure of group funding is presented in graph 4.

• 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 a revolving credit facility of EUR 700 million corresponding to SEK 8,029 million on December 31, 2024 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, 2024 the facility was not utilised.

Alfa Laval has two loans of EUR 100 million from Svensk Exportkredit that matures in 2027 and 2028 respectively.

The commercial paper programme amounts to SEK 4,000 million
with varying maturity dates during the first quarter of 2025. SEK 0
million was utilised at December 31, 2024.

On December 31, 2024, Alfa Laval had three tranches of corporate
bonds listed on the Irish stock exchange. Two of them
corresponding to EUR 300 million each that mature in February
2026 and in February 2029 respectively, whereas the third of SEK
1,000 million matures in November 2025.

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 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.