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    ANNUAL REPORT 2016


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    Year in brief » Order intake rose 9% to SEK 13,004 million (11,939). » Net sales rose 9% to SEK 12,955 million (11,881). » Operating profit before amortisation of intangible non-current assets attributable to acquisitions (EBITA) rose 4% to SEK 1,484 million (1,427). » Profit after tax rose 5% to SEK 936 million (894), corresponding to earnings per share of SEK 7.80 (7.44) before dilution. » Eleven acquisitions were carried out, with combined annual sales of SEK 1,130 million. » The Board of Directors proposes a dividend of SEK 3.20 (3.00) per share for 2016. » Bo Annvik has been appointed as new President and CEO, and will take office at the Annual General Meeting on 26 April 2017. Key data 2016 2015 Net sales and earnings Net sales, SEK m 12,955 11,881 SEK m SEK m Operating profit, SEK m 1,272 1,235 15,000 1,800 EBITA, SEK m 1,484 1,427 12,500 1,500 EBITA margin, % 11.5 12.0 10,000 1200 Profit before tax, SEK m 1,194 1,137 7,500 900 Profit for the year after tax, SEK m 936 894 5,000 600 Earnings per share before dilution, SEK 7.80 7.44 2,500 300 Return on operating capital, % 20 22 Cash flow from operating activities, SEK m 1,207 1,076 0 0 2012 2013 2014 2015 2016 Net debt/equity ratio, % 82 80 Net sales EBITA Average number of employees 5,495 4,978 In May 2016 a 2:1 bonus issue was carried out, increasing the number of shares from 40 million to 120 million. Relevant comparison figures in this annual report have been recalculated to take this into account. » Contents Business concept ............................... 1 Sustainable business ....................... 13 Board of Directors and auditors ....... 40 Indutrade in brief .............................. 2 Quarterly overview .......................... 16 Group accounts .............................. 42 CEO’s message ................................. 4 Several-year overview.......................17 Parent Company accounts ............... 46 Goals and strategies .......................... 6 Definitions ..................................... 19 Notes .............................................. 50 Business philosophy and Directors’ report ............................. 20 Audit report .................................... 80 acquisition process ............................ 8 Corporate Governance Report ......... 32 Annual General Meeting and Driving forces and reporting dates ............................... 83 business environment........................ 9 Proposed distribution of earnings .... 38 Contact information........................ 83 Share data ...................................... 10 Group Management ....................... 39 This is an unofficial translation of the original Swedish text. In the event of any discrepancy between the English translation and the Swedish original, the Swedish version shall govern. b INDUTR ADE ANNUAL REPORT 2016


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    » Business concept Indutrade markets and sells components, systems and ser- vices with high-tech content in selected industrial niches. By having good knowledge about customers’ systems and processes, combined with a high level of technical expertise, Indutrade aspires to be the most effective partner for customers and suppliers alike. Sales growth, % Number of acquisitions EBITA margin, % Proposed dividend, SEK 9 11 11.5 3.20 » Share of sales 1) Other 2016, 6% 2015, 6% Asia 2016, 4% Sweden 2015, 4% 2016, 28% 2015, 29% Rest of Europe 2016, 44% Finland 2015, 43% 2016, 13% 2015, 13% Countries in which Indutrade’s presence is significant Countries in which Indutrade’s presence is limited North America 2016, 5% Austria France Malaysia Singapore 2015, 5% Belgium Germany The Netherlands Spain Brazil Hungary Norway Sri Lanka China India Poland South Korea Denmark Ireland Romania Sweden Estonia Latvia Russia UK 1) Based on customer’s residence. Finland Lithuania Switzerland USA INDUTR ADE ANNUAL REPORT 2016 1


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    Indutrade in brief » Since the stock market introduction in 2005 we have grown by an average of 12% per year and our sales now amount to nearly SEK 13 billion. Indutrade today comprises more than 200 companies in 28 countries on four continents. Our com- panies are characterised by high-tech know-how and an ability to build enduring, close relationships with customers and suppliers. » Our business philosophy is based on entrepreneurship, self determination and customer-adapted leadership. » We continue to pursue our acquisition strategy of buying successful, well managed companies with a clearly defined market and distinct offering. Net sales per customer segment, % Net sales per market, %1) Engineering 18 Sweden 28 Construction/Infrastructure 16 Finland 13 Energy 14 UK/Ireland 9 Healthcare 12 Benelux 8 Water/wastewater 8 Germany 7 Commercial vehicles 6 Norway 6 Marine & shipping 4 Denmark 6 Chemicals 4 North America 5 Auto repair 4 Food 3 Eastern Europe 4 Pulp & paper 3 Asia 4 Mining/steel 3 Switzerland 4 Other 5 Other 6 0 5 10 15 20 0 5 10 15 20 25 30 1) Based on customer’s residence. 2 Indutrade in brief INDUTR ADE ANNUAL REPORT 2016


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    » Acquire » Develop We set high standards for the companies Being part of the Indutrade Group means that we acquire. They are successful and well- a company can retain its original identity at managed, with a clearly defined market and the same time that it gains access to the com- distinct customer offering. They are run by bined experience and knowledge of industry entrepreneurs with a passion for their business colleagues in the Group. Indutrade’s compa- concept and who want to further develop the nies stimulate each other and benefit from business. We acquire companies in which the information-sharing. Network seminars and owner wants to continue leading and devel- internal benchmarking help to establish best oping the business, without being the owner. practice that can be spread throughout the The rationale for selling can vary. Perhaps the Group. All Indutrade companies have clearly company is facing an expansion or investment decentralised responsibility as well as authority. phase. Or maybe the owner wants to see his Indutrade supports them with industrial know- life’s work live on. Indutrade has no exit strat- how, financing, business development and egy, and by selling to Indutrade, the company’s management by objective. future can be secured. Sales growth, SEK million Volume/price Currency 2,239 77 Acquisitions 12,955 7,153 3,486 2004 2016 INDUTR ADE ANNUAL REPORT 2016 Indutrade in brief 3


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    A company to be proud of As I now write my final CEO’s message for an Indutrade annual report, I can affirm that we have once again reached record levels of sales and earnings. Despite a chal- lenging business environment in many respects, 2016 was the best year ever in Indutrade’s history. Sales rose 9% to nearly SEK 13 billion, while profit before tax rose 5%. The rate of growth was slightly lower than what we have tough times. It is therefore very gratifying to note the break been used to, however. This is explained by the exception- in trend in Finland; following a long period of weak demand, ally good year we had in 2015 for sales of valves for power we noted a clear improvement in the business situation, generation, with a number of major deliveries, for which especially in construction and the shipbuilding industry. we did not have any corresponding performance in 2016. In the UK and Ireland, the markets were negatively affect- The “drop” was thus from a very high level. An additional ed by the initial shock following the unexpected outcome of explanation for the lower rate of growth is the price pres- the Brexit vote. But we are now seeing a return of optimism sure and weak demand that is currently prevailing in the and pick-up in demand. marine segment. The businesses that are affected by the US market are currently doing very well. A very limited amount of our sales Breadth that creates stability are directly dependent on the USA, however, the underly- Global growth has been weak in general, but our broad ing performance of many companies is being favourably geographic presence reduces our dependence on indi- affected, as they deliver to other companies that directly vidual markets. This breadth also gives us staying power in benefit from growth in the US. ”The type of leader- ship that I and my colleagues stand for focuses on capitalis- ing on the resources that already exist in the companies we own and acquire. I am firmly convinced that our successes can be credited largely to the fact that we allow indi- viduals to have and take responsibility.” 4 CEO’s message INDUTR ADE ANNUAL REPORT 2016


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    Continued high rate of growth financial crisis in 2009. Moreover, growth has always been Acquisition activity also stayed high, and during the year achieved with profitability in focus. Both our earnings and we welcomed eleven new companies to the Indutrade dividends have grown at a steady pace over the years. Group with combined sales of more than SEK 1.1 billion. Nine of the acquired companies have own brands, which Strength in sharing responsibility is entirely in line with our strategy to increase the number What I am most proud of is the power inherent in all of of companies with proprietary products. Moreover, several the people in all our companies and how we have allowed of the companies have expertise in advanced testing and this power to take root and flourish. The type of leader- measurement technology – a segment that we believe has ship that I and my colleagues stand for focuses on capital- good growth potential, as we are seeing a heightened ising on the resources that already exist in the companies focus on efficient use of resources among all our customers. we own and acquire. I am fully and firmly convinced that As in previous years, most of the acquisitions were our successes can be credited largely to the fact that we made abroad – only two of the companies are Swedish. allow individuals to have and take responsibility. We recog- To be sure, there are many good acquisition candidates nise talented people, we support them, and we give them in Sweden, but we have seen a clear increase in competi- room to grow. tion for them, and thus the prices have also risen. A few years ago we were relatively alone with our acquisition Demanding leadership model that allowed a continued high degree of self-deter- The level of freedom we give our people is a strength, but mination for the companies we acquired, but today there it puts special demands on the central leadership. Above are more actors in the Swedish market that have adopted all it requires that one can listen and trust others’ abilities. the same model. Since we do not compete with price, we Indutrade consists of a vast number of successful entrepre- have instead broadened our acquisition focus to markets neurs who know and understand their respective markets. outside Sweden, where we can find attractive companies The recipe for success is to allow these entrepreneurs to at prices that do not raise the risk level. continue running their businesses in their own ways and to support and inspire them to develop even more. In this Achieved objectives way we have built up substantial structural capital in the Looking back on my more than 12 years as CEO of Group. Every country and every business area has strong Indutrade, there are many things that I am very proud of. organisations. Among other things, we have grown geographically and have become a global group with business in 28 coun- And finally… tries. The number of companies has grown from some 60 As my parting words I want to express my heartfelt grati- to more than 200. We have also dramatically increased tude to all of the Group’s employees, to my colleagues and the share of companies with own brands, which creates to business partners who I have had the pleasure to work stability. Sales have risen every year, except for during the together with on this journey. You have all helped make Indutrade a strong and stable group that delivers results. I want to wish my successor the best of luck – you are Earnings per share joining a wonderfully good company. Indutrade’s business SEK model has worked very successfully in the same way since 8 1978, and my strongest advice is to stick with it: “If it ain’t 7 6 broke, don’t fix it!” 5 4 3 2 Johnny Alvarsson 1 President and CEO, Indutrade 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Earnings Dividend INDUTR ADE ANNUAL REPORT 2016 CEO’s message 5


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    Goals and strategies Overall goals The Indutrade Group strives for continuous growth in selected geographic markets, product areas and niches while maintaining limited business risk. Growth is pursued organically as well as through acquisitions. Indutrade’s overall goals for profitable growth are: » to be the leading technical sales group in northern Europe in terms of net sales and technical expertise, and » to be an international group with proprietary products and brands. Financial targets Target Achievement Historical achievement Average sales growth shall amount to a During the last five-year period average % minimum of 10% per year over a business annual sales growth was 10%. Net sales 25 cycle. Growth is to be achieved organi- rose 9% in 2016. For comparable units, 20 cally as well as through acquisitions. the increase was 2%, while acquired 15 growth was 8% and the currency effect 10 Target was –1%. 5 0 2012 2013 2014 2015 2016 The target EBITA margin is a minimum The average EBITA margin during the last % 20 of 10% per year over a business cycle. five years was 11.5%. The EBITA margin in 2016 was 11.5%. 15 10 Target 5 0 2012 2013 2014 2015 2016 Return on operating capital should be a During the last five years the average % 30 minimum of 20% per year over a business return on operating capital was 21%. cycle. In 2016 the return was 20%. 20 Target 10 0 2012 2013 2014 2015 2016 Net debt/equity ratio should normally not During the last five years the net debt/ % 120 Target exceed 100%. equity ratio at year-end ranged from 79% 100 not to to 102%. The net debt/equity ratio at exceed 80 year-end 2016 was 82%. 60 100% 40 20 0 2012 2013 2014 2015 2016 The dividend payout ratio should range During the last five years the dividend % 100 from 30% to 60% of net profit. payout ratio was 44% including the proposed dividend. For 2016 a dividend 80 of SEK 3.20 has been proposed, corre- 60 Target sponding to 41% of net profit. 40 20 0 2012 2013 2014 2015 2016 6 Goals and strategies INDUTR ADE ANNUAL REPORT 2016


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    Strategies To achieve its overarching goals, Indutrade pursues the Companies with proprietary following strategies: products and brands Indutrade has a number of companies with proprietary Growth with limited business risk products and brands. The products should have a high-tech Growth will be pursued in three dimensions: content, while the companies should have a strong market • In new and existing technology areas position and favourable growth potential. • Through a broadened customer offering, such as extended support, training and other aftermarket services » Proprietary products and brands balance the • Geographically in selected markets Group’s technology sales companies. Since 2004 the Growth is to be achieved organically as well as through acqui- share of sales of proprietary products has grown by sitions. As companies in the Indutrade Group grow, the entry 31 percentage points, and in 2016 they accounted barriers for potential competitors are also expected to rise. At for 40% of consolidated net sales. the same time, the risk of Indutrade’s suppliers to the techni- cal sales companies establishing own sales organisations in High share of repetitive sales and the Company’s markets decreases. focus on selected customer segments The Group gives priority to customers with a recurring need » Business development and growth are strategic that are active in industries with favourable prospects for tools for lowering business risk. maintaining competitive production in Indutrade’s home markets. Many of these industries are characterised by a high Acquisitions degree of automation, high distribution costs and/or large Indutrade acquires well managed, long-term successful, often start-up investment. owner-led industrial companies whose management teams are eager to continue running and growing the business. These » This contributes to business stability and predict- ability of revenue flows. companies manufacture or sell products in distinct markets. » Indutrade normally does not sell companies. Nor do Sales organisation with high level we change the companies’ names or combine com- of technical expertise panies, which means that the seller knows that the Indutrade’s product and service offering, which is aimed at company will continue as a player in the market. both end users and OEM customers (customers that integrate Indutrade’s products in their own products), should have Strong market positions a high-tech content and incorporate a high level of service Indutrade focuses on sales of products in niches in which it and qualified technical consulting. Indutrade’s sales repre- can attain a leading position. sentatives must have a high level of technical expertise in their respective niches and a depth of knowledge about the » Strong market positions are often a prerequisite customers’ production processes. for good profitability. They also make it easier to attract the best suppliers, which further strengthens » This makes Indutrade an attractive business partner Indutrade’s position. that creates value-added for customers and suppliers alike. Long-term partnerships with leading suppliers Indutrade gives priority to suppliers who, through own Decentralised organisation with strong local ties product development, provide market-leading, high-quality Indutrade’s governance model is characterised by decentralisa- products with a high-tech content. A partnership with tion, as the best business decisions are made close to customers Indutrade should be the most profitable way for suppliers by people who have the best understanding of the customers’ to sell their products in the geographic markets in which needs and processes. Indutrade operates. » The subsidiaries are responsible for their own » A range of market-leading products from the best profitability, which contributes to greater flexibility suppliers, coupled with Indutrade’s technical and and a stronger entrepreneurial spirit. market know-how, makes Indutrade an attractive business partner for existing and potential customers. INDUTR ADE ANNUAL REPORT 2016 Goals and strategies 7


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    Business philosophy and acquisition process Our business philosophy builds upon entrepreneurship, Evaluation self-determination, and customer-adapted leadership. Potential acquisitions are evaluated on the basis of such We buy profitable, well managed companies which, after parameters as market position, the market segment’s being acquired, are allowed to continue doing business as attractiveness, customers, competitors, the principal usual, retaining their name, culture and management. supplier’s strategic and technical focus, repetitive features in the product offering, financial position, history, key per- sons’ continued involvement, and the value-added that the Giving the subsidiaries a great amount of freedom con- company can create for customers and suppliers. Thorough tributes to customer adaptation and flexibility, and creates evaluation minimises the operational and financial risk favourable conditions to continue fostering entrepreneur- associated with an acquisition. ship in the organisation. Our governance model is highly decentralised, which puts demands on acquired companies Negotiation to have a well-working operation and management. The main purpose of the negotiation phase is to ensure: • that the acquisition can be carried out at a price that makes the deal a value-creating endeavour; Cl Growth os • the continued involvement of key persons after the acquisi- ise e cu rt st pe Objectives-oriented tion. As the key persons are often part-owners of the om ex management er e company being acquired, normally an acquisition structure ich re ln lat Decentralised entailing earn-out payments is used. Key persons are there- ica io ns organisation hn by given an incentive to continue working in the Group and hi c ps Te contribute to continued growth; Acquire Develop • that the acquisition candidate’s main suppliers give their consent to the acquisition, thereby ensuring that key Entrepreneurship product agencies are not lost. The benefit of being part of Indutrade Indutrade supports its subsidiaries with industrial know- Governance process how, financing, business development and management Implementation by objective. We are a stable, stock exchange-listed owner In connection with an acquisition, a structured review is that takes responsibility for our subsidiaries’ long-term suc- conducted that focuses primarily on the acquired company’s: cess. The Group’s financial strength facilitates the subsidiaries’ • customers and suppliers, with a view to broadening the expansion and promotes stability. customer base and product offering, At internal networking seminars, we provide opportunities • organisation, with a view to improving efficiency and for our subsidiaries to make comparisons and informally share increasing focus on customers and sales, ideas and experiences. Every quarter a benchmarking process • costs, margins and inventory turnover with a view to is conducted in the form of a ranking list, which is designed to raising profitability. concretise the companies’ goals and give the company presidents New financial targets – adapted to the company’s conditions knowledge about other companies’ development in the Group. – are set. Acquisition process Follow-up Identification The Group’s management and the management of the per- Indutrade strives to establish a dialogue with the owners of tinent business area conduct a continuous dialogue with the potentially interesting companies at an early stage. In doing so, company’s management. The ongoing governance is goal- Indutrade is often positioned as a natural discussion partner oriented, with focus on growth, margins and working capital for business owners prior to a possible sale. At any given time, management. Indutrade is in discussions with acquisition candidates. IDENTIFICATION EVALUATION NEGOTIATION ACQUISITION IMPLEMENTATION FOLLOW-UP Acquisition process Governance process 8 Business philosophy INDUTR ADE ANNUAL REPORT 2016


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    Driving forces and business environment DRIVING FORCES BUSINESS PRIORITIES COMPANY PORTFOLIO VALUE CREATION Macro Profitable growth Sector focus Customers • Population growth • Acquisitions of well man- • Engineering • More energy-efficient • Growing middle class aged, owner-led industrial • Energy and environment-friendly • Scarcity of resources companies • Water and wastewater operations • Ageing population • Broadened customer • Environment • Lower costs • Globalisation offering • Transport • Higher productivity • Sustainable • Growth in selected • Healthcare • Broader product offering development geographical markets • Food Society • Digitalisation • Stronger market positions • Infrastructure • Better use of resources • Urbanisation • Repetitive sales • Reduced transports • Environmental benefits • Climate effects Shareholders • Dividend • Growth in value Employees • Competence development Global macro-trends such as climate change, demographic More efficient production with Indutrade changes and increased globalisation present our customers Indutrade offers components, systems and services that with a steady progression of new challenges. More efficient improve our customers’ ability to manage change and thereby production and renewal are in constant focus. Indutrade effectively meet the challenges presented by a changing world. is an important partner that contributes to its customers’ Our growth strategy is focused on sectors with high de- ability to develop. mands for efficiency and thus a high degree of automation. Priority is given to products that help industries measure, Conducting active business intelligence in which the sali- govern, control, automate and improve the efficiency of their ent trends are identified, monitored and analysed is crucial processes, and products that support industries in meet- for Indutrade in its ability to make well-grounded decisions ing environmental standards and their energy needs. With regarding its business. While global trends entail challenges, Indutrade’s help, customers can conduct their business in a they also represent major business opportunities. more energy-efficient and environment-friendly manner. Population growth and a growing middle class are leading to rising demand for capital- as well as consumer Diversification of risk goods, at the same time that the need for healthcare is ris- In an effort to diversify risk and reduce sensitivity to eco- ing as people are living longer. Migration in large parts of nomic fluctuations, Indutrade works with products and the world is creating a need for infrastructure investment. solutions in a wide range of sectors. Limited natural resources are leading to greater demands In view of the growing demands for generally improved for more efficient use of resources, recycling of material, environmental performance and more efficient energy and conservation of energy in industry. Climate change is production, together with growing international trade, the leading to demands for greater use of renewable energy segments that are considered to be the most important for sources and a sustainable transport sector, with improved Indutrade’s continued expansion and development are energy, fuel economy and lower carbon emissions. This grow- water and wastewater, the environment, transport, construc- ing environmental awareness coupled with demands for tion and infrastructure, healthcare, engineering and food. long-term sustainable development is resulting in greater Indutrade’s largest segments in terms of sales are currently demand among consumers for locally produced goods. engineering, construction and infrastructure, energy and healthcare. INDUTR ADE ANNUAL REPORT 2016 Driving forces and business environment 9


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    Share data Bonus issue Indutrade’s shares are listed on Nasdaq Stockholm. The Annual General Meeting on 27 April 2016 resolved The shares have been listed on the Large Cap list since in favour of a 2:1 bonus issue, with 27 May 2016 as the 1 January 2015. Indutrade’s market capitalisation on record date. For each existing share held on the record 31 December 2016 was SEK 21,960 million (19,220). date, two new shares were issued to the shareholder at no charge. Following the bonus issue, the number of shares in Indutrade tripled, and the price per share decreased to Indutrade’s share price rose from SEK 160.17 to SEK roughly a third. As per 31 May 2016 the number of shares 183.00 during the year, an increase of 14%. The Stock- in Indutrade was 120,000,000. holm Stock Exchange gained 6% for the year, and the OMX Industrials PI index rose 19%. Including reinvested Share capital dividends, the total return for Indutrade shares was 17%. Indutrade’s share capital amounted to SEK 240 million The highest price paid in 2016 was on 8 September, on 31 December 2016 (40), divided among 120,000,000 SEK 191.00, and the lowest price paid was on 9 February, shares (40,000,000) with a share quota value of SEK 2 (1). SEK 136.23. During the last ten-year period Indutrade’s All shares have equal voting power. shares have delivered a total return of 448% including reinvested dividends, while the SIX Return Index, which Ownership structure measures the total return of the market as a whole, Indutrade had 10,518 shareholders on 31 December 2016 showed a total return of 107% during the same period. (7,965). At year-end the ten largest owners controlled 61% of the capital and votes (65%). Swedish legal entities, Trading volume including institutions such as insurance companies and A total of 48.9 million (42.9) Indutrade shares were traded mutual funds, owned 69% of the capital and votes at in 2016 for a combined value of SEK 8.1 billion (5.6). This year-end (67%). Foreign ownership of the Company was corresponds to a turnover rate of 41% (36%). Average 24% (26%). daily trading volume was 193,398 Indutrade shares (170,743), with 895 transactions (559). Incentive programmes In April 2014 the Annual General Meeting of Indutrade AB resolved to implement an incentive programme, LTI 2014, comprising a combined maximum of 460,000 warrants Share price trend 2016 Share price trend 2007-2016 SEK No. of shares SEK No. of shares 200.0 6,000 200 25,000 187.5 5,000 160 20,000 175.0 4,000 120 15,000 162.5 3,000 80 10,000 150.0 2,000 137.5 1,000 40 5,000 125.0 0 0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Indutrade SX20 OMX Stockholm Industrials_PI Source: Indutrade SX20 OMX Stockholm Industrials_PI Source: OMX Stockholm_PI OMX Stockholm_PI Trading volume, number of shares ‘000s per month Trading volume, number of shares ‘000s per month 10 Share data INDUTR ADE ANNUAL REPORT 2016


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    in two series, directed at senior executives and other key The Board of Directors has decided to propose to the persons in the Indutrade Group. Annual General Meeting in April 2017 to resolve in favour Within the framework of Series I, which was offered to of an additional long-term share-based incentive pro- 135 persons, the participants acquired a total of 257,500 gramme directed at approximately 180 executives and warrants, and within the framework of Series II, which was other key persons within the Group. This programme will offered to 13 persons, the participants acquired a total of also be based on warrants. 27,500 warrants. After the bonus issue in May 2016, each warrant entitles its owner to subscribe for three shares. Dividend and dividend policy The subscription price for Series I has been recalculated to The Board’s goal is to provide the shareholders an attrac- SEK 118.80 per share, and the subscription price for Series tive dividend yield and high dividend growth. The goal II has been recalculated to SEK 116.70 per share. is that over time, the dividend shall range from 30% to The shares can be subscribed during specially pre- 60% of net profit. During the last five-year period, of scribed subscription periods through Friday, 18 May 2018. Indutrade’s aggregate profit after tax, totalling SEK 3,689 Upon full exercise, the number of shares outstanding will million, dividends of SEK 1,618 million have been paid to increase by 855,000, corresponding to 0.7% of the total the shareholders (including the proposed dividend for the number of shares and votes. During the full year 2016, year), which corresponds to 44% of net profit. there was a marginal dilutive effect of 0.21% (0.08%). Ownership by country, % Owners by category, % Other Nordic countries 1% Other world 1% Social insurance funds 2% Stakeholder organisations 2% Swedish natural Other Europe 9% persons 7% Other legal USA 13% Owners entities 35% with foreign Sweden 76% domicile 24% Financial companies 30% Key data per share 10 largest shareholders at 31 December 2016 2016 2015 Share of Share price per 31 December, SEK 183.00 160.17 capital and No. shares votes, % Market cap at 31 December, SEK m 21,960 19,220 L E Lundbergföretagen 31,575,000 26.3 Dividend, SEK 3.201) 3.00 Didner & Gerge funds 11,743,689 9.8 Earnings before dilution, SEK 7.80 7.44 AMF Insurance and funds 7,829,190 6.5 Earnings after dilution, SEK 7.78 7.44 Handelsbanken funds 6,659,032 5.6 No. of shares outstanding, thousands 120,000 120,000 SEB Investment Management 4,459,700 3.7 Average number of shares before dilution, thousands 120,000 120,000 Första AP-fonden 2,389,000 2.0 Average number of shares after dilution, JPM Chase NA 2,311,932 1.9 thousands 120,251 120,094 SSB Client Omnibus AC OM07 2,135,333 1.8 No. of shareholders per 31 December 10,518 7,965 Odin Norden 1,996,951 1.7 Highest price paid during the financial Länsförsäkringar fund management 1,962,531 1.6 year, SEK 191.00 162.77 Other 46,937,642 39.1 Lowest price paid during the financial year, SEK 136.23 103.50 Dividend yield2), % 1.7 1.9 Shareholders’ equity, SEK 36.58 30.86 Cash flow from operating activities, SEK 10.06 8.97 1) Proposed by the Board of Directors. 2) Dividend divided by share price on 31 December. INDUTR ADE ANNUAL REPORT 2016 Share data 11


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    Four reasons to invest in Indutrade 1. Sustainable growth • Average annual rate of growth of 12% since stock market listing in 2005 • 448% total return, including reinvested dividends, during the last ten-year period • History of successful acquisitions • Opportunities to broaden product offering, enhance value creation and expand geographically 2. Attractive market position and risk profile • Leading position in selected, niche segments • Focus on high quality and technically advanced products for customers with recurring need • Diversified and stable customer base • Stable long-term relationships with leading suppliers • Not dependent on any single supplier 3. Stable profitability and strong cash flow • History of stable profitability • Average EBITA margin of 11.5% during last five years • Average return on operating capital of 21% during last five years • Strong operating cash flow generated over the years • High average dividend – 44% of net profit during last five years • Equity ratio 40% at year-end 2016 4. Strong culture and extensive expertise • Decentralised organisation • Entrepreneurial spirit • Strict income and cost control • Sales force with extensive technical knowledge Analyst firms that monitor Indutrade ABG Sundal Collier, Carnegie Investment Bank, Danske Bank Markets, Handelsbanken, Nordea, SEB and Swedbank. Total return for Indutrade shares 2007-2016 Earnings and dividend per share SEK SEK 250 8 7 200 6 150 5 4 100 3 2 50 1 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Indutrade (total return) SIX Return Index Earnings Dividend 12 Share data INDUTR ADE ANNUAL REPORT 2016


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    Greater focus on sustainable business Acquiring companies is one of the cornerstones of Indutrade’s business model. In our acquisition process it is therefore imperative that we ensure shared values and principles with respect to sustainable business. Our ambition is to conduct our business in close dialogue with the stakeholders that affect and are affected by our business decisions to a large extent. Staying abreast of developments in the world around us and advocating for a sustainable value chain gives us conditions to offer our customers innovative solutions to the challenges of today and tomorrow! OUR VIEW OF SUSTAINABLE BUSINESS Our role as an owner Clearer focus for sustainability work Indutrade’s most important duty is to create sustainable We need to continuously adapt our priorities to the ways value through its subsidiaries – both for ourselves and for in which Indutrade is developing and to changes in the the communities we work in. We acquire well run and surrounding world. Identifying and analysing the expecta- profitable companies that share our values. One of the tions that our key stakeholders put on us – including our most important reasons for Indutrade being considered subsidiaries, owners and employees – helps us to focus to acquire a company is that the owners want to see their our work and our resources on the areas in which we have life’s work continue to thrive and develop. For our part, the greatest influence and where we are subject to high being a responsible long-term owner requires that we expectations from people in our operating environment. make careful considerations in the demands we set and the This is a prerequisite for our ability to create our intended support we lend to our subsidiaries on matters concern- level of sustainable value. In 2016 we began work on a ing corporate social responsibility. Sustainability issues general materiality analysis, which resulted in the definition are included as a recurring topic in discussions surround- of three focus areas for Indutrade’s sustainability work: ing the strategic direction and financial objectives of our long-term ownership, competence and qualifications, and subsidiaries. Our ambition is to develop and strengthen our business ethics. We intend to validate this analysis with companies in this dimension as well. Indutrade’s key stakeholders in 2017. Activities carried out in 2016: Planned activities for 2017: • Began work on materiality analysis • Validate materiality analysis • Performed risk assessment of sustainability risks in • Formalise sustainability criteria in the due diligence operations process • Formulated target areas • Formalise succession planning • Followed up implementation of the Code of Conduct • Develop and follow up training activities • Identified sustainability risks among suppliers • Conduct anti-corruption mapping • Follow up mapping of risks in supply chain INDUTR ADE ANNUAL REPORT 2016 Sustainable business 13


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    LONG-TERM OWNERSHIP COMPETENCE AND QUALIFICATIONS BUSINESS ETHICS Sustainable Competence Implementation Sustainability Company acquisition Decentrali- Strong develop- Succession of the Code of among culture process sation local ties Diversity ment planning Conduct suppliers OUR VIEW OF LONG-TERM OWNERSHIP Values-steered acquisitions tives into our due diligence process. We will also monitor We are steadfast in our belief that clearly formulated the subsidiaries’ perceptions of Indutrade as a responsible values form a foundation for good business ethics, which owner from these perspectives. are crucial for upholding the trust of customers and employees as well as of other stakeholders. In our acquisi- Business with local ties tion process, ensuring that we have a shared set of values The business conducted by Indutrade’s companies is based and principles is therefore a key consideration. We put on long-term, strong relationships with customers and strong emphasis during the acquisition process on getting suppliers, but also with the local communities in which to know the company and its management, employees the companies are located and operate. Our companies and owners in order to ensure they will be a good fit with contribute to local development through their long-term Indutrade. Discussions and reasoning surrounding our de- presence and profitable business. Each and every one of centralised governance model and our fundamental values our employees plays a role in upholding the public’s trust are conducted as early as possible in the acquisition pro- in Indutrade’s companies as reliable and responsible com- cess. In 2017 we will begin work on formalising how we panies that live up to their obligations in all respects. can include corporate culture and decentralisation perspec- OUR VIEW OF COMPETENCE AND QUALIFICATIONS Diversity contributes to dynamism perspectives. Indutrade’s companies can point to many and competitiveness good examples of environmentally adapted solutions or Diversity and the rejection of all forms of discrimination solutions that contribute to improved efficiency, safety and are prerequisites for maintaining the competitiveness and productivity for customers. In connection with our internal dynamism in our organisation as well as for upholding our meetings, such as the Group’s annual presidents meeting, reputation as an attractive employer. All of our employees the monthly Group Management meetings and internal are to be given equal opportunities for career development board meetings, we highlight successful examples of regardless of gender, ethnicity, religion or faith, functional sustainable customer offerings that can serve as inspiration disability, sexual orientation or age. With a decentralised for Indutrade’s subsidiaries. governance model, diversity in the subsidiaries is mainly One prerequisite for our success at developing our an issue for the respective companies’ presidents. In 2017 business is that both we and our subsidiaries can attract, Indutrade will look into diversity-promoting measures recruit, develop and retain employees with the right compe- related to the appointment of our subsidiary presidents. tence and values. Indutrade’s subsidiaries typically serve as problem solvers for customers, which requires our people Access to the right competence to have a high level of business and technical expertise. We Indutrade’s greatest potential in the area of sustainability therefore put great emphasis on continuous competence lies in helping the subsidiaries’ customers meet growing development in our companies, which also helps us attract demands and expectations for responsible and sustainable and retain key people. It also helps us secure access to solutions. In addition to being a responsible business part- people who are prepared and competent to take on respon- ner, this entails that – in developing our customer offerings sibility as a subsidiary president. In 2017 we will develop and positioning our subsidiaries – we demonstrate that we and follow up our internal development programmes and provide value-added, such as from environmental or social formalise succession planning within the Group. 14 Sustainable business INDUTR ADE ANNUAL REPORT 2016


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    OUR VIEW OF BUSINESS ETHICS Code of Conduct – everyone’s responsibility and right operations of Indutrade’s subsidiaries involve lighter work- The Code of Conduct that we introduced in 2015 lays out shop and assembly work. We want to give our subsidiaries a number of overarching principles and guidelines that the absolute best conditions to grow, among other things codify how we want to act and be perceived. The Code by continuously investing in their production environments. of Conduct, which covers environmental concerns, health Apart from contributing to higher productivity, this also and safety, business ethics, employee relations, human leads to safer workplaces with fewer risk areas and repeti- rights and community impacts, serves as a foundation for tive movements. our daily work with sustainability issues and applies for all employees. The subsidiary presidents are responsible for Environmental work across the value chain ensuring the employees within their respective organisa- Indutrade’s direct environmental impacts are relatively tions are familiar with the Code of Conduct. The subsidiary limited and arise primarily in the subsidiaries in connec- presidents also determine if there are other actors in the tion with transports of finished products, business travel, company’s value chain who are covered by the Code, such and handling of waste. This notwithstanding, the goal is as suppliers, contractors or consultants. During 2016 a first to reduce our environmental impact through systematic follow-up was conducted of the subsidiaries’ performance improvement work across the entire value chain. A number at implementing the Code of Conduct in their operations. of subsidiaries are certified according to ISO 14001, but This follow-up showed that the vast majority of companies even companies that are not certified conduct system- have informed or discussed the content of the Code of atic environmental work aimed at achieving continuous Conduct with their employees. The most important issue improvements that are followed up with targets and action is considered to be the one dealing with business ethics. plans within the subsidiaries’ respective frameworks. Indutrade plans to conduct a review of its anti-corruption Priority areas of focus include efficient use of energy and work in 2017. natural resources, established systems for reusing and Follow-up of adherence to the Code of Conduct will recycling material and energy, and prevention of environ- continue to be conducted as part of the annual monitor- mental pollution. ing of internal control. Employees can choose to report, anonymously if they so desire, deviations from the Code of Sustainability among suppliers Conduct or suspicions of improprieties via an established Indutrade is striving to develop and strengthen its subsidi- whistleblower function. aries with respect to sustainability among its suppliers. A mapping of the subsidiaries’ suppliers was conducted in Safe and sound workplace 2016. In 2017 we will analyse the outcome of this mapping All Indutrade employees shall have a safe and healthy and determine how we as owner can best support our workplace. Proactively eliminating obvious physical risks subsidiaries in managing potential risks in their respective and following up safety work and the employees’ work supply chains. situations are a matter of course for us. In general, the INDUTR ADE ANNUAL REPORT 2016 Sustainable business 15


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    Quarterly overview 2016 2015 Net sales, SEK million Total Oct-Dec Jul-Sep Apr-Jun Jan-Mar Total Oct-Dec Jul-Sep Apr-Jun Jan-Mar Engineering & Equipment 1,537 415 389 397 336 1,466 376 373 371 346 Flow Technology 2,231 580 531 591 529 2,234 612 545 593 484 Fluids & Mechanical Solutions 1,558 445 385 404 324 1,249 339 316 307 287 Industrial Components 2,501 690 596 649 566 2,263 628 557 589 489 Measurement & Sensor Technology 1,171 338 295 297 241 938 246 227 246 219 Special Products 3,997 1,040 990 991 976 3,772 1,029 1,030 928 785 Parent Company and Group items –40 –9 –10 –12 –9 –41 –11 –12 –9 –9 12,955 3,499 3,176 3,317 2,963 11,881 3,219 3,036 3,025 2,601 EBITA, SEK million Total Oct-Dec Jul-Sep Apr-Jun Jan-Mar Total Oct-Dec Jul-Sep Apr-Jun Jan-Mar Engineering & Equipment 124 29 42 38 15 125 29 41 32 23 Flow Technology 168 38 35 55 40 217 59 52 63 43 Fluids & Mechanical Solutions 199 54 48 56 41 163 41 43 40 39 Industrial Components 265 76 67 72 50 249 64 72 68 45 Measurement & Sensor Technology 177 51 51 45 30 164 43 42 38 41 Special Products 597 144 142 159 152 564 166 154 140 104 Parent Company and Group items –46 –1 –8 –20 –17 –55 –4 –17 –19 –15 1,484 391 377 405 311 1,427 398 387 362 280 EBITA margin, % Total Oct-Dec Jul-Sep Apr-Jun Jan-Mar Total Oct-Dec Jul-Sep Apr-Jun Jan-Mar Engineering & Equipment 8.1 7.0 10.8 9.6 4.5 8.5 7.7 11.0 8.6 6.6 Flow Technology 7.5 6.6 6.6 9.3 7.6 9.7 9.6 9.5 10.6 8.9 Fluids & Mechanical Solutions 12.8 12.1 12.5 13.9 12.7 13.1 12.1 13.6 13.0 13.6 Industrial Components 10.6 11.0 11.2 11.1 8.8 11.0 10.2 12.9 11.5 9.2 Measurement & Sensor Technology 15.1 15.1 17.3 15.2 12.4 17.5 17.5 18.5 15.4 18.7 Special Products 14.9 13.8 14.3 16.0 15.6 15.0 16.1 15.0 15.1 13.2 11.5 11.2 11.9 12.2 10.5 12.0 12.4 12.7 12.0 10.8 16 Quarterly overview INDUTR ADE ANNUAL REPORT 2016


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    Several-year overview Condensed income statements, SEK million 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Net sales 12,955 11,881 9,746 8,831 8,384 7,994 6,745 6,271 6,778 5,673 Cost of goods sold –8,607 –7,847 –6,464 –5,833 –5,545 –5,268 –4,480 –4,207 –4,520 –3,826 Development costs –156 –133 –107 –110 –95 –74 –48 –44 –32 –20 Selling costs –2,179 –2,044 –1,708 –1,601 –1,527 –1,430 –1,224 –1,169 –1,169 –972 Administrative expenses –791 –635 –535 –449 –426 –398 –376 –323 –299 –250 Other operating income/expenses 50 13 49 18 6 –2 –3 –3 2 4 Operating profit 1,272 1,235 981 856 797 822 614 525 760 609 Financial income and expenses –78 –98 –86 –100 –83 –93 –61 –64 –68 –31 Profit after financial items 1,194 1,137 895 756 714 729 553 461 692 578 Tax –258 –243 –192 –169 –145 –189 –148 –120 –182 –159 Net profit for the year 936 894 703 587 569 540 405 341 510 419 EBITA 1,484 1,427 1,134 990 905 917 703 594 820 650 EBITA margin, % 11.5 12.0 11.6 11.2 10.8 11.5 10.4 9.5 12.1 11.5 Condensed balance sheets, SEK million 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Assets Goodwill 2,388 1,942 1,572 1,308 1,188 822 712 514 574 378 Other intangible assets 1,879 1,636 1,445 1,286 1,215 888 761 555 599 364 Property, plant and equipment 1,451 1,117 971 849 741 706 657 563 554 388 Financial assets 117 101 87 61 59 45 50 48 52 43 Inventories 2,249 1,931 1,617 1,546 1,472 1,328 1,183 1,064 1,207 936 Accounts receivable – trade 2,292 1,995 1,702 1,435 1,411 1,263 1,047 901 1,102 859 Other receivables 345 300 336 208 204 149 164 125 100 100 Cash and cash equivalents 332 339 357 261 243 264 219 229 223 203 Total assets 11,053 9,361 8,087 6,954 6,533 5,465 4,793 3,999 4,411 3,271 Liabilities and equity Equity 4,399 3,707 3,162 2,626 2,290 2,064 1,744 1,644 1,597 1,189 Non-current interest-bearing liabilities, and pension liabilities 2,274 1,260 1,216 2,201 1,158 837 939 886 930 431 Other non-current liabilities and provisions 563 480 412 353 333 255 231 132 148 237 Current interest-bearing liabilities 1,686 2,028 1,635 381 1,424 1,083 841 462 622 393 Accounts payable – trade 968 848 763 602 586 556 493 424 584 470 Other current liabilities 1,163 1,038 899 791 742 670 545 451 530 551 Total liabilities and equity 11,053 9,361 8,087 6,954 6,533 5,465 4,793 3,999 4,411 3,271 INDUTR ADE ANNUAL REPORT 2016 Several-year overview 17


  • Page 20

    Condensed cash flow statements, SEK million 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Cash flow from operating activities before changes in working capital 1,318 1,315 970 790 720 764 616 438 619 526 Changes in working capital –111 –239 –66 69 –201 –55 40 120 –129 –127 Cash flow from operating activities 1,207 1,076 904 859 519 709 656 558 490 399 Net investment in non-current assets –320 –221 –124 –206 –127 –139 –111 –90 –130 –67 Company acquisitions and divestments –1,164 –878 –585 –444 –572 –467 –684 –188 –276 –307 Change in other financial assets 8 –1 3 1 –5 13 0 0 0 1 Cash flow from investing activities –1,476 –1,100 –706 –649 –704 –593 –795 –278 –406 –373 Net borrowing 620 303 165 88 442 134 321 –12 131 203 Dividend payout –360 –310 –282 –282 –270 –204 –172 –256 –210 –150 Cash flow from financing activities 260 –7 –117 –194 172 –70 149 –268 –79 53 Cash flow for the year –9 –31 81 16 –13 46 10 12 5 79 Cash and cash equivalents at start of year 339 357 261 243 264 219 229 223 203 119 Exchange rate differences 2 13 15 2 –8 –1 –20 –6 15 5 Cash and cash equivalents at end of year 332 339 357 261 243 264 219 229 223 203 Financial metrics, SEK million 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Non-current interest-bearing liabilities 2,274 1,260 1,216 2,201 1,158 837 939 886 930 431 Current interest-bearing liabilities 1,686 2,028 1,635 381 1,424 1,083 841 462 622 393 Cash and cash equivalents –332 –339 –357 –261 –243 –264 –219 –229 –223 –203 Interest-bearing net debt 3,628 2,949 2,494 2,321 2,339 1,656 1,561 1,119 1,329 621 Net debt/equity ratio, % 82 80 79 88 102 80 90 68 83 52 Interest coverage ratio, times 16.5 14.6 12.2 8.9 9.0 8.9 9.4 7.6 10.4 15.8 Equity ratio, % 40 40 39 38 35 38 36 41 36 36 Net debt/EBITDA, times 2.2 1.8 1.9 2.1 2.3 1.6 2.0 1.6 1.5 0.9 Return measures Average operating capital, SEK million 7,491 6,537 5,324 4,894 4,078 3,680 3,605 3,211 2,484 1,711 Return on operating capital, % 20 22 21 20 22 25 19 18 33 38 Average equity, SEK million 3,976 3,440 2,818 2,377 2,113 1,849 1,672 1,602 1,337 1,020 Return on equity, % 24 26 25 25 27 29 24 21 38 41 Number of employees Average 5,495 4,978 4,418 4,151 3,939 3,778 3,420 3,122 2,728 1,929 At year-end 5,705 5,107 4,578 4,218 4,086 3,807 3,444 3,040 3,269 2,083 18 Several-year overview INDUTR ADE ANNUAL REPORT 2016


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    Key data per share 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Share price at 31 December, SEK 183.00 160.17 104.00 89.50 65.67 61.00 77.33 45.00 22.08 41.25 Market cap at 31 December, SEK million 21,960 19,220 12,480 10,740 7,880 7,320 9,280 5,400 2,650 4,930 1) Dividend, SEK 3.20 3.00 2.58 2.35 2.35 2.25 1.70 1.43 2.13 1.75 Earnings before dilution, SEK 7.80 7.44 5.87 4.89 4.74 4.50 3.39 2.84 4.25 3.49 Earnings after dilution, SEK 7.78 7.44 5.87 4.89 4.74 4.50 3.39 2.84 4.25 3.49 Number of shares outstanding, 000s 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 Average number of shares before dilution, 000s 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 Average number of shares after dilution, 000s 120,251 120,094 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 Number of shareholders per 31 December 10,518 7,965 5,970 6,038 5,721 5,025 5,388 5,369 4,577 4,739 Highest price paid during the financial year, SEK 191.00 162.77 106.50 90.83 76.50 79.67 78.00 51.00 49.67 57.33 Lowest price paid during the financial year, SEK 136.23 103.50 80.33 66.00 58.33 51.17 44.83 23.17 21.25 39.00 Dividend yield2), % 1.7 1.9 2.5 2.6 3.6 3.7 2.2 3.2 9.7 4.3 Shareholders’ equity, SEK 36.58 30.86 26.33 21.86 19.07 17.18 14.52 13.70 13.31 9.91 Cash flow from operating activities, SEK 10.06 8.97 7.53 7.16 4.33 5.91 5.47 4.65 4.08 3.33 1) Proposed for 2016 by the Board of Directors. 2) Dividend divided by the share price on 31 December. Definitions In this annual report Indutrade presents certain key ratios (Alternative Since not all companies calculate their financial key ratios in the same Performance Measures – APMs) that complement the financial meas- way, they are not always comparable. They should therefore not be ures defined in IFRS. Indutrade believes that these key ratios provide regarded as a substitute for the key ratios defined in IFRS. Following valuable information to investors and the Group’s management, as are definitions of Indutrade’s key ratios, of which most are APMs. they contribute to assessment of the Group’s performance, trends, ability to repay debt and invest in new business opportunities, and they reflect the Group’s acquisition-intensive business model. Earnings per share before dilution Equity per share Net debt/equity ratio Net profit for the period attributable to Shareholders’ equity attributable to the Interest-bearing net debt divided by share- owners of the parent divided by the average parent company divided by the number of holders’ equity. number of shares outstanding. Definition shares outstanding. according to IFRS. Net debt/EBITDA Equity ratio Interest-bearing net debt at the end of Earnings per share after dilution Shareholders’ equity divided by total assets. the period divided by EBITDA on a moving Net profit for the period attributable to 12-month basis. owners of the parent divided by the average Gross margin number of shares outstanding after dilution. Gross profit divided by net sales. Operating capital Shareholders’ equity plus interest-bearing EBITA Interest-bearing net debt net debt. Operating profit before amortisation of intan- Interest-bearing liabilities including pension gible non-current assets arising in connection liability and estimated earn-outs from acquisi- Return on equity with company acquisitions (Earnings Before tions, less cash and cash equivalents. Net profit for the period on a moving Interest, Tax and Amortisation). EBITA is the 12-month basis divided by average share- principal measure of the Group’s earnings. Interest cover ratio holders’ equity per month. Operating profit plus interest income divided EBITA margin by interest expenses. Return on operating capital EBITA divided by net sales. EBITA calculated on a moving 12-month basis Net capital expenditures divided by average operating capital per EBITDA Purchases less sales of intangible non-current month. Operating profit before depreciation and assets and of property, plant and equipment, amortisation (Earnings Before Interest, Tax, excluding those included in acquisitions and Depreciation and Amortisation). divestments of subsidiaries and businesses. INDUTR ADE ANNUAL REPORT 2016 Several-year overview 19


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    Directors’ report Products, order intake increased during the year for com- The Board of Directors and President of Indutrade AB parable units. Order intake for Special Products decreased (publ), reg. no. 556017-9367, herewith submit the by 3% on a like-for-like basis. annual report for the 2016 financial year. Net sales for the year totalled SEK 12,955 million (11,881), an increase of 9%. For comparable units the Operations increase was 2% and acquired growth contributed 8%, Indutrade markets and sells components, systems and while currency movements had a negative effect on net services with a high-tech content to industrial companies sales, by 1%. in selected niches. Through solid knowledge about cus- Operating profit before amortisation of intangible tomers’ systems and processes combined with a high level assets attributable to acquisitions (EBITA) was SEK 1,484 of technical expertise, Indutrade aspires to be the most million (1,427) for the year, an increase of 4%. For com- effective partner for customers and suppliers alike. parable units, EBITA decreased by 4%, while acquisitions The Group was organised in six business areas during contributed 9% and currency movements had a negative the year: Engineering & Equipment, Flow Technology, effect of 1%. The EBITA margin was 11.5% (12.0%). The Fluids & Mechanical Solutions, Industrial Components, gross margin for the Group as a whole was slightly lower Measurement & Sensor Technology, and Special Products. compared with the preceding year, at 33.6% (34.0%). Operations in 2016 were conducted through some 200 The earnings improvement can be credited to favourable subsidiaries in 28 countries on four continents. Indutrade’s like-for-like performance for most companies combined shares are listed on Nasdaq Stockholm, and have been with the contribution made by completed acquisitions. included on the Large Cap list since January 2015. This was countered by lower outgoing shipments of valves for power generation in the energy segment and a Performance during the year challenging business situation for companies in the marine During the year we noted greater uncertainty in the mar- segment, which are also the main reasons why the EBITA ket, which also led to greater variation in order intake and margin did not reach the same level as a year ago. For the net sales for the Group’s companies from month to month full year, four of the Group’s six business areas exceeded and between segments and countries. The Nordic coun- the Group’s target of an EBITA margin in excess of 10%. tries as a whole performed well, and customer demand Net financial items amounted to SEK –78 million (–98), strengthened. In Finland order intake has increased in the of which net interest expense was SEK –68 million (–78). latter part of the year after a long period of weak growth. Net interest expense was favourably affected by a lower The companies in Ireland and Benelux showed continued average interest rate. Tax on profit for the year was SEK stable growth, while the UK had challenges. –258 million (–243), corresponding to a tax charge of 22% (21%). Profit for the year rose 5% to SEK 936 million (894). Order intake, net sales and earnings Earnings per share before dilution grew 5% to SEK 7.80 Order intake for the year totalled SEK 13,004 million (7.44). (11,939), an increase of 9%. For comparable units the increase was 2%, with acquisitions contributing 8% and currency movements having a negative effect on order intake of 1%. For all of the business areas except Special Net sales SEK m, EBITA margin, % EBITA SEK m, Return on operating capital, % SEK m % SEK m % 15,000 15 1,500 25 22 22 21 20 12,000 12 1,200 20 11.6 12.0 20 10.8 11.2 11.5 9,000 9 900 15 6 11,881 12,995 6,000 600 10 1,134 8,384 8,831 9,746 1,427 1,484 3 905 990 3,000 300 5 0 0 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 20 Directors’ report INDUTR ADE ANNUAL REPORT 2016


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    Profitability, financial position and cash flow Cash flow from operating activities, SEK m The return on operating capital was 20% (22%), and the SEK m return on equity was 24% (26%). Shareholders’ equity amounted to SEK 4,399 million 1,500 (3,707) at year-end, and the equity ratio was 40% (40%). 1,200 Cash and cash equivalents amounted to SEK 322 million 900 (339). In addition to this, the Group had unutilised credit 600 1,076 1,207 promises of SEK 2,854 million (2,580). Interest-bearing net 519 859 904 300 debt amounted to SEK 3,628 million (2,949). The net debt/ equity ratio was 82% at year-end (80%). 0 2012 2013 2014 2015 2016 Cash flow from operating activities was SEK 1,207 million (1,076). Cash flow after net capital expenditures in intangible non-current assets and property, plant and equipment (excluding company acquisitions) was SEK 887 million (855). The Group’s net capital expenditures, excluding company acquisitions, totalled SEK 320 million (221). Depreciation of property, plant and equipment amounted to SEK 178 million (156). Investments in company acquisitions totalled SEK 996 million (774). In addition, contingent earn-out payments for previous years’ acquisitions totalled SEK 168 million (106). Business Areas » Engineering & Equipment Share of order intake Share of net sales 12% 12% Net sales rose 5% during the year to SEK 1,537 million The start of the year was characterised by continued weak (1,466). For comparable units the increase was 4%, while demand, but activity gradually increased during the year, currency movements had a positive effect on net sales and order intake during the fourth quarter showed signs of 1%. of a break in this trend. Most of the business area’s sales are in Finland, where EBITA decreased marginally to SEK 124 million (125), the business situation has been challenging in recent years. corresponding to an EBITA margin of 8.1% (8.5%). Net sales per geographical market, % Net sales per customer segment % Net sales per product area, % Construction & Hydraulics & Infrastructure 22 Industrial equipment 21 Finland Engineering 21 Measurement 19 91 technology Water/Wastewater 19 Valves 13 Energy 7 Service 10 Other 9 Chemicals 5 Filter & 8 Process technology Other 26 Other 29 0 20 40 60 80 100 0 5 10 15 20 25 30 0 5 10 15 20 25 30 INDUTR ADE ANNUAL REPORT 2016 Directors’ report 21


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    » Flow Technology Share of order intake Share of net sales 18% 17% Net sales amounted to SEK 2,231 million for the year power industry, together with significantly lower level of (2,234). This represents an increase of 1% for comparable business for companies in the marine sector, countered the units, while currency movements had a negative effect on stable demand situation in other segments. net sales of 1%. EBITA decreased by 23% to SEK 168 million (217), and The demand situation was characterised by large vari- the EBITA margin reached 7.5% (9.7%). The decrease in ations between months and quarters, as well as between earnings was mainly attributable to lower invoicing for segments, but most companies performed well during the companies in the marine segment, for which restructuring year as a whole. A lower level of investment in the nuclear costs also contributed to the earnings decline. Net sales per geographical market, % Net sales per customer segment % Net sales per product area, % Sweden 47 Water/Wastewater 20 Valves 46 Denmark 15 Energy 20 Pipes & Pipe systems 15 Norway 11 Marine & shipping 13 Measurement 13 technology UK/Ireland 7 Chemicals 9 Pumps 12 Finland 7 Healthcare 7 Hydraulics & 7 Industrial equipment Other 13 Other 31 Other 7 0 10 20 30 40 50 0 5 10 15 20 25 30 35 0 10 20 30 40 50 » Fluids & Mechanical Solutions Share of order intake Share of net sales 12% 12% Net sales rose 25% during the year, to SEK 1,558 million EBITA increased by 22% to SEK 199 million (163), and the (1,249). The increase for comparable units was 2%, while EBITA margin was 12.8% (13.1%). The earnings improve- acquisitions accounted for 22% and currency movements ment is mainly attributable to completed acquisitions com- for 1% of the increase. bined with stable profitability for comparable units. Demand was stable during the year, and most compa- The companies Klokkerholm Karosseridele A/S nies in the business area reported profitable growth. (Denmark) and Scanmaskin Group (Sweden) were acquired during the year. Net sales per geographical market, % Net sales per customer segment % Net sales per product area, % Sweden 42 Construction & 22 Auto spare parts 20 Infrastructure Filter & Denmark 15 Auto repair 20 Process technology 16 Hydraulics & 16 Eastern Europe 15 Engineering 18 Industrial equipment Norway 7 Water/Wastewater 13 Construction material 10 North America 4 Commercial vehicles 7 Valves 8 Other 17 Other 20 Other 30 0 10 20 30 40 50 0 5 10 15 20 25 0 5 10 15 20 25 30 22 Directors’ report INDUTR ADE ANNUAL REPORT 2016


  • Page 25

    » Industrial Components Share of order intake Share of net sales 19% 19% Net sales rose 11% during the year, to SEK 2,501 million performance. In addition, an improved business situation (2,263). The increase for comparable units was 4%, and was noted for companies with customers in the Norwegian acquisitions contributed 7%. Currency movements had a offshore industry. marginal effect on net sales. EBITA increased by 6% to SEK 265 million (249), corre- Overall, the business area experienced stronger sponding to an EBITA margin of 10.6% (11.0%). The earn- demand during the year, with a continued large varia- ings improvement can mainly be credited to acquisitions. tion between companies and segments. During the year, The companies Industri Verktøy AS (Norway) and companies in the construction, infrastructure, healthcare KA Olsson & Gems AB (Sweden) were acquired during and commercial vehicles segments showed favourable the year. Net sales per geographical market, % Net sales per customer segment % Net sales per product area, % Sweden 64 Engineering 25 Chemical technology 25 Hydraulics & Norway 18 Healthcare 23 Industrial equipment 22 Construction & 15 Medical technology 21 Denmark 5 Infrastructure Commercial vehicles 11 Fasteners/Electronics/ 11 Industrial springs Eastern Europe 4 Energy 4 Tools 7 Other 9 Other 22 Other 14 0 10 20 30 40 50 60 70 80 0 5 10 15 20 25 0 5 10 15 20 25 » Measurement & Sensor Technology Share of order intake Share of net sales 9% 9% Net sales rose 25% during the year, to SEK 1,171 million developed in a positive direction for most companies on (938). The increase for comparable units was 5%, acqui- a like-for-like basis. The USA is the market that performed sitions contributed 20%, and currency movements had a strongest during the year, which countered weak demand marginal impact on net sales. in Asia – especially China. The business area includes companies with own manu- EBITA increased by 8% to SEK 177 million (164), corre- facturing and proprietary products along with a relatively sponding to an EBITA margin of 15.1% (17.5%). The earn- high share of project-related business, and as a result order ings improvement is mainly attributable to acquisitions. intake and invoicing vary between months and quarters. The companies Senmatic A/S and Crysberg A/S (both in Demand was generally strong for the business area’s Denmark) were acquired during the year. companies during the year, and both sales and earnings Net sales per geographical market, % Net sales per customer segment % Net sales per product area, % Sweden 26 Engineering 38 Measurement 68 technology North America 20 Commercial vehicles 13 Fasteners/Electronics/ 20 Asia 13 Energy 10 Industrial springs Germany 12 Marine & shipping 6 Hydraulics & 10 Industrial equipment Denmark 6 Healthcare 4 Other Other Other 2 23 29 0 5 10 15 20 25 30 0 5 10 15 20 25 30 35 40 0 10 20 30 40 50 60 70 80 INDUTR ADE ANNUAL REPORT 2016 Directors’ report 23


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    » Special Products Share of order intake Share of net sales 30% 31% Net sales rose 6% during the year, to SEK 3,997 million During the year, lower order intake and outgoing ship- (3,772). For comparable units, net sales decreased by 1%, ments of valves for power generation in the energy while acquired growth was 8% and currency movements segment had a significant impact on the comparison with had a negative effect on net sales, by 1%. the preceding year. The market remains strong, however, The business area, whose companies are outside of the outgoing shipments in 2016 did not meet the same level Nordic region, noted a large variation in order intake and as for the very large project orders in 2015. invoicing in many segments and countries. Special Products EBITA increased by 6% to SEK 597 million (564), and is also a business area with a relatively high share of com- the EBITA margin was 14.9% (15.0%). The earnings in- panies with project-related business, resulting in a large crease is attributable to acquisitions and an overall positive variation in order intake and invoicing between months performance for several companies, which countered lower and quarters. For the companies in Benelux and Ireland, outgoing shipments of valves for power generation. the business climate was favourable during the year, The companies PECO Select Fasteners BV (Netherlands), which countered weak demand in the UK. The challenging and Beldam Crossley Ltd, Fluid Controls Ltd, Vacuum business climate in Switzerland remains, even though the Engineering Services Ltd and Alphr Technology Ltd (all in situation has now stabilised following the sharp rise in the the UK), were acquired during the year. Swiss franc in January 2015. Net sales per geographical market, % Net sales per customer segment % Net sales per product area, % UK/Ireland 24 Energy 25 Valves 38 Benelux 23 Construction & Construction material 12 Infrastructure 20 Hydraulics & Germany 15 Healthcare 19 Industrial equipment 8 Switzerland 12 Engineering 11 Measurement 5 technology North America 7 Chemicals 5 Automation 5 Other 19 Other 20 Other 32 0 5 10 15 20 25 0 5 10 15 20 25 0 5 10 15 20 25 30 35 40 24 Directors’ report INDUTR ADE ANNUAL REPORT 2016


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    Key data per business area Fluids & Measurement Engineering Flow Mechanical Industrial & Sensor Special & Equipment Technology Solutions Components Technology Products 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Net sales, SEK million 1,537 1,466 2,231 2,234 1,558 1,249 2,501 2,263 1,171 938 3,997 3,772 EBITA, SEK million 124 125 168 217 199 163 265 249 177 164 597 564 EBITA margin, % 8.1 8.5 7.5 9.7 12.8 13.1 10.6 11.0 15.1 17.5 14.9 15.0 Return on operating capital, % 24 22 17 23 19 21 20 22 13 14 22 24 Average number of employees 526 517 680 670 620 513 695 645 1,315 1,176 1,649 1,447 Net sales per business area, % EBITA per business area, % Engineering & Engineering & Equipment 12% Equipment 8% Special Products Flow Technology 11% 31% Flow Technology 17% Special Products 39% Fluids & Mechanical Solutions 13% Fluids & Mechanical Measurement & Solutions 12% Sensor Technology 9% Measurement & Industrial Industrial Sensor Technology 12% Components 17% Components 19% INDUTR ADE ANNUAL REPORT 2016 Directors’ report 25


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    Acquisitions Acquisitions are a natural part of Indutrade’s business Indutrade does not have an exit strategy and acts as and a key component of our growth strategy. We main- a long-term owner. tain a high pace of acquisitions and normally acquire ten The geographic spread is great, and at year-end 2016 or more companies per year. we owned companies in 28 countries. For historical rea- The companies we acquire are well managed and sons we have the largest share of our business in Sweden successful, with well defined markets. They also have and Finland. Outside of these two markets, the primary technical niche expertise. They have well-working and strategy is to strengthen our position in markets in which motivated management teams that are characterised by we are already established. entrepreneurship and which are eager to continue with In 2016 we acquired eleven companies with combined their involvement also after the acquisition. We have annual sales of slightly more than SEK 1.1 billion. a decentralised governance model with a high level of self-determination in the companies. PECO Select Fasteners BV supplies customised fasteners to manufacturers of steel construc- Klokkerholms Karosseridele A/S offers a tions within wind power, cranes, wide range of spare parts to the automotive vessels and buildings. repair industry. January February March April May June Industri Verktøy AS Senmatic A/S manufac- Beldam Crossley Ltd Fluid Controls Ltd supplies sells equipment for turers a wide range of manufactures packings fittings, valves, filters, pressure building in stone and standard and customised and seals, advanced regulators and instruments concrete. sensors for measurement engineered polymers for measuring pressure, of temperature and and slide bearings. temperature and the level and relative humidity. presence of gas. 26 Directors’ report INDUTR ADE ANNUAL REPORT 2016


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    Acquisitions 2016 Sales, No. Possession Acquisition Country Business area SEK million 1) employees January PECO Select Fasteners B.V. Netherlands Special Products 30 4 March Industri Verktøy AS Norway Industrial Components 40 10 Measurement & Sensor March Senmatic A/S Denmark Technology 150 87 April Beldam Crossley Ltd UK Special Products 80 63 April Fluid Controls Ltd UK Special Products 40 10 May Klokkerholm Karosseridele A/S Denmark Fluids & Mechanical Solutions 310 114 July KA Olsson & Gems AB Sweden Industrial Components 90 21 July Vacuum Engineering Services Ltd UK Special Products 100 45 Measurement & Sensor August Crysberg A/S Denmark Technology 90 46 September Alphr Technology Ltd UK Special Products 80 78 November Scanmaskin Group Sweden Fluids & Mechanical Solutions 120 28 Total 1,130 506 1) Estimated annual sales at the time of acquisition. KA Olsson & Gems AB Vacuum Engineering is a niche technical sales Services Ltd manu- company with operations factures leak detection Scanmaskin AB manufac- organised in three segments: equipment. tures floor grinding, surface Tape & Glue, Films & Digital, finishing and polishing and Display & Décor. equipment. July August September October November December Crysberg A/S develops and Alphr Technology Ltd manufactures electronic designs and manufactures control solutions primarily customized equipment for for irrigation systems used in automated production lines. such areas as parks, sports facilities and golf courses. INDUTR ADE ANNUAL REPORT 2016 Directors’ report 27


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    Risks and risk management Indutrade is exposed to numerous risks that could impact anticipated. In such way, risks also entail opportunities the Group to a greater or lesser extent. Risks are defined for Indutrade. Examples of this are the business climate, mainly as factors that affect Indutrade’s ability to achieve customer behaviours and variations in market prices. set goals. At year-end 2016 Indutrade conducted business Many of the risks described here could affect the through 200 companies in 28 countries on four conti- Group both positively and negatively. This means that in nents. This diversification of risk along with a large num- the event of a favourable risk development or if the Group ber of customers in a wide range of industries and a large is successful in mitigating the risk through its risk manage- number of suppliers in various technology areas limits the ment activities, its goal achievement may be better than business risks. Risk Risk management Changes in the economy Indutrade’s business is dependent on The effect of economic fluctuations in specific sectors and geographic customers’ purchases and investments, markets is mitigated by the Group’s involvement in many different and is affected by changes in the sectors and geographic markets. In addition, the diversification of sales economy. among OEM components, consumables, maintenance products, invest- ment goods and service has a balancing effect. Outsourcing of operations Outsourcing of industrial production Outsourcing has had a limited impact on Indutrade, since the Group to low-cost countries takes place in has chosen to focus on customers with a recurring need in industries markets in which Indutrade is active. with a high degree of automation and/or large initial investments, which tend to not outsource. Competition from low-cost countries An increase in products from low-cost To counter the effects of this competition, Indutrade offers products countries can be seen in Indutrade’s and services with a high-tech content, a high level of service and qual- markets. ified technical advice. In addition, Indutrade strives to establish close partnerships with customers by becoming involved early in the planning and development stages, where Indutrade employees can contribute their expertise about various processes. Operational risk The Group’s operations are conducted Termination of an agency relationship is a natural occurrence in an with two main focuses: trading compa- agency company’s operations, and the organisation has experience nies with industrial technology sales, and in dealing with this. Indutrade has some 100 trading companies with companies that manufacture their own a few main agencies per company, complemented by a number of products. For the companies involved smaller agencies. Because of the large number of agencies, no indi- in trading, there is the risk of an agency vidual agency accounts for a predominant economic risk from the relationship being terminated. This could Group’s perspective. The risk associated with major customers deciding occur, for example, in connection with to bypass the agency level and trade directly with producers is limited, a structural change at the supplier level. since customers place great value on the technical expertise, availability and delivery reliability provided by an inventory-holding local technolo- gy sales company. Indutrade’s companies are also active in aftermarket sales, such as in servicing. 28 Directors’ report INDUTR ADE ANNUAL REPORT 2016


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    Risk Risk management Changes at the supplier level There is always a risk of suppliers leaving a Indutrade mitigates this risk by choosing suppliers who view a partner- partnership with a technology sales com- ship with Indutrade as the most profitable sales method. Stable supplier pany to set up their own sales operation. relationships are one of the parameters that are assessed prior to Indutrade’s acquisition of a company. To ensure that an acquired com- pany does not lose its product agency agreements, its primary suppliers must give their consent to the acquisition. Key person dependence The risk of losing experienced employees Indutrade’s acquisition strategy entails ensuring that the target com- is elevated in connection with company pany’s key employees are motivated to continue running the company acquisitions. after the acquisition. To attract and retain key personnel, Indutrade conducts continuous competence development and special manage- ment development programmes. Funding risk By funding risk is meant the risk that fund- To mitigate funding risk, the group strives to maintain a balanced ing of the Group’s capital requirement will maturity structure, a good liquidity reserve, and diversified borrowing. be impeded or become more costly. This creates a preparedness to take necessary, alternative measures to raise capital should this be necessary. Indutrade takes a centralised approach to the Group’s funding. Essentially all external funding is conducted by the Parent Company, which then funds the Group’s subsidiaries in local currency. Interest rate risk By interest rate risk is meant the risk that Indutrade strives to achieve an even spread of interest maturities to unfavourable changes in interest rates will avoid a situation where large loan volumes will be subject to a new have an excessive impact on the Group’s level of interest at the same point in time. net financial expense and earnings. Currency risk By currency risk is meant the risk The Indutrade Group’s transaction exposure arises, for example, when of unfavourable movements in exchange subsidiaries import products for sale in the domestic market. Exchange rates affecting consolidated earnings and rate effects are eliminated as far as possible through currency clauses in equity measured in SEK: customer contracts and by buying and selling in the same currency. In • Transaction exposure arises as a certain cases, forward contracts are used. result of the Group having incoming and The Group has a translation risk when translating the accounts of outgoing payments in foreign currencies. foreign subsidiaries to the Group currency, SEK. This type of currency • Translation exposure arises as a result risk is not hedged at present. of the Group, via its foreign subsidiar- ies, having net investments in foreign currencies. INDUTR ADE ANNUAL REPORT 2016 Directors’ report 29


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    Environmental matters at approximately 180 senior executives and other key Nine of Indutrade’s Swedish subsidiaries conduct opera- persons in the Group. The programme will be based on tions that require permits or reporting in accordance with warrants. the Swedish Environmental Code. Two foreign subsidiaries conduct operations subject to an equivalent permit or Guidelines for compensation of senior executives reporting obligation. None of the Group’s companies are The guidelines for compensation of senior executives that involved in any environment-related disputes. applied in 2016 are outlined in Note 7. The Company’s auditors have performed a review to ensure adherence to Implementation of the Code of Conduct the guidelines set by the Annual General Meeting. Ahead Indutrade has adopted a Code of Conduct covering of the 2017 Annual General Meeting, it is the Board’s environmental concerns, health and safety, business ethics, intention to propose essentially unchanged guidelines for employee relations, human rights and community impacts. compensation of senior executives, in accordance with the The Code of Conduct applies for all employees, and the following recommendation: Group’s subsidiaries have been instructed to implement • Indutrade shall apply the compensation levels and the Code of Conduct in a manner that is suitable for their terms of employment necessary to be able to recruit respective operations. Employees can choose to anony- and retain management with a high level of expertise mously report deviations from the Code of Conduct or and the capacity to achieve set objectives. The forms of suspicions of improprieties via an established whistle- compensation shall motivate members of the executive blower function. management to perform their utmost in order to safe- guard the interests of the shareholders. The forms of Employees compensation shall therefore be in line with the going At year-end the Group had 5,705 employees (5,107), and rate in the market and shall be straightforward, long- the average number of employees during the year was term and quantifiable. Compensation of members of the 5,495 (4,978). A total of 506 employees were added executive management shall normally consist of a fixed through acquisitions. and a variable portion. The fixed salary component for members of the executive management shall be in line Incentive programmes with the going rate in the market and shall be commen- In April 2014 the Annual General Meeting of Indutrade AB surate with the individual’s expertise, responsibilities resolved to introduce an incentive programme (LTI 2014), and performance. The variable portion shall reward the comprising a combined maximum of 460,000 warrants in achievement of clear goals regarding the company’s and two series for senior executives and other key persons in business area’s earnings as well as the Group’s growth the Indutrade Group. in simple, transparent structures. Variable compensation Within the framework of Series I, which was directed for members of the executive management shall normally at 135 individuals, the participants subscribed for a total of not exceed seven months’ salary and may amount to a 257,500 warrants for a combined value of SEK 3,914,000. maximum of SEK 14 million in the aggregate. The price per warrant was SEK 15.20, and the subscription • Incentive programmes in the Company shall mainly be price was set at SEK 118.80 per share after the completed share price-related and include persons in senior posi- bonus issue. tions in the Company who have a significant influence Within the framework of Series II, which was directed over the Company’s earnings and growth, and shall be at 13 individuals, the participants subscribed for a total based on the achievement of set targets. An incentive of 27,500 warrants for a combined value of SEK 319,000. programme shall ensure long-term commitment to the The price per warrant was SEK 11.60, and the subscription Company’s development and shall be implemented price for this series was set at SEK 116.70 per share after on market terms. The Company shall be able to pay the completed bonus issue. cash compensation coupled to purchases of shares or The shares under the programme can be subscribed share-based instruments. Such cash compensation shall during specially prescribed subscription periods starting in normally not exceed 15% of the executive’s fixed annual the second quarter of 2017 through Friday, 18 May 2018. salary. Upon full exercise, the number of shares outstanding will • Non-monetary benefits for members of the execu- increase by 855,000, corresponding to 0.7% of the total tive management shall facilitate the individuals in the number of shares and votes. execution of their duties and correspond to what can be The Board of Directors has decided to propose to the considered to be reasonable in respect of practice in the 2017 Annual General Meeting to resolve in favour of a market in which the respective executive is active. new long-term share-based incentive programme directed 30 Directors’ report INDUTR ADE ANNUAL REPORT 2016


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    • Pension terms for members of the executive manage- Parent Company ment shall be in line with the going rate in the market in The primary functions of Indutrade AB are to take respon- respect of what applies for peer executives in the market sibility for business development, acquisitions, financing, in which the executive works and should be based on governance and analysis. The Parent Company’s net sales, a defined contribution pension solution or a general which consist entirely of internal invoicing of services, pension plan (in Sweden, the ITP plan). amounted to SEK 4 million (4) during the year. The Parent • Severance pay for one member of the executive man- Company’s financial assets consist mainly of shares in agement shall not exceed a total of 24 months’ salary subsidiaries. During the year, the Parent Company acquired in the event the Company serves notice, and 6 months shares in seven new companies. The Parent Company did in the event the member of the executive management not make any major investments in intangible non-current gives notice. assets or in property, plant and equipment. The number of • By executive management is meant in this context employees on 31 December was 11 (10). the President and CEO, the Chief Financial Officer, the Business Area presidents, the Head of Group Finance Events after the balance sheet date and the Head of Business Development. During the period January–March 2017, four company • The Board’s Remuneration Committee deals with and acquisitions were carried out. For further information, see conducts drafting work for decisions on the terms of under Acquisitions in Note 29. employment for the President, and the Board evaluates In other respects, no significant events have taken the President’s performance once a year. The Remuner- place for the Group after the end of the reporting period. ation Committee also prepares and conducts drafting work concerning guidelines for remuneration of mem- Future outlook bers of the executive management, for decision by the Indutrade’s view is that the market volatility will continue, Board. The President consults with the Remuneration which will put high demands on the companies’ ability Committee on terms of employment for other members to adapt to prevailing opportunities and challenges. The of the executive management. decentralised business model, in which the managements • The Board shall have the right to depart from these of Indutrade’s 200 companies can make quick decisions in guidelines for compensation of members of the close proximity to their operations, inspires commitment executive management if there are special reasons and responsibility. This Indutrade model creates favourable in a particular case. conditions for continued profitable growth Research and development Development of proprietary products is conducted primar- ily by manufacturing companies, which are mainly in the Measurement & Sensor Technology and Special Products business areas. INDUTR ADE ANNUAL REPORT 2016 Directors’ report 31


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    Corporate Governance Report Indutrade applies the Swedish Corporate Governance share capital and votes at year-end. Foreign investors (legal Code (the Code) since 1 July 2006. The Code is a compo- entities) owned 24% of the share capital and votes. nent of self-regulation in Swedish industry and is based One shareholder, L E Lundbergföretagen AB, with on the “comply or explain” principle. This means that 26.3% of the share capital and votes, controlled 10% or companies that adhere to the Code may depart from more of the share capital and votes at year-end. individual rules, provided that they give an explanation for Indutrade’s shares are listed on Nasdaq Stockholm and each departure. Indutrade has no departures to report for have been included on the Large Cap list since January the 2016 financial year. The Corporate Governance Report 2015. has been reviewed by the Company’s auditors. According to Ch. 6 § 2 a of the Swedish Annual Accounts Act, listed companies are to provide disclosures Delegation of responsibilities about certain conditions that could affect opportunities to Responsibility for management and control of the Group is take over the company through a public offer to acquire delegated among the shareholders (via general meetings), the shares in the company. No such conditions exist in the Board, its designated committees and the President in Indutrade AB. accordance with the Swedish Companies Act, other laws and regulations, applicable rules for listed companies, the Articles of Association Company’s Articles of Association and the Board’s internal Indutrade is a public company whose business is to “on its governance documents. own or through subsidiaries, pursue trade in connection with the import and export of machines, raw materials Share capital and shareholders and finished and semi-manufactured products as well as The share capital amounts to SEK 240 million, divided industrial necessities, including production, preferably among 120,000,000 shares with a share quota value of within the plastics, mechanical and chemical industries, SEK 2. All shares have equal voting power. Indutrade, and activities compatible therewith.” The Board shall which was previously a wholly owned subsidiary of AB consist of a minimum of three and a maximum of eight Industrivärden, was introduced on the Stockholm Stock directors, who are elected each year at the Annual General Exchange on 5 October 2005. At year-end 2016 Indutrade Meeting. Notices of general meetings of shareholders shall had 10,518 shareholders (7,965). The ten largest share- be made through advertisement in the Official Swedish holders controlled 61% of the share capital at year-end. Gazette (Post- och Inrikes Tidningar) and on the Com- Swedish legal entities, including institutions such as pany’s website within the time frame prescribed by the insurance companies and mutual funds, held 69% of the Swedish Companies Act. An advertisement shall be posted Shareholders through AGM Nomination Committee Auditors Remuneration Committee Board of Directors Audit Committee President & CEO Management Group Engineering & Fluids & Measurement & Flow Technology Industrial Components Special Products Equipment Mechanical Solutions Sensor Technology External rules and regulations Internal rules Examples of external rules and regulations that affect governance of Examples of internal rules that affect governance of Indutrade Indutrade • The Articles of Association • The Swedish Companies Act • The Board’s work plan • Account laws, including the Bookkeeping Act, the Annual • The CEO’s instructions Accounts Act and IFRS • The Code of Conduct • Nasdaq Stockholm’s Rulebook for Issuers • Other policies • The Swedish Corporate Governance Code 32 Directors’ report INDUTR ADE ANNUAL REPORT 2016


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    in the Swedish daily newspaper Dagens Nyheter announc- Board and reported on the guidelines for compensation of ing that notice of the Annual General Meeting has been the executive management and on the work of the Audit issued. In votes at general meetings of shareholders, there is and Remuneration Committees. In addition, CEO Johnny no limitation to the number of votes for represented shares. Alvarsson gave an address reviewing Indutrade’s opera- tions in 2015 and the start of 2016. General meetings of shareholders The auditors reported on their audit of the Group and General meetings of shareholders are Indutrade’s highest presented relevant parts of their audit report for 2015. governing body. At the Annual General Meeting (AGM), which is held within six months after the end of each The 2016 AGM made the following resolutions: financial year, the income statement and balance sheet • to adopt the financial statements for 2015 are adopted, the dividend is set, the Board and auditors • to set the dividend at SEK 9.00 per share are elected (where applicable), their fees are determined, • to discharge the members of the Board of Directors and other items of legally ordained business are conducted, the President from liability for the past financial year and decisions are made on proposals submitted by the • to re-elect directors Fredrik Lundberg, Bengt Kjell, Ulf Board and shareholders. Lundahl, Krister Mellvé, Lars Pettersson, Katarina All shareholders who are registered in the shareholder Martinson and Johnny Alvarsson, and to elect Annica register on a specified record date and who have notified Bresky as a new director. the Company in due time of their intention to participate • to re-elect Fredrik Lundberg as Chairman of the Board at the general meeting are entitled to attend the meet- • that Indutrade shall apply compensation levels for senior ing and vote for the total number of shares they have. executives which mainly shall consist normally of a fixed Shareholders may be represented by proxy. More informa- and variable portion, shall be in line with the going rate tion about the 2017 AGM is provided on page 83 of this in the market, and shall be commensurate with the exec- Annual Report and on the Company’s website. utives’ level of expertise, responsibility and performance. The notice of the AGM scheduled for 26 April 2017 is expected to be published on 22 March 2017 in the Official At the AGM on 6 May 2013, the decision was made in Swedish Gazette and on Indutrade’s website. The notice favour of a standing instruction for Indutrade’s nomination will include a proposed agenda including proposals for the committee, which shall apply until further notice. Accord- dividend, the election of directors, directors’ fees (broken ing to this instruction, the Nomination Committee ahead down by the Chairman and other directors), the election of a forthcoming AGM shall consist of representatives of of the auditor, the auditor’s fee, proposed guidelines on four of the largest shareholders in terms of votes, plus the compensation of the Company’s senior executives, and a Chairman of the Board. proposal for a new long-term incentive programme. Members of the Board of Directors Annual General Meeting 2016 Indutrade’s board of directors, which is elected by the At the AGM on 27 April 2016, shareholders representing AGM, consists of eight members including the President. 61.2% of the shares and votes were in attendance. Fredrik Indutrade has not set any specific age limit for the board Lundberg was appointed to serve as AGM chairman. The members, nor any term limit for how long a director may annual report and audit report were presented to the sit on the Board. AGM. In connection with this, Chairman of the Board The Chairman of the Board, Fredrik Lundberg, is Fredrik Lundberg provided information on the work of the President and CEO of L E Lundbergföretagen. The Vice Chairman, Bengt Kjell, is a former Executive Vice Presi- AGM attendance dent of Industrivärden and former CEO of AB Handel och Industri. Ulf Lundahl is a former Executive Vice President Votes, % of L E Lundbergföretagen. Krister Mellvé has held leading 100 positions in the Robert Bosch Group. Lars Pettersson is a former President and CEO of Sandvik. Katarina Martinson 80 works with asset management for the Lundberg family. Annica Bresky is a former CEO and Business Area Manager 60 of Iggesund Paperboard. Johnny Alvarsson is President and CEO of Indutrade. 40 A presentation of the current assignments of the mem- bers of the Board can be found on pages 40-41 of this 20 Annual Report. The Company’s CFO serves as company secretary. Other executives participate at board meetings 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 in a reporting role. INDUTR ADE ANNUAL REPORT 2016 Directors’ report 33


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    Attendance at board meetings and committee meetings in 2016 Attendance Attendance at Independent Attendance at Audit Remuneration Independent in relation to  Member Audit Remuneration Year at board Committee Committee in relation to major share-  Committee chair Committee Committee elected meetings meetings meetings the Company holders 1) Johnny Alvarsson 2004 11/11 No Yes Eva Färnstrand  1998 3/11 1/5 Yes Yes Bengt Kjell (Vice chairman)   2002 11/11 5/5 3/3 Yes Yes Annica Bresky  2016 7/11 4/5 Yes Yes Ulf Lundahl  2006 11/11 5/5 Yes Yes Fredrik Lundberg (Chairman)   2013 11/11 5/5 3/3 Yes No Krister Mellvé  2012 11/11 5/5 Yes Yes Lars Pettersson   2013 10/11 5/5 3/3 Yes No Katarina Martinson  2015 11/11 5/5 Yes No 1) Pertains to situation in 2016. All of the directors, except for Johnny Alvarsson, are inde- In accordance with the adopted work plan, the Board pendent in relation to Indutrade. Johnny Alvarsson, Bengt holds at least five regular meetings each year, including Kjell, Krister Mellvé, Ulf Lundahl and Annica Bresky are the statutory meeting after the AGM, and on any other independent in relation to Indutrade’s major shareholders. occasions when warranted by the situation. The Board thereby meets the requirement that at least In 2016 the Board held a total of eleven meetings two of the directors who are independent in relation to including the statutory meeting. The Board conducted its the Company shall also be independent in relation to the work in accordance with the Board’s work plan. Matters major shareholders. Only one director, Johnny Alvarsson, requiring special attention by the Board during the year has an operational role in the Company. pertained to strategy, finance, acquisitions and sustaina- bility. The work of the Board of Directors As a significant part of the Board’s work during the Each year the Board adopts a written work plan that gov- year, a number of subsidiary presidents and business area erns the Board’s work and its internal delegation of duties presidents gave in-depth presentations of their businesses. including the committees, decision-making procedures All decisions made by the Board during the year were within the Board, meeting procedure and duties of the unanimous. Chairman. The Board has also issued instructions for the CEO and instructions on financial reporting to the Board. The Chairman’s role In addition, the Board has adopted numerous policies, The Chairman organises and leads the work of the Board including a finance policy and an investment policy. to ensure that it is carried out in compliance with the The Board is responsible for the Company’s organisa- Swedish Companies Act, other laws and regulations, appli- tion and for the administration of its affairs. This entails cable rules for listed companies (including the Code), and ensuring that the organisation is suited for its purpose and the Board’s internal governance documents. The Chairman designed in such a way so as to ensure satisfactory control monitors business activities through regular contact with of its bookkeeping, treasury management and financial the CEO and ensures that the other directors are provided conditions in general. In addition, the Board is responsible with adequate information and decision-making documen- for ensuring that the Company has satisfactory internal tation. control and continuously evaluates the extent to which To ensure and improve the quality of the Board’s the Company’s system for internal control works. The work, every year an evaluation is performed of the board Board is also responsible for developing and monitoring members and of the Board’s work, under the direction of the Company’s strategies by drawing up plans and setting the Chairman of the Board. In 2016 this evaluation was objectives. The Board oversees and evaluates the Presi- conducted by means of a questionnaire that was com- dent’s and operative management’s work on a continuous pleted by all of the board members. The results of the basis. This particular matter is addressed yearly without evaluation was reported in writing to the board members, any members of the executive management present. who thereafter discussed it jointly at the board meeting in 34 Directors’ report INDUTR ADE ANNUAL REPORT 2016


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    Board meetings 2016 DECEMBER Budget, evaluation of the Board’s work, FEBRUARY Year-end report, annual report, AGM evaluation of CEO and Group Management, organ- agenda, report from the auditors and the isational development, leadership succession. Remuneration Committee. DEC JAN OCTOBER (Two meetings) Decision on new MARCH Decision on annual report, AGM V F President and CEO. O notice. EB N Visit to new plant in the Netherlands. Quarterly report January-September, APRIL Quarterly report January-March. MAR OCT report from Audit Committee, report AGM. Statutory meeting. Decision from the auditors, report on the comple- on company signatories, adoption of tion of internal audit, evaluation of the instructions and policies, appointment need for internal audit. of Remuneration Committee and Audit APR SEP Committee, meeting schedule. SEPTEMBER Visit to three companies in the UK. Group strategy, follow-up of JUNE Market situation, business intelli- M UG acquisitions, capital structure. gence, report from Audit Committee and AY A JUN Remuneration Committee, evaluation of JULY (Two meetings) Decision on new insider JUL reporting to the Board. policy, revised information policy. Quarterly report January-June. October. The Chairman of the Board also reported on the Article 16.1-16.5. The Audit Committee thereafter issued results of the evaluation at a meeting of the Nomination a recommendation to the Nomination Committee for Committee. appointment of the Company’s auditor. The Chairman represents the Company on ownership On three occasions in 2016 the committee conducted matters. reviews with and received reports from the Company’s external auditors. Remuneration Committee The Board’s remuneration committee draws up a recom- Directors’ fees mendation for decision regarding the terms of employ- Fees are payable to the Chairman of the Board and direc- ment for the President. The Remuneration Committee also tors in accordance with an AGM resolution. The Chairman addresses and conducts drafting work for issues related to receives a fee of SEK 530,000, the Vice Chairman receives compensation of the members of the executive manage- a fee of SEK 398,000, and the other directors receive a fee ment, which culminates with the submission of a recom- of SEK 266,000 each. However, no fee is payable to direc- mendation for decision by the AGM. tors who are employed by a company within the Indutrade The President consults with the Remuneration Commit- Group. The Audit Committee chair is paid a fee of SEK tee on the terms of employment for the other members of 52,000, and the members of the Remuneration Commit- the executive management. tee each receive a fee of SEK 26,000. The total yearly fees thus amount to SEK 2,388,000. Audit Committee The Audit Committee has an oversight role with respect Nomination Committee to the Company’s risk management, governance and At the AGM on 6 May 2013 a decision was made in control, and financial reporting. The committee maintains favour of a standing instruction for Indutrade’s nom- regular contact with the Company’s auditor to ensure that ination committee, which applies until further notice. the Company’s internal and external reporting satisfies According to this instruction, the Nomination Committee the requirements made on market-listed companies and ahead of a forthcoming AGM shall consist of representa- to discuss the scope and focus of auditing work. The tives of four of the largest shareholders in terms of votes, Audit Committee evaluates completed audit activities and plus the Chairman of the Board, who shall also convene informs the Company’s nomination committee about the the first meeting of the Nomination Committee. The results of its evaluation and assists the Nomination Com- member representing the largest shareholder shall be mittee on drawing up recommendations for auditors and appointed as committee chair. The composition of the fees for their auditing work. Nomination Committee ahead of the AGM is to be based During the year a procurement of audit services on ownership data as per 31 August each year and is to was conducted in accordance with Regulation (EU) No. be publicly announced not later than six months prior to 537/2014 on statutory audit of public-interest entities, the AGM. The composition of the Nomination Committee INDUTR ADE ANNUAL REPORT 2016 Directors’ report 35


  • Page 38

    ahead of the 2017 AGM was announced on 4 October will be unchanged during the coming mandate period and 2016, based on ownership information as per 31 August that the Board will thereby have a total of eight members. 2016. A more detailed presentation of the members of the Board is provided on pages 40-41 of this Annual Report. Nomination Committee composition Operating activities Share of votes as Representative Owner per 31 Aug 2016 The President is responsible for the administration of Indutrade’s day-to-day affairs, which are managed by the Claes Boustedt L E Lundbergföretagen, 26.3 % Committee Chair Company’s executive management team. The President’s decision-making authority regarding investments and Henrik Didner Didner & Gerge funds 9.8 % financing matters is governed by rules set by the Board. Anders Oscarsson AMF Insurance and funds 6.4 % Jonathan President Schönbäck Handelsbanken funds 5.8 % Indutrade’s President, Johnny Alvarsson, has been em- Fredrik Lundberg Chairman of the Board ployed by Indutrade since 2004. He was CEO of Elektronik- gruppen from 2001 to 2004, CEO of Zeteco AB from The Nomination Committee held two meetings, docu- 1988 to 2000, and held various management positions at mented by minutes, at which the evaluation of the Board’s Ericsson from 1975 to 1987. Johnny Alvarsson owns 2,150 work during the past year was presented and the Board’s shares of Indutrade stock and 15,000 warrants. composition was discussed, among other items of busi- At the AGM 2017 Johnny Alvarsson will retire and Bo ness. The Nomination Committee is tasked with drawing Annvik will be appointed President and CEO. up recommendations to be presented to the AGM for resolutions regarding a person to serve as AGM chairman, External auditor the Chairman of the Board and other directors, directors’ At the 2016 Annual General Meeting, the chartered fees, the auditor’s fee and election of the auditor, and accounting firm PricewaterhouseCoopers AB (“PwC”) was the principles for the appointment of a new Nomination re-elected as auditor for a term extending through the Committee. 2017 Annual General Meeting. Based on the results of the Board’s evaluation and the The auditors maintain regular contact with the Audit current directors’ availability for re-election – among other Committee and the executive management. things – the Nomination Committee makes an assessment The chief auditor since 2013 is Michael Bengtsson, of whether the sitting board meets the requirements Authorised Public Accountant. The auditor’s fee is that will be made for the Board in view of the Company’s reported in Note 10 of this Annual Report. situation and future orientation, or if the composition of Indutrade’s nine-month interim report for the 2016 expertise and experience needs to be changed. financial year was reviewed by the Company’s auditors. Ahead of the 2017 AGM, the Nomination Committee has proposed the re-election of board members Fredrik Internal control over financial reporting Lundberg, Bengt Kjell, Ulf Lundahl, Katarina Martinson, As prescribed by the Swedish Companies Act, the Board Krister Mellvé and Lars Pettersson. Annica Bresky has noti- is responsible for internal control. This report has been fied the committee that she is not available for re-election. prepared in accordance with the Annual Accounts Act and Susanna Campbell has been nominated for election as a describes how the internal control over financial reporting new director. Susanna Campbell (born 1973), M.Sc. Econ. is organised. Stockholm School of Economics, is a former CEO of Ratos and is currently a director for Telia Company AB, among Control environment other assignments. Effective board work is the foundation for good internal Johnny Alvarsson, President of Indutrade AB, will retire control. The Board’s work plan and the instructions for the in connection with the 2017 AGM and is not available for CEO and the Board’s committees ensure a clear delega- re-election. The President-elect, Bo Annvik, M.Sc. Econ., tion of roles and responsibilities to the benefit of effective has been nominated for election as a new director. Bo management of risks in the Company’s operations. Annvik was President and CEO of Haldex until February In addition, the Board has adopted a number of fun- 2017. He has previously served in executive positions for damental guidelines and policies designed to create the Volvo Cars, SKF and Outokumpu. conditions for a good control environment. These include, Fredrik Lundberg has been nominated for re-election among other things, Indutrade’s Code of Conduct, a policy as Chairman of the Board. The Nomination Committee’s for economic and financial reporting, a finance policy and proposal entails that the number of directors on the Board an investment policy. These policies are followed up and 36 Directors’ report INDUTR ADE ANNUAL REPORT 2016


  • Page 39

    tions for continuous analysis and monitoring of financial reporting by the Group, the business areas and subsidiaries. RISK AS The Parent Company’s finance department also initiates ON SE TI work on the annual self assessment routine regarding AC SS ME internal control over financial reporting. NT In this evaluation the Group’s companies have been INFORMATION AND grouped into three categories, based on the nature and COMMUNICATION scope of the respective companies’ businesses. For each category of companies, a questionnaire for evaluation of IT Y FO internal control has been prepared based on the performed TIV LL AC W risk analysis. O -U P OL TR All companies owned by Indutrade at the start of 2016 CON were required to respond to the evaluation questionnaire. The responses were compiled and evaluated per cate- gory of companies and for the Group as a whole. As a revised as needed. The executive management contin- complement to this work, the auditors validated parts of uously draws up instructions for the Group’s financial the respective companies’ completed questionnaires. In reporting which, together with the policies adopted by the addition to this, the controllers of the business areas and Board, are included in the Group’s financial manual. Parent Company monitor internal control through visits The Group has a joint reporting system that serves as to a number of companies each year. Both the evaluation the base for the Group’s monthly reporting, consolidation performed by the Company and the result of the auditors’ work and monitoring of earnings performance. validation were reported and discussed with the Audit Committee. Feedback is provided to the companies in the Risk assessment Group where a need for improved routines has been iden- The Company has implemented a structured process for tified. The overall evaluation of internal control over the assessing risks that could affect financial reporting. This is Group’s financial reporting will serve as documentation for an annually recurring process and is evaluated by the Audit the subsequent years’ self assessment and work on further Committee and the Board. strengthening internal control. Through this risk assessment it has been ascertained that the Group’s structure, consisting of a large number of Information and communication standalone companies of varying size that are independ- The Company’s governing documents, consisting of ent from each other in various sectors and geographical policies, guidelines and manuals – to the extent that markets, entails a considerable diversification of risk. The these pertain to financial reporting – are updated on a risk assessment also covered the Group’s income state- regular basis and communicated to the companies within ment and balance sheet items to identify areas in which the Group. Systems and routines have been established the aggregate risk for error and the effects of these would to provide management with reports on the results of be greatest. The areas identified consisted primarily of operations and financial position in relation to set targets, revenue recognition, trade receivables and inventories. among other things. In addition, continuous risk assessment is conducted in connection with strategic planning, budgeting, forecasts Monitoring and acquisition activities, aimed at – among other things The Board conducts a monthly evaluation of business – identifying events in the market or operations that could development, earnings, position and cash flow using a give rise to changes in e.g., revenue streams and valua- report pack containing comments on outcomes and cer- tions of assets or liabilities. tain key ratios. The Audit Committee has an oversight role regarding Control activities the Company’s financial reporting, risk management, and The Indutrade Group is organised in six business areas. governance and control. In addition, the Audit Committee In addition to a business area president, the respective maintains regular contact with the Company’s auditors to business area management teams include a controller. The ensure that the Company’s internal and external reporting controller plays a central role in analysing and monitoring satisfies requirements made on market-listed companies the business area’s financial reporting and in ensuring and to monitor any observations that emerge from the compliance by the companies in the business area with audit. Group policies. The Parent Company has additional func- INDUTR ADE ANNUAL REPORT 2016 Directors’ report 37


  • Page 40

    Internal audit The Group has a simple operative structure consisting primarily of small and medium-sized standalone businesses that are independent of each other, with varying condi- tions for internal control. Compliance with governance and internal control systems that have been drawn up by the Group is checked by the controllers on a regular basis at the business area and Parent Company levels. In addition, the controllers perform continuing analyses of the companies’ reporting and financial outcomes to verify their performance. Added to this is the routine for annual self assessment of internal control over financial reporting. In view of the above, the Board has opted to not have a dedicated internal audit function. Proposed distribution of earnings SEK million Dividend of SEK 3.20 per share 384 To be carried forward 2,888 Total 3,272 The Board of Directors proposes a dividend of SEK 3.20 per share corresponding to SEK 384 million. The Board’s proposal is fully disclosed in note 33. 38 Directors’ report INDUTR ADE ANNUAL REPORT 2016


  • Page 41

    Group Management JOHNNY ALVARSSON PETER ERIKSSON CLAES HJALMARSON JUHA KUJALA GÖTE MATTSSON President and CEO. President of Head of Business President of Engineering & President of Fluids & President of Special Flow Technology business Development Equipment business area Mechanical Solutions Products business area area Born Born business area Born Born 1954 1967 Born 1950 1953 Employed since Employed since 1955 Employed since Employed since 1984 2006 Employed since 2004 1995 Education Education 1999 Education Education B. Sc. Economics eMBA, Technical college Education M. Sc. Eng., Management Technical college Professional experience engineer B. Sc. Economics, studies engineer, B. Sc. Market CFO Colly Group, CFO Professional experience Management studies Professional experience economics, IFL G A Lindberg Group, President Kontram Oy Professional experience President and CEO Professional experience Auditor Ernst & Young and Maansähkö Oy, Sales President and Partner Elektronikgruppen and President and Partner No. of shares Manager Kontram Oy, Industri Belos, President Zeteco, various positions Alnab, Sales Manager 12,600 Export Manager Kalmar J Sörling, Group Controller at Ericsson Alnab Industries Oy Transventor, No. of warrants Vice President Parator No. of shares No. of shares 10,000 No. of shares 2,150 44,150 3,000 No. of shares No. of warrants No. of warrants No. of warrants 16,200 15,000 10,000 10,000 No. of warrants 10,000 SUSANN NYBERG JOAKIM SKANTZE PATRIK STOLPE JAN ÖHMAN Head of Group Finance President of Industrial President of Measurement CFO Born Components business & Sensor Technology Born 1963 area business area 1960 Employed since Born Born Employed since 2012 1967 1965 2014 Education Employed since Employed since Education M. Sc. Business 2016 2015 Senior High School, Administration and Education Education Business economics Economics M. Sc. Electronics, B. Sc. Electronics, Professional experience Professional experience economics and Industrial marketing CFO Sandvik Venture, Group Controller Addtech, management studies Professional experience CFO and Vice President Management Consultant Professional experience Global Segment Manager Sandvik Materials KPMG, Financial Manager Venture Manager Traction, Xylem, President and CEO Technology, positions at Telia, Financial President Gnosjö Plast, Lorentzen & Wettre General Manager Boliden Manager and Controller Business Area Manager No. of shares Aitik Mining Operation positions at SKF and Partner Schneidler 1,521 No. of shares No. of shares Grafiska, Senior consultant 10,000 Accenture No. of warrants 1,438 10,000 No. of warrants No. of warrants No. of shares 20,000 3,500 0 No. of warrants 0 INDUTR ADE ANNUAL REPORT 2016 Group Management 39


  • Page 42

    Board of Directors and auditors Fredrik Lundberg Bengt Kjell Annica Bresky Ulf Lundahl FREDRIK LUNDBERG ANNICA BRESKY Chairman since 2013 Director since 2016 President and CEO of L E Lundbergföretagen Born Born 1975 1951 Education Education M. Sc. and Executive MBA B. Sc., MBA, Hon. PhD in Economics and Hon. PhD in Technology Professional experience Professional experience President of Iggesund Paperboard, President of BillerudKorsnäs Karlsborg President and CEO of L E Lundbergföretagen and Production Manager StoraEnso Kvarnsveden Other directorships Other Directorships Chairman of Holmen, Hufvudstaden and Industrivärden. Vice chairman Director of Åforsk foundation and negotiating delegation of Industri- of Svenska Handelsbanken. Director of Skanska and L E Lundbergföretagen arbetsgivarna Pulp & Paper. Deputy member of Skogsindustrierna’s board No. of shares No. of shares 31,575,000 1,660 (via L E Lundbergföretagen) ULF LUNDAHL BENGT KJELL Director since 2006 Vice chairman since 2013 Born Director since 2002 1952 Own investment business Education Born LL. B. and B. Sc. Economics 1954 Professional experience Education Executive Vice President and Deputy CEO of L E Lundbergföretagen, MBA, Stockholm School of Economics President of Östgöta Enskilda Bank, Head of Swedish operations of Danske Professional experience Bank, CEO of Danske Securities Acting President and CEO of Industrivärden, President and CEO of Other Directorships Handel och Industri, Executive Vice President and Head of Investment of Chairman of Fidelio Capital, Ramirent, Eltel and SHB Regionbank Industrivärden, Head of Corporate Finance Securum, Senior Partner and Stockholm. Director of Holmen and Attendo founder Navet, Authorised public accountant No. of shares Other directorships 12,000 Chairman of Hemfosa Fastigheter and SSAB. Director of Industrivärden, ICA Gruppen and Pandox among others No. of shares 60,000 40 Board of Directors and auditors INDUTR ADE ANNUAL REPORT 2016


  • Page 43

    Katarina Martinson Krister Mellvé Lars Pettersson Johnny Alvarsson KATARINA MARTINSON LARS PETTERSSON Director since 2015 Director since 2013 Works with asset management for the Lundberg family Born Born 1954 1981 Education Education M. Sc. PhD h.c. Uppsala University M. Sc. Economics Professional experience Professional experience President and CEO of Sandvik AB, Sandvik Materials Technology, Sandvik Analyst at Handelsbanken Capital Markets, Vice President Strategas Tooling and Sandvik Coromant Research Partners LLC, New York, Analysis of investment strategies Other directorships investment research, International Strategy & Investment Group, New York Chairman of KP Komponenter A/S. Director of Husqvarna, Industrivärden, Other directorships L E Lundbergföretagen and Festo AG Director of L E Lundbergföretagen, Fastighets AB L E Lundberg, Fidelio No. of shares Capital, Husqvarna, Karlsson & Wingesjö, Lundbergs Kapitalförvaltning, 2,100 AniCura and Lyko No. of shares 31,575,000 JOHNNY ALVARSSON (via L E Lundbergföretagen) President and CEO. Director since 2004 Born KRISTER MELLVÉ 1950 Director since 2012 Education Born M. Sc. Engineering, Management studies 1949 Professional experience Education President and CEO of Elektronikgruppen and Zeteco, various positions B. Sc. Economics at Ericsson Professional experience Other directorships Leading positions within Robert Bosch Group Chairman of FM Mattsson Mora Group. Director of VBG Group, Instalco Other directorships and Sdiptech Chairman of DeltaNordic and Giganse. Director of Modular Management No. of shares and Mannerheim Invest Holding AB 2,150 No. of shares No. of warrants 45,000 15,000 Auditors PricewaterhouseCoopers AB Michael Bengtsson, Authorised public accountant. Born 1959. Chief Auditor of Indutrade since 2013. Other auditing assignments in public companies: Bure, Sweco, Nobina, Invisio Communication and Eniro. Other auditing assignments in major unlisted companies: Perstorp and Carnegie. INDUTR ADE ANNUAL REPORT 2016 Board of Directors and auditors 41


  • Page 44

    Consolidated income statement SEK million Note 2016 2015 Net sales 3 12,955 11,881 Cost of goods sold –8,607 –7,847 Gross profit 4,348 4,034 Development costs –156 –133 Selling costs –2,179 –2,044 Administrative expenses –791 –635 Other operating income 5 154 117 Other operating expenses 5 –104 –104 Operating profit 4, 7, 8, 9, 10 1,272 1,235 Financial income 11 59 46 Financial expenses 12 –137 –144 Profit after financial items 1,194 1,137 Tax 14 –258 –243 Net profit for the year 936 894 Profit attributable to: Equity holders of the parent 936 893 Non-controlling interests 0 1 Earnings per share attributable to equity holders of the parent, SEK 7.80 7.44 Earnings per share after dilution, attributable to equity holders of the parent, SEK 7.78 7.44 Average number of shares before dilution, 000s 120,000 120,000 Average number of shares after dilution, 000s 120,251 120,094 Proposed dividend per share, SEK 3.20 3.00 Consolidated statement of comprehensive income SEK million Note 2016 2015 Net profit for the year 936 894 Other comprehensive income Items that subsequently can be reversed into income statement Fair value adjustment of hedge instruments 2 25 16 Tax attributable to fair value adjustment –5 –3 Exchange rate differences 103 –50 Items that cannot be reversed into income statement Actuarial gains/losses 23 –15 –5 Tax attributable to actuarial gains/losses 3 2 Other comprehensive income, net after tax 111 –40 Total comprehensive income for the year 1,047 854 Comprehensive income attributable to Equity holders of the parent 1,047 853 Non-controlling interests 0 1 42 Group accounts INDUTR ADE ANNUAL REPORT 2016


  • Page 45

    Consolidated balance sheet 31 Dec 31 Dec 31 Dec 31 Dec SEK million Note 2016 2015 SEK million Note 2016 2015 ASSETS EQUITY AND LIABILITIES Non-current assets Equity Intangible assets Share capital 240 40 Goodwill 2,388 1,942 Reserves 143 20 Agencies, customer relationships, etc. 1,446 1,254 Profit brought forward incl. net profit for the year 4,006 3,643 Trademarks 279 259 Total equity attributable Software, licences, etc. 53 52 to owners of the parent 4,389 3,703 Other intangible assets 101 71 Total intangible assets 15 4,267 3,578 Non-controlling interests 10 4 Total equity 4,399 3,707 Property, plant and equipment Land and buildings 803 559 Non-current liabilities Machinery 357 280 Non-current interest-bearing liabilities 22 1,993 1,005 Equipment 285 258 Other non-current liabilities 4 – Construction in progress and advances Pension obligations 23 281 255 for property, plant and equipment 6 20 Deferred tax liabilities 14 549 472 Total property, plant and equipment 16 1,451 1,117 Other provisions 24 10 8 Total non-current liabilities 2,837 1,740 Financial assets Financial assets available for sale 17 15 5 Current liabilities Non-current receivables 18 19 19 Current interest-bearing liabilities 22 1,686 2,028 Deferred tax assets 14 83 77 Accounts payable – trade 968 848 Total financial assets 117 101 Current tax liabilities 127 106 Other current liabilities 465 437 Total non-current assets 5,835 4,796 Accrued expenses and deferred income 25 571 495 Total current liabilities 3,817 3,914 Current assets Inventories 19 2,249 1,931 TOTAL EQUITY AND LIABILITIES 11,053 9,361 Accounts receivable – trade 20 2,292 1,995 Current tax assets 18 17 Other current receivables 189 172 Prepaid expenses and accrued income 21 138 111 Cash and cash equivalents 28 332 339 Total current assets 5,218 4,565 TOTAL ASSETS 11,053 9,361 Information on pledged assets and contingent liabilities is provided in Notes 26 and 27. INDUTR ADE ANNUAL REPORT 2016 Group accounts 43


  • Page 46

    Consolidated statement of changes in equity Attributable to owners of the parent Profit Non- Share brought controlling Total SEK million capital Reserves forward Total interests equity OPENING BALANCE, 1 JANUARY 2015 40 57 3,063 3,160 2 3,162 Comprehensive income Net profit for the year – – 893 893 1 894 Other comprehensive income Fair value adjustment of hedge instruments – 16 – 16 – 16 Tax attributable to fair value adjustment – –3 – –3 – –3 Actuarial gains/losses – – –5 –5 – –5 Tax attributable to actuarial gains/losses – – 2 2 – 2 Exchange rate differences – –50 – –50 – –50 Total comprehensive income – –37 890 853 1 854 Transactions with shareholders Acquisitions of non-controlling interests – – – – 1 1 1) Dividend paid for 2014 – – –310 –310 – –310 Total transactions with shareholders – – –310 –310 1 –310 OPENING BALANCE, 1 JANUARY 2016 40 20 3,643 3,703 4 3,707 Comprehensive income Net profit for the year – – 936 936 0 936 Other comprehensive income Fair value adjustment of hedge instruments – 25 – 25 – 25 Tax attributable to fair value adjustment – –5 – –5 – –5 Actuarial gains/losses – – –15 –15 – –15 Tax attributable to actuarial gains/losses – – 3 3 – 3 Exchange rate differences – 103 – 103 0 103 Total comprehensive income – 123 924 1,047 0 1,047 Transactions with shareholders Acquisitions of companies with non-controlling interests – – – – 6 6 Acquisitions of non-controlling interests – – –1 –1 0 –1 Bonus issue 200 – –200 – – – 2) Dividend paid for 2015 – – –360 –360 0 –360 Total transactions with shareholders 200 – –561 –361 6 –355 CLOSING BALANCE, 31 DECEMBER 2016 240 143 4,006 4,389 10 4,399 1) The dividend per share for 2014 was SEK 2.58. 2) The dividend per share for 2015 was SEK 3.00. The proposed dividend per share for 2016 is SEK 3.20. 44 Group accounts INDUTR ADE ANNUAL REPORT 2016


  • Page 47

    Consolidated statement of cash flows SEK million Note 2016 2015 Operating activities Operating profit 1,272 1,235 Adjustment for Depreciation, amortisation and impairment losses 8, 15, 16 411 365 Adjustment of contingent consideration 29 –32 –7 Net profit from sale of operations, property, plant and equipment, and shares 0 1 Other non-cash items 28 24 Paid tax –299 –215 Change in working capital Inventories –45 –149 Accounts receivable – trade –71 –160 Accounts payable – trade 10 20 Other operating assets and liabilities, net –5 50 Interest received 8 6 Interest paid –65 –66 Other financial items –5 –28 Cash flow from operating activities 1,207 1,076 Investing activities Acquisitions of subsidiaries and operations 29 –1,164 –880 Sales of subsidiaries and operations 29 0 2 Acquisitions of property, plant and equipment 16 –306 –199 Sales of property, plant and equipment 16 14 11 Acquisitions of intangible non-current assets 15 –28 –33 Decrease/increase in financial assets 8 –1 Cash flow from investing activities –1,476 –1,100 Financing activities Borrowings 4,724 4,221 Repayment of debt –4,104 –3,918 Dividends paid –360 –310 Cash flow from financing activities 260 –7 Cash flow for the year –9 –31 Cash and cash equivalents at start of year 339 357 Exchange rate differences in cash and cash equivalents 2 13 Cash and cash equivalents at end of year 28 332 339 INDUTR ADE ANNUAL REPORT 2016 Group accounts 45


  • Page 48

    Income statement Parent Company SEK million Note 2016 2015 Net sales 4 4 Gross profit 4 4 Administrative expenses 4 –64 –55 Operating loss 7, 8, 9, 10 –60 –51 Financial income 11 97 55 Financial expenses 12 –107 –99 Profit from participations in Group companies 13 664 573 Profit after financial items 594 478 Group contributions received 605 599 Group contributions rendered –66 –70 Change in tax allocation reserve –55 –110 Excess depreciation of equipment 0 0 Profit before tax 1,078 897 Tax 14 –92 –73 Net profit for the year 986 824 Statement of comprehensive income Parent Company SEK million Note 2016 2015 Net profit for the year 986 824 Other comprehensive income Items that subsequently can be reversed to the income statement Fair value adjustment of hedge instruments 2 12 15 Tax attributable to fair value adjustment –3 –3 Other comprehensive income, net of tax 9 12 Total comprehensive income for the year 995 836 46 Parent Company accounts INDUTR ADE ANNUAL REPORT 2016


  • Page 49

    Balance sheet Parent Company 31 Dec 31 Dec 31 Dec 31 Dec SEK million Note 2016 2015 SEK million Note 2016 2015 ASSETS EQUITY AND LIABILITIES Non-current assets Equity Intangible non-current assets Restricted equity Software and licences 15 0 0 Share capital 32 240 40 Statutory reserve 5 5 Property, plant and equipment 245 45 Equipment 16 1 1 Unrestricted equity Share premium reserve 4 4 Financial assets Reserve for fair value –11 –20 Participations in Group companies 17 4,564 4,112 Profit brought forward 2,293 2,029 Non-current receivables 18 14 12 Net profit for the year 986 824 Deferred tax assets 14 6 9 3,272 2,837 Total financial assets 4,584 4,133 Total equity 3,517 2,882 Total non-current assets 4,585 4,134 Untaxed reserves Tax allocation reserve 553 498 Current assets Excess depreciation of equipment 0 0 Current receivables Total untaxed reserves 553 498 Receivables from Group companies 3,838 2,908 Other receivables 50 15 Non-current liabilities Prepaid expenses and accrued income 21 6 5 Non-current interest-bearing liabilities 22 1,807 832 Total current receivables 3,894 2,928 Other non-current liabilities 2 – Pension obligations 23 15 14 Cash and cash equivalents 28 0 29 Deferred tax liabilities 14 11 3 Total current assets 3,894 2,957 Total non-current liabilities 1,835 849 TOTAL ASSETS 8,479 7,091 Current liabilities Current interest-bearing liabilities 22 1,538 1,852 Accounts payable – trade 1 1 Liabilities to Group companies 961 927 Other current liabilities 20 37 Current tax liabilities 37 25 Accrued expenses and deferred income 25 17 20 Total current liabilities 2,574 2,862 TOTAL EQUITY AND LIABILITIES 8,479 7,091 Information on pledged assets and contingent liabilities is provided in Notes 26 and 27. INDUTR ADE ANNUAL REPORT 2016 Parent Company accounts 47


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    Parent Company statement of changes in equity Share Reserve Share premium for fair Retained SEK million capital Reserves reserve value profit Total OPENING BALANCE, 1 JANUARY 2015 Comprehensive income 40 5 4 –32 2,339 2,356 Net profit for the year – – – – 824 824 Other comprehensive income Fair value adjustment of hedge instrument – – – 15 – 15 Tax attributable to fair value adjustment – – – –3 – –3 Total comprehensive income – – – 12 824 836 Transactions with shareholders Dividend paid for 2014 – – – – –3101) –310 Total transactions with shareholders – – – – –310 –310 OPENING BALANCE, 1 JANUARY 2016 40 5 4 –20 2,853 2,882 Comprehensive income Net profit for the year – – – – 986 986 Other comprehensive income Fair value adjustment of hedge instrument – – – 12 – 12 Tax attributable to fair value adjustment – – – –3 – –3 Total comprehensive income – – – 9 986 995 Transactions with shareholders Dividend paid for 2015 – – – – –3602) –360 Bonus issue 200 – – – –200 – Total transactions with shareholders 200 – – – –560 –360 CLOSING BALANCE, 31 DECEMBER 2016 240 5 4 –11 3,279 3,517 1) The dividend per share for 2014 was SEK 2.58. 2) The dividend per share for 2015 was SEK 3.00. The proposed dividend per share for 2016 is SEK 3.20. 48 Parent Company accounts INDUTR ADE ANNUAL REPORT 2016

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