As filed with the Securities and Exchange Commission on April 8, 2005



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 20-FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2004
Commission file number: 333-13690

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ALFA LAVAL SPECIAL FINANCE AB(Exact name of Registrant as specified in its charter)

|The Kingdom of Sweden(Jurisdiction of incorporation or organisation)                
|------------------------------------------------------------------------------------
|Rudeboksvägen 1
Lund, Sweden
+(46 46) 36 7000(Address of principal executive office)

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SECURITIES
REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b)
OF THE ACT:None

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SECURITIES
REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:None

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SECURITIES
FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT
TO SECTION 15(d) OF THE ACT:121/8% Senior Notes due 2010

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The
number of outstanding shares of Alfa Laval Special Finance AB's classes of
capital or common stock as of December 31, 2004:8,191,000 Ordinary Shares, nominal value SEK 100 per share

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes o    No ý

Indicate by check mark which financial statement item the Registrant has elected to follow:

Item
17 ý    Item 18 o



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TABLE OF CONTENTS

|INTRODUCTION                                                                          |  | i     
|------------------------------------------------------------------------------------- |  | ------
|FORWARD-LOOKING STATEMENTS                                                            |  | i     
|MARKET SHARE AND INDUSTRY DATA                                                        |  | ii    
|CERTAIN DEFINITIONS                                                                   |  | ii    
|PART I                                                                               
|ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                         |  | I-1   
|ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE                                       |  | I-2   
|ITEM 3: KEY INFORMATION                                                               |  | I-3   
|ITEM 4: INFORMATION ABOUT THE COMPANY                                                 |  | I-24  
|ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  |  | I-47  
|ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    |  | I-73  
|ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             |  | I-79  
|ITEM 8: FINANCIAL INFORMATION                                                         |  | I-82  
|ITEM 9: THE OFFER AND LISTING                                                         |  | I-84  
|ITEM 10: ADDITIONAL INFORMATION                                                       |  | I-85  
|ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  | I-91  
|ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | I-95  
|PART II                                                                              
|ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | II-1  
|ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | II-2  
|ITEM 15: CONTROLS AND PROCEDURES                                                      |  | II-3  
|ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT                                            |  | II-4  
|ITEM 16B: CODE OF ETHICS                                                              |  | II-4  
|ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      |  | II-4  
|ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                  |  | II-5  
|ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      |  | II-5  
|PART III                                                                             
|ITEM 17: FINANCIAL STATEMENTS                                                         |  | III-1 
|ITEM 18: FINANCIAL STATEMENTS                                                         |  | III-74
|ITEM 19: EXHIBITS AND CERTIFICATIONS                                                  |  | III-74

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INTRODUCTION

The discussion under the caption "Item 5: Operating and Financial Review and Prospects" in this annual report contains references to Swedish kronor amounts on a
constant exchange rate basis. These Swedish kronor amounts, which also include the impact of Alfa Laval's hedging activities, have been converted from a variety of foreign currencies, including the
euro at a rate of €1.00 = SEK 9.1101, the average rate calculated on monthly closing rates issued by Reuters.

Certain
amounts and percentages included in this annual report have been rounded and accordingly may not total.

FORWARD-LOOKING STATEMENTS

This annual report includes various forward-looking statements and includes assumptions about future market conditions, operations and results. These statements
appear in a number of places, including "Item 3.D: Key InformationRisk Factors", "Item 4.B: Information about the CompanyBusiness Overview" and "Item 5:
Operating and Financial Review and Prospects", and include statements regarding our intentions, beliefs or current expectations. The words "believe", "expect", "anticipate", "intend" or "plan" and
similar expressions identify certain of such forward-looking statements. Others can be identified from the context in which the statements are made. Actual events or results may differ materially as a
result of risks and uncertainties that we face. Important factors that could cause these differences include:



We
caution you that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. We also caution you that actual results may differ
materially from those made in or suggested by the forward-looking statements as a result of various factors. The information contained in this annual report, including, without limitation, the
information under "Item 3.D: Key InformationRisk Factors", "Item 4.B: Information about the CompanyBusiness Overview" and "Item 5: Operating and
Financial Review and Prospects" identify important factors that could cause such differences. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.

i

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MARKET SHARE AND INDUSTRY DATA

This annual report contains historical market data and industry forecasts, which have been obtained from industry publications, market research and publicly
available information. The industry publications state that the historical information they provide has been obtained from sources, and through methods, believed to be reliable, but that they do not
guarantee the accuracy and completeness of this information. Similarly, industry forecasts and market research, while believed to be reliable, have not been independently verified by us. We make no
representation that this historical information is accurate. Industry forecasts are, by their nature, subject to significant uncertainty. There can be no assurance that any of the forecasts will be
achieved.

We
define the compact heat exchanger market to include brazed, welded and gasketed plate heat exchangers. We define the centrifugal separation market as decanter centrifuges and high
speed separators. We define the sanitary flow market as sanitary liquid handling equipment, including pumps, valves and fittings.

CERTAIN DEFINITIONS

Unless otherwise noted, reference in this annual report to:



ii

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The
following table shows how EBITA is calculated for 2000 un-audited pro forma combined, 2001, 2002, 2003 and 2004:

|                         |  | Un-audited
Pro Forma
Combined
2000 |  | Year Ended December 31,
|------------------------ |  | ---------------------------------- |  | -----------------------
|
|
|Operating Income         |  | 810                                |  | 1,233                  
|Amortisation of goodwill |  | 164                                |  | 178                    
|Step-Up Depreciation     |  | 316                                |  | 334                    
|EBITA                    |  | 1,290                              |  | 1,745                  



The
following table shows how EBITDA is calculated for 2000 un-audited pro forma combined, 2001, 2002, 2003 and 2004:

|                         |  | Un-audited
Pro Forma
Combined
2000 |  | Year Ended December 31,
|------------------------ |  | ---------------------------------- |  | -----------------------
|
|
|Operating Income         |  | 810                                |  | 1,233                  
|Depreciation             |  | 466                                |  | 400                    
|Amortisation of goodwill |  | 164                                |  | 178                    
|Step-Up Depreciation     |  | 316                                |  | 334                    
|EBITDA                   |  | 1,756                              |  | 2,145                  



iii

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For
definitions of operating data and key ratios used throughout this annual report, see "Item 3.AKey InformationDefinitions of Operating Data and Key
Ratios".

iv

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PART I

ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

I-1

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ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

I-2

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ITEM 3: KEY INFORMATION

3.A.    Selected Financial Data

Alfa Laval Special Finance AB

The table below sets forth (a) selected unaudited pro forma combined financial data for Alfa Laval Special Finance AB for the year ended
December 31, 2000, and (b) selected audited consolidated financial data for Alfa Laval Special Finance AB for the years ended December 31, 2001, 2002, 2003 and 2004. We acquired
the former Alfa Laval Holding on August 24, 2000. The selected consolidated financial data set forth below as of and for the financial years ended December 31, 2000, 2001, 2002, 2003 and
2004 have been derived from, and are qualified by reference to, Alfa Laval Special Finance AB's consolidated financial statements and those of its predecessor, which have been audited by
Ernst & Young, independent public accountants. The consolidated financial statements have been prepared in accordance with Swedish GAAP, which differs in certain material respects from US GAAP.
The principal differences between Swedish GAAP and US GAAP, as applicable to Alfa Laval Special Finance AB and the Predecessor, are summarised in note 33 to our audited consolidated financial
statements included elsewhere in this annual report.

The
following information should be read in conjunction with (i) "Item 3.A: Key InformationUnaudited Pro Forma Consolidated Financial Information", (ii) "Item
5: Operating and Financial Review and Prospects" and (iii) the audited consolidated financial statements of Alfa Special Finance AB and its Predecessor included elsewhere in this annual report.

I-3

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Selected Consolidated Historical Financial Data for  Alfa Laval Special Finance AB

|                                                                                                    |  | Predecessor |   |        |   |         |   | Successor |   |        |   |        |  
|--------------------------------------------------------------------------------------------------- |  | ----------- | - | ------ | - | ------- | - | --------- | - | ------ | - | ------ | -
|
|
|Consolidated Statement of Operations Data:                                                          |  |             |   |        |   |         |   |           |   |        |   |        |  
|Swedish GAAP:                                                                                       |  |             |   |        |   |         |   |           |   |        |   |        |  
|Net sales                                                                                           |  | 9,295       |   | 5,717  |   | 15,012  |   | 15,830    |   | 14,595 |   | 13,909 |  
|Cost of goods sold                                                                                  |  | (5,963      | ) | (3,951 | ) | (10,124 | ) | (10,348   | ) | (9,262 | ) | (8,976 | )
|Gross profit                                                                                        |  | 3,333       |   | 1,766  |   | 4,888   |   | 5,482     |   | 5,333  |   | 4,933  |  
|Other operating expenses:                                                                           |  |             |   |        |   |         |   |           |   |        |   |        |  
|Sales costs                                                                                         |  | (1,748      | ) | (835   | ) | (2,584  | ) | (2,443    | ) | (2,115 | ) | (2,246 | )
|Administrative costs                                                                                |  | (643        | ) | (218   | ) | (862    | ) | (787      | ) | (1,027 | ) | (866   | )
|Research and development costs                                                                      |  | (279        | ) | (162   | ) | (441    | ) | (341      | ) | (355   | ) | (368   | )
|Other operating income/(costs)                                                                      |  | 453         |   | (482   | ) | (27     | ) | (499      | ) | (424   | ) | (118   | )
|Goodwill amortisation                                                                               |  | (485        | ) | (55    | ) | (164    | ) | (178      | ) | (188   | ) | (191   | )
|Operating income/(loss)                                                                             |  | 631         |   | 14     |   | 810     |   | 1,234     |   | 1,224  |   | 1,144  |  
|Interest and other financial income/(costs)                                                         |  | (125        | ) | (329   | ) | (802    | ) | (861      | ) | (764   | ) | (327   | )
|Income/(loss) before taxes and minority interests                                                   |  | 506         |   | (315   | ) | 8       |   | 373       |   | 460    |   | 817    |  
|Income tax benefit/(expense)                                                                        |  | (245        | ) | (56    | ) | (105    | ) | 26        |   | (218   | ) | (134   | )
|Minority interests                                                                                  |  | (36         | ) | (12    | ) | (48     | ) | (32       | ) | (34    | ) | (42    | )
|Net income/(loss)                                                                                   |  | 225         |   | (383   | ) | (145    | ) | 367       |   | 208    |   | 641    |  
|US GAAP:                                                                                            |  |             |   |        |   |         |   |           |   |        |   |        |  
|Net income/(loss)                                                                                   |  | 447         |   | (443   | ) | (316    | ) | 294       |   | 633    |   | 1,017  |  
|Income/(loss) from continuing operations before cumulative effect of change in accounting principle |  | 447         |   | (443   | ) | (316    | ) | 356       |   | 633    |   | 1,017  |  
|Depreciation and Amortisation                                                                       |  | 516         |   | 346    |   | N/A     |   | 883       |   | 704    |   | 651    |  
|Ratio of earnings to fixed charges, times(3)                                                        |  | 4.0x        |   |       |   | N/A     |   | 1.3x      |   | 2.2x   |   | 3.6x   |  
|Operating Data and Key Ratios(2):                                                                   |  |             |   |        |   |         |   |           |   |        |   |        |  
|Orders received                                                                                     |  | 10,301      |   | 5,073  |   | 15,374  |   | 15,894    |   | 14,675 |   | 14,145 |  
|Order backlog                                                                                       |  | N/A         |   | N/A    |   | 4,063   |   | 4,314     |   | 4,340  |   | 4,021  |  
|Gross margin, %                                                                                     |  | 35.9        | % | 30.9   | % | 32.6    | % | 34.6      | % | 36.5   | % | 35.5   | %
|Operating income                                                                                    |  | 631         |   | 14     |   | 810     |   | 1,233     |   | 1,224  |   | 1,144  |  
|Operating margin %                                                                                  |  | 6.8         | % | 0.2    | % | 5.4     | % | 7.8       | % | 8.4    | % | 8.2    | %
|EBITDA                                                                                              |  | 1,427       |   | 329    |   | 1,756   |   | 2,145     |   | 2,062  |   | 1,931  |  
|EBITA                                                                                               |  | 1,116       |   | 174    |   | 1,290   |   | 1,745     |   | 1,730  |   | 1,638  |  
|EBITDA margin, %                                                                                    |  | 15.4        | % | 5.8    | % | 11.7    | % | 13.6      | % | 14.1   | % | 13.9   | %
|EBITA margin, %                                                                                     |  | 12.0        | % | 3.0    | % | 8.6     | % | 11.0      | % | 11.9   | % | 11.8   | %
|                                                                                                    |  |             |   |        |   |         |   |           |   |        |   |        |  

I-4

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|Depreciation and amortisation                  |  | 796  |   | 315    |   | 946    |   | 912    |   | 838    |   | 787    |   | 746    |  
|---------------------------------------------- |  | ---- | - | ------ | - | ------ | - | ------ | - | ------ | - | ------ | - | ------ | -
|Investment in fixed assets                     |  | 133  |   | 179    |   | 312    |   | 275    |   | 277    |   | 259    |   | 388    |  
|Return on capital employed, %                  |  | N/A  |   | N/A    |   | 16.1   | % | 18.5   | % | 20.3   | % | 22.2   | % | 24.3   | %
|Capital employed                               |  | N/A  |   | N/A    |   | 8,013  |   | 9,415  |   | 8,527  |   | 7,370  |   | 7,134  |  
|Capital turnover rate, times                   |  | N/A  |   | N/A    |   | 1.9x   |   | 1.7x   |   | 1.7x   |   | 1.9x   |   | 2.1x   |  
|Return on equity, %                            |  | N/A  |   | N/M    |   | N/M    |   | 10.1   | % | 4.7    | % | 14.6   | % | 14.6   | %
|Equity/assets ratio, %                         |  | N/A  |   | 16.8   | % | 16.8   | % | 20.6   | % | 28.6   | % | 30.0   | % | 33.5   | %
|Net debt/equity ratio, times                   |  | N/A  |   | N/A    |   | 2.1x   |   | 1.6x   |   | 0.8x   |   | 0.5x   |   | 0.4x   |  
|Average number of employees                    |  | N/A  |   | N/A    |   | 11,001 |   | 9,693  |   | 9,292  |   | 9,194  |   | 9,400  |  
|Interest coverage ratio, times                 |  | 5.4x |   | 0.75x  |   | 2.0x   |   | 2.5x   |   | 3.4x   |   | 5.0x   |   | 7.4x   |  
|Ratio of earnings to fixed charges, times(3)   |  | 3.2x |   |       |   | N/A    |   | 1.4x   |   | 1.6x   |   | 2.6x   |   | 3.8x   |  
|Consolidated Cash Flow Statement Data:         |  |      |   |        |   |        |   |        |   |        |   |        |   |        |  
|Swedish GAAP:                                  |  |      |   |        |   |        |   |        |   |        |   |        |   |        |  
|Cash flows from operating activities           |  | 587  |   | 583    |   | 1,630  |   | 1,977  |   | 2,047  |   | 1,488  |   | 1,286  |  
|Cash flows from investing activities           |  | 278  |   | (8,563 | ) | (8,284 | ) | 112    |   | (548   | ) | (457   | ) | 123    |  
|Cash flows from financing activities           |  | (997 | ) | 8,381  |   | 6,618  |   | (2,069 | ) | (1,443 | ) | (1,002 | ) | (1,523 | )
|Consolidated Balance Sheet Data:               |  |      |   |        |   |        |   |        |   |        |   |        |   |        |  
|Swedish GAAP:                                  |  |      |   |        |   |        |   |        |   |        |   |        |   |        |  
|Cash and bank and other current deposits       |  | N/A  |   | 1,230  |   | 1,230  |   | 960    |   | 1,020  |   | 1,213  |   | 672    |  
|Net working capital, excluding financial items |  | N/A  |   | 3,458  |   | 3,458  |   | 3,323  |   | 2,151  |   | 1,729  |   | 2,326  |  
|Total assets                                   |  | N/A  |   | 18,791 |   | 18,791 |   | 17,637 |   | 15,427 |   | 14,685 |   | 13,899 |  
|Total interest bearing debt                    |  | N/A  |   | 7,880  |   | 7,880  |   | 6,652  |   | 4,519  |   | 3,614  |   | 2,556  |  
|Total shareholders' equity                     |  | N/A  |   | 3,165  |   | 3,165  |   | 3,629  |   | 4,413  |   | 4,402  |   | 4,676  |  
|US GAAP:                                       |  |      |   |        |   |        |   |        |   |        |   |        |   |        |  
|Total assets                                   |  | N/A  |   | 19,530 |   | 19,530 |   | 18,731 |   | 16,477 |   | 15,786 |   | 15,162 |  
|Total interest bearing debt                    |  | N/A  |   | 7,880  |   | 7,880  |   | 6,847  |   | 4,683  |   | 3,727  |   | 2,689  |  
|Total shareholders' equity                     |  | N/A  |   | 3,537  |   | 3,537  |   | 4,099  |   | 5,168  |   | 5,304  |   | 5,844  |  

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I-5

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Definitions of Operating Data and Key Ratios

The key ratios and certain other operating and per share data are provided in accordance with recommended Swedish market practice and are defined as follows:

|Orders received  |  |  | Represents the total of orders received from customers during the year. Management believes that orders received represents a measure of current demand for the Group's products and services. Orders received cannot be
directly related to future annual revenues due to the nature of certain orders (long-term contracts), which may be recognised in earnings over several periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---------------- | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Order backlog    |  |  | Represents total orders received, which have not yet been recognised as revenues. Management believes that order backlog provides a general indication of the trend of future net sales as the Group's order backlog represents orders for products and
services which management expect to complete and recognise as revenue in future periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Gross margin (%) |  |  | The ratio of gross profits to net sales, expressed as a percentage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|EBITDA           |  |  | EBITDA is not a measure of operating performance calculated in accordance with Swedish GAAP or US GAAP. EBITDA should not be considered a substitute for operating income, net income, cash flow from operating activities or other statement of
operations data as determined in accordance with Swedish GAAP or US GAAP, or as a measure of profitability or liquidity. EBITDA does not necessarily indicate whether cash flow will be sufficient or available for cash requirements. EBITDA is included
as supplemental disclosure because we believe that it, when considered in connection with cash flows from operating, investing and financing activities, provides useful information to investors and because management considers this a key measure used
to evaluate financial operating performance. EBITDA, as it is generally defined, is calculated as operating income or loss (including share of earnings from associated companies), before interest, taxes, depreciation and amortisation. EBITDA may not
be indicative of our historical operating results, nor is it indicative of potential future results. Since all companies do not calculate EBITDA identically, the presentation of EBITDA may not be comparable to similarly entitled measures of other
companies.
|                 |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

I-6

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|EBITA                |  |  | EBITA is not a measure of operating performance calculated in accordance with Swedish GAAP or US GAAP. EBITA should not be considered a substitute for operating income, net income, cash flow from operating activities or other statement of operations
data as determined in accordance with Swedish GAAP or US GAAP, or as a measure of profitability or liquidity. EBITA does not necessarily indicate whether cash flow will be sufficient or available for cash requirements. EBITA is included as
supplemental disclosure, because we believe that it, when considered in connection with cash flows from operating, investing and financing activities, provides useful information to investors and because management considers this a key measure used
to evaluate financial operating performance. EBITA, as it is generally defined, is calculated as operating income or loss (including share of earnings from associated companies), before interest, taxes and goodwill amortisation. In addition, we have
added back to EBITA depreciation expense recorded on the additional basis recognised on certain tangible and intangible assets in connection with the Acquisition ("Step-Up Depreciation") when calculating EBITA because we view the step-up in asset
values as equivalent to goodwill and the Step-Up Depreciation as equivalent to goodwill amortisation. Step-Up Depreciation totaled SEK 293 million in 2004, SEK 303 million in 2003, SEK 319 million in 2002, SEK 334 million in 2001 and SEK 316 million
for 2000 on a pro forma annual basis. This Step-Up Depreciation is included in costs of goods sold in our financial statements. EBITA may not be indicative of our historical operating results, nor is it meant to be predictive of potential future
results. Since all companies do not calculate EBITA identically, the presentation of EBITA may not be comparable to similarly entitled measures of other companies.
|-------------------- | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Operating income     |  |  | Gross profit less operating expenses (including comparison distortion items).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Operating margin (%) |  |  | The ratio of Operating income to net sales expressed as a percentage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|EBITDA margin (%)    |  |  | The ratio of EBITDA to net sales expressed as a percentage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                     |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

I-7

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|EBITA margin (%)                        |  |  | The ratio of EBITA to net sales expressed as a percentage.                                                                                                                                                                                                                                                                                                                                                                                    
|--------------------------------------- | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Investment in fixed assets              |  |  | Cash flows used to acquire and/or maintain plant, property and equipment (Investments in fixed assets under cash flow from investing activities in the consolidated cash flow statement).                                                                                                                                                                                                                                                     
|Return on capital employed (%)          |  |  | EBITA in relation to average capital employed, expressed as a percentage.                                                                                                                                                                                                                                                                                                                                                                     
|Capital employed                        |  |  | Total assets less liquid funds, capitalised financing costs, other long-term securities, accrued interest income, operating liabilities and other non-interest bearing liabilities, including tax and deferred tax, but excluding accrued interest costs.
Reflects the capital that is used in the operations. The capital employed for the Group differs from the net capital for the segments concerning taxes, deferred taxes and pensions.
|Capital turnover rate, times            |  |  | Ratio of net sales to average capital employed.                                                                                                                                                                                                                                                                                                                                                                                               
|Return on equity (%)                    |  |  | The ratio of net income divided by total equity expressed as a percentage.                                                                                                                                                                                                                                                                                                                                                                    
|Total interest bearing debt             |  |  | Total interest bearing debt comprises the sum of long-term liabilities, liabilities to credit institutions as reported under current liabilities, capitalised financial leases, and interest bearing pension liabilities.                                                                                                                                                                                                                     
|Net debt                                |  |  | Net debt comprises total interest bearing debt (see definition above) less cash and bank and other current deposits.                                                                                                                                                                                                                                                                                                                          
|Equity/assets ratio (%)                 |  |  | The ratio of total equity to total assets expressed as a percentage.                                                                                                                                                                                                                                                                                                                                                                          
|Net debt/equity ratio                   |  |  | Ratio of net debt (see definition below) to total equity, expressed as a multiple.                                                                                                                                                                                                                                                                                                                                                            
|Interest coverage ratio, times          |  |  | The ratio of EBITDA less interest and other financial income/(costs), plus interest costs to interest costs, expressed as a multiple.                                                                                                                                                                                                                                                                                                         
|Net working capital excluding financial |  |  | Current assets, excluding cash and bank and other current deposits, less current liabilities items excluding liabilities to credit institutions.                                                                                                                                                                                                                                                                                              
|Ratio of earnings to fixed charges      |  |  | The ratio of earnings (as defined) to fixed charges, expressed as a multiple. Earnings are defined as income before taxes plus fixed charges. Fixed charges are defined as interest expenses plus one-third of rental expense on operating leases, which
represents the portion of rental expenses deemed to be attributable to interest.                                                                                                     

I-8

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Unaudited Pro Forma Consolidated Financial Information for  Alfa Laval Special Finance AB

The unaudited pro forma consolidated financial information for the year ended December 31, 2000 has been prepared on the basis of our audited consolidated
statement of operations and the audited consolidated statement of operations of the former Alfa Laval Holding, our predecessor, for 2000, which has been prepared in accordance with Swedish GAAP.
Swedish GAAP differs in certain significant respects from US GAAP. See note 33 to our consolidated financial statements for the year ended December 31, 2000, for a description of such
differences, as they apply to Alfa Laval Special Finance AB. This pro forma consolidated financial information has not been prepared in accordance with Article 11 of
Regulation S-X. The audited consolidated information has been adjusted to give effect to the Acquisition and related financing transactions including the offering of the Senior
Notes, in each case as if such transactions had been completed on January 1, 2000, as described in the notes set forth below. In addition, the pro forma consolidated financial information has
been adjusted to reflect purchase accounting under US GAAP. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable. The
unaudited pro forma financial information does not purport to represent what our results of operations or financial condition would actually have been had such transactions in fact occurred on
January 1, 2000 or to project our results of operations for any future period or our financial condition for any future date.

I-9

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Alfa Laval Special Finance AB  Unaudited Pro Forma Consolidated Statement of Operations  for the year ended December 31, 2000

|                                                                        |  |        |   | Swedish GAAP |   |       |     | US GAAP |  
|----------------------------------------------------------------------- |  | ------ | - | ------------ | - | ----- | --- | ------- | -
|
|
|
|Consolidated Statement of Operating Data:                               |  |        |   |              |   |       |     |         |  
|Net sales                                                               |  | 9,295  |   | 5,717        |   |       |     | 15,012  |  
|Cost of goods sold                                                      |  | (5,963 | ) | (3,951       | ) | (210) | (1) | (10,124 | )
|Gross profit                                                            |  | 3,332  |   | 1,766        |   |       |     | 4,888   |  
|Other operating expenses:                                               |  |        |   |              |   |       |     |         |  
|Sales costs                                                             |  | (1,749 | ) | (835         | ) |       |     | (2,584  | )
|Administration costs                                                    |  | (643   | ) | (218         | ) |       |     | (861    | )
|Research and development costs                                          |  | (279   | ) | (162         | ) |       |     | (441    | )
|Other operating income                                                  |  | 258    |   | 268          |   |       |     | 525     |  
|Other operating costs                                                   |  | (327   | ) | (356         | ) |       |     | (683    | )
|Goodwill amortisation                                                   |  | (485   | ) | (55          | ) | 376   | (2) | (164    | )
|Comparison distortion items                                             |  | 524    |   | (394         | ) |       |     | 130     |  
|Operating income/(loss)                                                 |  | 631    |   | 14           |   |       |     | 810     |  
|Interest and other financial income                                     |  | 139    |   | 111          |   |       |     | 250     |  
|Interest and other financial costs                                      |  | (264   | ) | (440         | ) | (348) | (3) | (1,052  | )
|Income/(loss) after financial items before taxes and minority interests |  | 506    |   | (315         | ) |       |     | 8       |  
|Income tax benefit/(expense)                                            |  | (245   | ) | (56          | ) | 195   | (4) | (105    | )
|Minority interests                                                      |  | (36    | ) | (12          | ) |       |     | (48     | )
|Net income/(loss)                                                       |  | 225    |   | (383         | ) |       |     | (145    | )

I-10

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Notes to the Unaudited Pro Forma Financial Data for 2000

Swedish GAAP adjustments for the Acquisition and related financing, including the offering of Senior Notes

The pro forma adjustments described below reflect the purchase accounting adjustments in accordance with Swedish GAAP, as described in our December 31,
2000 consolidated financial statements.

The
adjustment to interest expense is determined as follows:

Interest
Rate

Amount

Additional
interest as if
incurred on
January 1,
2000(SEK in millions)Actual interest on refinanced Tetra Laval Debt





(84
)Original Senior Credit Facility

7.2
%
5,730

250Actual interest on bridge loan facility





(44
)Senior Notes issued to repay bridge loan facility

12.125
%
1,950

202324Original Senior Credit Facility debt issue costs amortised over 8 years



228

18Senior Notes issue costs amortised over 10 years



71

6Total incremental interest expense





348


---

There
are no other adjustments.

I-11

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US GAAP Adjustments

The adjustments reflect the sum of the reconciliation adjustments of the consolidated statements of operations for the period January 1, 2000 to
August 23, 2000 and for the period August 24, 2000 to December 31, 2000, as described in note 33 of our December 31, 2000 consolidated financial statements. The
adjustments also reflect certain reclassifications for the realisation of stepped-up values relating to the Acquisition that are presented as comparison distortion items in the Swedish
GAAP financial statements. In addition, the US GAAP adjustments reflect the pro forma impact of applying US GAAP differences in purchasing accounting as if the transaction had occurred on
January 1, 2000. Such differences result in higher cost of goods sold relating to amortisation of intangible assets and lower goodwill amortisation.

Exchange Rate Information

The following table sets forth, for the periods ended and dates indicated, certain information concerning the exchange rate for Swedish kronor to US dollars based
information published by the Swedish Central Bank, orRiksbanken. No representation is made that Swedish kronor amounts have been, could have been or
could be converted into US dollars, or vice versa, at such exchange rates or at any other rate. On April 5, 2005, the rate was $1.00 = SEK 7.16.

Swedish kronor per one US dollarYear ended December 31,

Period
End(1)

Average
Rate(2)

High

Low1999

8.53

8.27

8.66

7.712000

9.54

9.17

10.33

8.342001

10.67

10.33

11.00

9.272002

8.83

9.71

9.08

8.812003

7.25

8.08

8.80

7.252004

6.60

7.33

7.75

6.582004 October

7.10

N/A

7.37

7.072004 November

6.74

N/A

7.14

6.732004 December

6.60

N/A

6.83

6.582005 January

6.99

N/A

6.99

6.662005 February

6.82

N/A

7.12

6.822005 March

7.06

N/A

7.06

6.742005 April (through April 5, 2005)

7.16

N/A

7.16

7.06


---

European Monetary Union and Sweden's Currency Policy

On January 1, 2002, the euro replaced national currencies in the twelve member states of the EMU. Monetary policy with respect to the euro is conducted by
the European Central Bank which sets interest rate policy for, and manages the foreign reserves of, the euro states.

Three
members of the European Union, Denmark, Sweden and the United Kingdom have not adopted the euro.

3.B. Capitalisation and Indebtedness

Not applicable.

3.C. Reasons for the Offer and Use of Proceeds

Not applicable.

I-12

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3.D. Risk Factors

Set forth below is a description of certain risks that may affect our business, financial condition and results of operations from time to
time.

This annual report contains certain forward-looking statements concerning, among other things, our revenue growth, EBITA margin and return on capital employed targets. These
forward-looking statements are subject to risks and uncertainties that could cause actual revenue growth, EBITA margin and return on capital employed to be substantially lower than those expressed or
implied by such statements.

In
order to achieve our strategic objectives, we have set targets for revenue growth, EBITA margins and return on capital employed, each as more fully described under "Item 5.A:
Operating and Financial Review and ProspectsOperating ResultsOverview". These targets are inherently forward-looking and are subject to risks and uncertainties that could
cause actual revenue growth, EBITA margin and return on capital employed to be substantially lower than those expressed or implied by such statements. There can be no assurances that such targets for
revenue growth, EBITA margins and return on capital employed actually will be realised.

Our operating results, including our revenues, operating income, EBITA and cash flows, could be harmed during economic downturns as demand for our products and services is
reduced. This, in turn, could affect our ability to make payments due to you on the Senior Notes.

The
businesses of most of our industrial customers, particularly those operating within the marine and oil and gas production industries are, to varying degrees, cyclical and have
experienced periodic downturns. Margins in those industries are sensitive to demand cycles, and our customers in those industries historically have tended to delay large capital projects, including
expensive maintenance and upgrades, during economic downturns. For example, due to the simultaneous decline in oil and chemical prices in 1998 and 1999, as well as a decline in ship construction, many
of our key customers reduced their capital spending, which resulted in declines in our revenues, operating income, EBITA and cash flows during those years. These industry downturns led to diminished
product demand and excess manufacturing capacity.

Any
significant downturn in our customers' markets or in general economic conditions could result in a reduction in demand for our products and services and under-utilisation of our
facilities. Historically, we have experienced the negative impact of an economic downturn between 6 to 12 months after the onset of the decline. Since our personnel costs constitute a
significant component of our operating expenses and these costs, as well as the cost of our facilities, are fixed at the commencement of each financial period, under-utilisation of our personnel and
our facilities will negatively impact our revenues, operating income, EBITA and cash flow. This, in turn, could affect our ability to make payments due to you on the Senior Notes. Our business is also
affected by the seasonality of end-user markets and invoicing, more fully discussed under "Item 5.A: Operating and Financial Review and ProspectsOperating
ResultsSeasonality of end-user markets and invoicing".

The markets for our products are highly competitive. If we do not respond effectively and on a timely basis to changes in the industries we serve, our competitiveness may be
affected and our business could suffer. We may also experience pricing pressure as a result of competition.

The
markets for many of our products are highly competitive, especially as to product quality, product price, reliability of product supply, technical support and service. From time to
time, we experience pricing pressure as a result of competitive pressures. To remain competitive, we will need to continue to invest in manufacturing, research and development, marketing, customer
service and support and our distribution networks. We may not have sufficient resources to continue to make these investments and we may not maintain our competitive position. Our competitors include
large, integrated companies that may have access to greater financial and other resources than we do. See

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"Item
4.B: Information about the CompanyBusiness OverviewCompetition" where the competition we face in our business is more fully described.

We may not be able to continue to increase our sales as a result of our recent corporate and operational reorganisation. This may have a material adverse effect on our results
of operations.

Following
the completion of our recent corporate and operational reorganisation, additional sales are dependent upon our ability to develop the necessary implementation plans, commit the
necessary personnel and rationalise our workforce and operations to establish an integrated business focusing on our customers. In addition, as part of our recent reorganisation, we have integrated
and centralised various systems and processes, such as management information, accounting and information technology systems. We may not be able to fully and successfully recognise any expected
benefits from our reorganisation and consequently we may not be able to increase our sales. As a result, there may be a material adverse effect on our results of operations.

We are exposed to economic, political and business risks associated with international sales and operations. If we do not address these risks in a cost-effective
manner, the growth of our operations may be limited, our operating margins could be reduced and our business, operating results and financial condition could materially adversely
affected.

As
we sell our products worldwide, our business is subject to risks associated with doing business internationally. Accordingly, our future results could be harmed by a variety of
factors, including, but not limited to:



We
manufacture and distribute our products in many countries around the world. We are confronted with different legal and regulatory requirements in many jurisdictions. These include
tariffs and trade barriers, requirements relating to withholding taxes on remittances and other payments by subsidiaries and different regimes controlling the protection of our intellectual property.
Our international operations also expose us to different local business risks and challenges. We are faced with potential difficulties in staffing and managing local operations. We have to manage
credit risks of local customers and distributors. Our expansion in emerging markets requires us to respond to rapid changes in market conditions in these countries. Therefore, our overall success as a
global business depends, in part, upon our ability to succeed in differing economic, social and political conditions.

We
may not be able to succeed in developing and implementing policies and strategies that are effective in each location where we do business. If we fail to address the risks associated
with our international operations in a cost-effective and timely manner, the growth of our operations may be limited, our operating margins could be reduced and our business, operating
results and financial condition could be materially adversely affected.

I-14

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Our operations depend on certain raw materials, the prices for which are volatile, and we depend on certain suppliers for those raw materials. Shortage of, or price increases
for, supplies could harm our ability to manufacture and sell our products.

We
rely on raw materials such as stainless steel, carbon steel, copper and titanium for the manufacture of our products, the prices for which are volatile. During 2004 the Group has
experienced higher prices for many raw materials, but in particular for stainless steel, carbon steel, copper and titanium. Shortages of supply have also occurred in the past and may occur in the
future. There have been indications of shortages of supply of titanium in 2004. This conclusion has been derived from contacts with our suppliers and certain customers. We depend on three suppliers
for titanium and are subject to a substantial lead time in ordering and obtaining titanium from sources other than our key suppliers. The number of titanium suppliers is limited and a change of
suppliers could cause a delay in manufacturing products such as our large heat exchangers, increase our costs and result in a loss of sales. Shortages of, or price increases for, supplies could have a
material adverse effect on our ability to manufacture and sell certain of our products in a timely and cost-effective manner.

Prices
under these contracts for raw materials are negotiated on a six-month or yearly basis. We also purchase raw materials directly on the spot market. Spot prices
fluctuate and may be significantly less than or significantly greater than the prices we pay for our raw materials under long-term agreements. While we seek to balance increases in raw
material costs with corresponding increases in the prices of our products, there have been in the past, and may be in the future, periods of time during which we cannot recover cost increases. These
failures to recover costs can result in part because of competitive pressures, the timing of changes to the prices of raw materials and because at times, in certain markets, over-capacity
prevents selling prices from being
raised. Cost decreases are generally reflected more quickly in our sales prices than cost increases due to competitive pressures.

We are exposed to the risk of currency fluctuations in many countries and these fluctuations may have a material effect on our results of operation and financial position.
Currency fluctuations may also affect the comparability of our results between financial periods.

Our
operations are conducted by in approximately 100 countries. The results of the operations and the financial position of these subsidiaries are reported in the relevant foreign
currencies and then translated into Swedish kronor at the applicable exchange rates for inclusion in our consolidated financial statements which are stated in Swedish kronor. The exchange rates
between these currencies and the Swedish kronor in recent years have fluctuated significantly and may in the future fluctuate significantly. These fluctuations have had in the past, and may have in
the future, a material effect on our results of operations and financial position and may significantly affect the comparability of our results between financial periods.

In
addition, we incur currency transaction risk whenever one of our operating subsidiaries enters into a transaction using a different currency than its functional currency. We attempt
to reduce currency transaction risk by:



However,
we may not be able to hedge this risk completely or at an acceptable cost, which may adversely affect our results of operations and financial condition. See "Item 11.A:
Quantitative and Qualitative Disclosures About Market RiskForeign Currency Exchange Rate Exposure".

Principal
and interest on the Senior Notes will be payable in euros. Our ability to pay interest and principal on the Senior Notes when due is in part dependent on the then current
exchange rates between euros, on the one hand, and the Swedish kronor and other European, as well as US and Asian

I-15

---



currencies
that our sales are denominated in, on the other hand, which rates are and will be subject to fluctuation. Exchange rate fluctuations may have a material adverse effect on our results of
operations and financial condition and therefore on our ability to make principal and interest payments on our debt, including the Senior Notes, when due.

We may have liabilities associated with the pending Desert Storm litigation. If we are found liable for the claims, our financial condition could be materially adversely
affected.

Some
of our subsidiaries, along with approximately 70 other defendants, have been sued in lawsuits in the United States arising from claims related to injuries allegedly suffered in the
Gulf War in 1991, also known as Desert Storm. These two lawsuits were initiated in 1994. The lawsuits claim damages in excess of $1 billion each and allege that equipment supplied by our
subsidiaries, among other defendants, was used to manufacture Iraqi chemical and/or biological weapons. While we consider our liability remote in these cases, litigation is impossible to predict and
we may be found liable for these claims, which could have a material adverse effect on our financial condition. See "Item 8.A: Financial InformationLegal Proceedings" for further
information regarding this litigation and for a description of the indemnification provisions set forth in the Share Sale and Purchase Agreement between us and Tetra Laval B.V. in respect of this
litigation.

We may in the future face large liability and breach of contract claims for defective products, which may cause us to lose revenues, cause a delay in market acceptance of our
products or harm our reputation. These claims could also be costly and time-consuming to defend.

We
are subject to litigation in the ordinary course of our business. Except as described in the previous risk factor, we are not engaged in and do not foresee, at the present time, any
litigation that we believe could have a material adverse effect on our financial condition or results of operations. However, litigation having a material adverse effect on our financial condition or
results of operations may arise in the future and this may adversely affect our reputation, cause us to lose revenues, cause a delay in the market acceptance of our products and adversely affect our
ability to make principal and interest payments on our debt, including the Senior Notes. Our businesses expose us to possible claims for personal injury, death, property damage, breach of contract or
other product liability claims, which could result from a failure of a product we manufactured or of a product integrated into a product we manufactured, particularly in relation to our
high-speed separators. Many factors beyond our control could lead to liability claims, including, but not limited to:



These
claims could also cause damage to our reputation. Although we test our products extensively and our products are manufactured to industry standards, we have obtained insurance
coverage for most of these types of liabilities and we believe that this insurance coverage is adequate. We could, however, be required to pay a material amount if a claim is made against us that is
not fully covered by insurance and no third party is required to indemnify us or if a third party fails to indemnify us. Litigation involving significant product recalls or product liability could
have a material adverse effect on our financial condition or results of operations. For a discussion of our litigation matters, see "Item 8.A: Financial InformationLegal Proceedings".

I-16

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Environmental compliance costs and liabilities could adversely affect our financial condition and this, in turn, may adversely affect our ability to make principal and interest
payments on our debt, including the Senior Notes.

Our
operations and properties are subject to increasingly stringent laws and regulations relating to environmental protection, including laws and regulations governing air emissions,
water discharges, waste management and workplace safety. These laws and regulations can impose substantial fines and sanctions for violations and require the installation of costly pollution control
equipment or operational changes to limit pollution emissions and/or decrease the likelihood of accidental hazardous substance releases. We must conform our operations and properties to these laws,
and adapt to regulatory requirements in all countries as these requirements change.

We
use and generate hazardous substances and wastes in our manufacturing operations. In addition, many of our current and former properties are or have been used for industrial purposes
and we have arranged for disposal of wastes at third-party disposal sites. Under certain environmental laws, liability for response actions at contaminated sites, including buildings and other
facilities, is strict, and in some cases, joint and several. We may be subject to potentially material liabilities relating to the investigation and clean-up of contaminated areas,
including groundwater at properties now or formerly owned, operated or used by us, and to claims alleging personal injury or damage to natural resources.

We
have experienced, and expect to continue to experience, operating costs to comply with environmental laws and regulations. In addition, new laws and regulations, stricter enforcement
of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require us to incur costs or become the basis of
new or increased liabilities that could have a material adverse effect on our business, financial condition or results of operations and this may adversely affect our ability to make principal and
interest payments on our debt, including the Senior Notes.

Our business could suffer if we are unsuccessful in negotiating new collective bargaining agreements. Strikes and other industrial actions could disrupt our operations or make
it more costly to operate our facilities.

As
of December 31, 2004, we had approximately 9,527 employees, the majority of whom are represented by unions. The majority of our material collective bargaining agreements with
these unions range from one to five years in duration. We may not be successful in negotiating new collective bargaining agreements. Moreover, negotiations may result in significant increases in the
cost of labour or a breakdown in negotiations leading to a disruption of our operations. Any such action could have a material adverse effect on our results of operations.

Third parties may infringe our intellectual property, and we may expend significant resources enforcing our rights or suffer competitive injury, which could harm our operating
results and, in turn, our ability to make principal and interest payments on our debt, including the Senior Notes.

Our
success depends in part on our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets and confidentiality provisions to establish and
protect our proprietary rights. If we fail to successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our operating results. We may be required
to spend significant resources to monitor and protect our intellectual property rights.

Failure to continue to pursue product innovation would impair our future growth and competitive position. As a result, there could be a material adverse affect on our business,
financial position and results of operations and this may affect our ability to make payments of principal and interest on our debt, including the Senior Notes.

Our
business experiences technological change, ongoing product improvements and obsolescence of existing products, leading to the introduction of new products or production processes.
Our future

I-17

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growth
will depend on our ability to gauge the direction of the commercial progress in all key markets and upon our ability to successfully develop, manufacture, market products and sell products in
these changing markets. We will have to continue to identify, develop, market and sell innovative products on a timely basis to replace existing products in order to maintain our competitive position.

We
intend to devote significant resources to the development of new products and intend to continue to devote a substantial amount of spending to the research, development and technology
process functions of our business. However, we may not be successful in developing new products or new products may not be accepted by our customers. If we fail to keep pace with the innovations in
our markets, then there could be a material adverse affect on our business, financial position and results of operations and this may affect our ability to make payments of principal and interest on
our debt, including the Senior Notes.

Our substantial amount of debt could hurt our financial health and stop us from fulfilling our obligations under our Senior Notes.

We
have a significant amount of debt. As of December 31, 2004, we had total consolidated debt of SEK 2,556 million. If we had drawn down all amounts available under our
Current Senior Credit Facility, the maximum amount of debt that would have been outstanding at December 31, 2004 would have increased by SEK 2,206 million to SEK 4,762 million.

Our
annual debt service based on the outstanding debt at December 31, 2004 is SEK 33 million in interest expense and interest payments. The Current Senior Credit Facility
is amortisation free. Actual repayments for 2004 totalled SEK 711 million. Through April 1, 2005, we have drawn an additional net of SEK 432 million, mainly related to the
acquisition of Packinox. See notes to the consolidated financial statements under "Events after the balance sheet date" on page III-19 of this annual report.

Our
Senior Notes have a fixed charge of 12.125%. We are not required to maintain hedging under the terms of the Current Senior Credit Facility. If the interest rate is increased by
1 percentage unit on all loans with a floating interest charge, our annual debt service cost will increase by SEK 9 million.

Our
substantial debt could have important consequences to you as a holder of the Senior Notes. For example it could:



In
addition, since all the borrowings under our Current Senior Credit Facility are at variable rates of interest, we will be required to make larger payments if interest rates increase.

Our
ability to make scheduled payments of the principal, to pay interest on or to refinance our debt, including the Senior Notes, and to make payments on our other obligations depends on
our

I-18

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future
performance. Certain aspects of our future performance are subject to economic, financial, competitive and other factors beyond our control. We may not be able to generate sufficient cash flow
from operations in the future to service our debt and make necessary capital expenditures. If we fail to do so, we may be required:



We
may not be able to undertake any of these refinancing plans, sell any of our assets or obtain additional financing, particularly as our Current Senior Credit Facility contains a
covenant restricting disposals of assets.

If
we fail to comply with the payment requirements of any of our debt, including the Senior Notes, it could lead to the acceleration of the related debt and the acceleration of debt
under other debt instruments containing cross acceleration or cross default provisions. If this occurred, we might not be able to refinance or otherwise repay this debt.

Despite current debt levels, we may still be able to incur substantially more debt, which may be senior to the guarantee and the Senior Notes and this could further exacerbate
the risks described above.

We
and our subsidiaries may be able to incur substantial additional debt in the future. If additional debt is added to our current debt levels, the risks that we now face could
intensify. The terms of the indenture restrict but do not fully prohibit us and our subsidiaries from borrowing. The additional debt we incur could be secured and debt of the Guarantor could be senior
to the guarantee and the Senior Notes. Debt incurred by our subsidiaries, other than the Guarantor, will be senior in right of payment
to the Senior Notes. If we incur additional debt, the related risks described above that we face could intensify.

We depend on payments from our subsidiaries to make payments on the Senior Notes. Our subsidiaries may not generate cash flow sufficient to enable us to meet our payment
obligations on the Senior Notes. In addition, our Current Senior Credit Facility restricts our subsidiaries' ability to provide funds to us and we may be unable to pay you amounts due on the Senior
Notes.

Our
only assets are shares in our wholly owned subsidiary, the Guarantor, and an intercompany loan to the Guarantor. Our cash flow and our ability to service the Senior Notes and any
other debt depend solely upon the cash flow of our subsidiaries and our receipt of funds from them in the form of loans, dividends, interest or otherwise. Our subsidiaries may not generate cash flow
sufficient to enable us to meet our payment obligations. Our subsidiaries have debt that is senior to the Senior Notes aggregating to SEK 1,511 million.

In
addition, the terms of the Current Senior Credit Facility restrict our subsidiaries' ability to provide funds to us. See "Item 5.B: Operating and Financial
ReviewLiquidity and Capital Resources". This ability may be further restricted by applicable laws and regulations and the terms of other agreements to which our subsidiaries may become
subject. In particular, the Current Intercreditor Agreement for the Current Senior Credit Facility restricts payments under the intercompany loan. Payments to us under this loan, and therefore
payments under the guarantee in relation to the Senior Notes, may also be suspended in the case of a payment default under the senior credit facilities until the payment default is remedied and, in
the case of a non-payment default, are subject to standstill provisions for up to 179 days.

The
Current Intercreditor Agreement permits us, subject to certain restrictions, to make payments of principal on the Senior Notes.

I-19

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None of our operating subsidiaries are guarantors of our obligations under the Senior Notes and your rights to receive payments on the Senior Notes may be affected if any of
our non-guarantor subsidiaries declare bankruptcy, liquidation or reorganises.

We
expect to obtain the money to pay the principal and interest on the Senior Notes from our operating subsidiaries. We are a holding company that does not conduct any business
operations. Accordingly, the Senior Notes are structurally subordinated to the obligations of our subsidiaries other than the Guarantor, which guaranteed the Senior Notes on a senior subordinated
basis. Our subsidiaries are separate and distinct legal entities. Other than the Guarantor, which is also a holding
company, our subsidiaries will have no direct obligation, contingent or otherwise, to pay any amount due under the Senior Notes or to make any funds available to us to allow us to make those payments.
In the event of an insolvency, liquidation or other reorganisation of any of our subsidiaries, our creditors (including you) will have no right to proceed against their assets. Creditors of these
subsidiaries, including lenders under the terms of the Current Senior Credit Facility, will be entitled to payment in full from the sale or other disposal of these assets before we, as a shareholder,
would be entitled to receive any distribution therefrom, except to the extent that we may be a creditor with recognised claims against these subsidiaries. Moreover, the guarantee of our obligations by
the Guarantor ranks behind, and is subordinated to, all of its existing and future obligations under the Current Senior Credit Facility and can be subordinated, at our designation, to other senior
debt incurred by the Guarantor. Payments under the guarantee may be suspended in the case of a payment default under the Current Senior Credit Facility until the payment default is remedied and, in
the case of a non-payment default, are subject to standstill provisions for up to 179 days.

The terms of our debt, including the indenture pursuant to which our Senior Notes were issued, impose various restrictions on us. These restrictions may affect our ability to
successfully carry out our business strategy, which could materially and adversely affect our business, financial condition, results of operations and our ability to make payments of principal on
interest on the Senior Notes.

The
indenture under which our Senior Notes were issued and our Current Senior Credit Facility restrict our ability to, among other things:



These
restrictions may adversely affect our ability to carry out our business strategy and could materially and adversely affect our business, financial condition or results of
operations. This could affect our ability to make payments of principal or interest on the Senior Notes as those payments become due. A breach of the covenants of the indenture under which the Senior
Notes were issued could cause a default under the terms of the other financings of our subsidiaries, causing all debt under those financings to become due.

I-20

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The
Current Senior Credit Facility requires us, to meet certain financial tests and ratios. We may not be able to meet these tests for reasons beyond our control, which would trigger an
event of default under that facility even if we could still continue to make payments to you on the Senior Notes.

A change in the estimated useful life, or a write-off, of goodwill could negatively affect our operating results and net worth.

A
change in the estimated useful life of goodwill or the write-off of a portion of goodwill could negatively affect our operating results and net worth. The Acquisition and
the related financing resulted in the recognition of a substantial amount of goodwill. At December 31, 2004, goodwill totaled SEK 2,795 million, compared to total assets of SEK
13,899 million and shareholders' equity of SEK 4,676 million. We have estimated the useful life associated with the goodwill acquired in 2000 to be 20 years. Subsequent changes in
the industries in which we operate, including competition and advances in technology, may in the future shorten the estimated useful life of goodwill or result in the write-off of a
portion of goodwill, which would have a material adverse effect on our earnings.

The largest shareholder in our parent company Alfa Laval AB, Tetra Laval, has a significant influence, and its interests may conflict with yours. Tetra Laval may take actions
that prevent or hinder us from making payments on the Senior Notes.

Tetra
Laval B.V. owns 17.7% of the shares of Alfa Laval AB, our parent holding company, which owns 100% of our outstanding share capital. Consequently Tetra Laval B.V. can affect our
strategic decisions, our legal and capital structure and our day-to-day operations.

If
circumstances arise where Tetra Laval's interests conflict with your interestsif, for example, we were to encounter financial difficulties or were unable to pay our debts
as they maturedyou could be disadvantaged by Tetra Laval's ability to take actions contrary to your interests. In addition, Tetra Laval may benefit if we pursue acquisitions,
divestitures, financings, currency exchange or interest rate hedging or other transactions that, in their judgement, could enhance the value of their equity investment, even though these transactions
might involve risk to holders of the Senior Notes.

Tetra Laval is our largest customer based on net sales. If we fail to retain Tetra Laval as a customer and/or distributor for our products and services, our business and
financial condition could be adversely effected.

For
the year ended December 31, 2004, approximately 5.4% of our net sales were attributable to direct sales to Tetra Laval. If our sales to or through Tetra Laval were to
significantly decrease, we may not be able to offset this decrease through a corresponding increase in sales to or through other customers and distributors, and such decrease, over time, could have a
material adverse effect on our business, financial condition or results of operation.

If we, the Guarantor or any of our Swedish operating subsidiaries incur substantial operating losses, we or they may be subject to liquidation under Swedish
law.

The
various Companies Acts and insolvency and reorganisation laws of Sweden apply to us, the Guarantor and our and the Guarantor's Swedish subsidiaries. Under this regime, if losses
reduce our equity or the equity of certain of our subsidiaries, on a stand-alone rather than a consolidated basis, to an amount less than 50% of our or their registered share capital, or if the equity
becomes inadequate compared to the risks and the size of its business, the directors of the entity concerned would be obligated by law to convene a general shareholders meeting to resolve to liquidate
the entity unless the directors were able to balance the amount of the equity and share capital by increasing the equity in an amount sufficient to achieve the balance and to ensure that its equity
becomes adequate compared to the risks and the size of its business, or reducing the share capital to pay off losses in an amount sufficient to achieve the balance, provided, however, that its equity
remains adequate compared to the risks and the size of its business. Similar regimes exist in other jurisdictions in which we have subsidiaries.

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Fraudulent conveyance laws of the Kingdom of Sweden may protect our creditors to your disadvantage.

Under
Swedish law relating to fraudulent conveyance, it is possible that other creditors may claim that payments to you under the Senior Notes or the guarantee should be voided because
they were fraudulent conveyances.

Under
Swedish law, in the case of bankruptcy or company reorganisation proceedings affecting us, the payments to you under the Senior Notes or the guarantee, which have been made less
than three months (or two years if effected to a related party) before the application for bankruptcy or company reorganisation proceedings was filed with the competent court may, in certain
situations, be recovered if the payment has been carried out:



Payments
which are deemed to be customary are, however, permissible.

A
Swedish court could also determine that a fraudulent conveyance has taken place under the general provision on recovery in circumstances where a payment to you under the Senior Notes
or the guarantee could be revoked if an agreement, transaction or other act, such as the issuance of the Senior Notes or the guarantee was held to favour a creditor in an unsuitable manner to the
detriment of another creditor or to transfer property out of the reach of the creditors or to increase the debt to the detriment of the creditors, provided that:



However,
under Swedish law, if an agreement, transaction of other act was concluded earlier than five years before the application for bankruptcy or company reorganisation was filed, the
payment to you under the Senior Notes or the guarantee could be revoked only if a party to the agreement, transaction or other act was someone related to the bankrupt or reorganised party such as a
Group company.

In
addition, as we have operations all over the world, if any of our major subsidiaries were to enter bankruptcy proceedings, a court in that jurisdiction could prevent our subsidiaries
from making payments to us, thereby possibly impairing our ability to pay the amounts due under the Senior Notes.

Your rights as a creditor may not be as strong under Swedish insolvency laws as under US or other insolvency laws and the Guarantor's and our liabilities in respect of the
Senior Notes may rank after our debts which are entitled to priority.

The
Guarantor's and our liabilities in respect of the Senior Notes may, in the event of bankruptcy or similar proceedings under Swedish insolvency law, rank after certain of our debts
which are entitled to priority and after our debt to creditors with rights of set-off.

The
business reorganisation laws of Sweden apply to us. Under an official business reorganisation, creditors may be forced to approve the terms of the business reorganisation. During a
business reorganisation, we will not be allowed to fulfil any obligations incurred before the reorganisation with the permission of the bankruptcy administrator appointed by the local district court.

Furthermore,
under Swedish laws there is no consolidation of bankruptcies of the assets and liabilities of a group of companies. Each individual company would thus be treated separately
by a

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bankruptcy
administrator appointed by the local district court. The assets of our subsidiaries would first be used to satisfy the debts of each respective subsidiary and only the remaining surplus (if
any) would be available to our creditors. As a result, your ability to protect your interest as a creditor of a parent of a subsidiary may not be as strong under Swedish law as it would be under US
law, or the laws of other countries.

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ITEM 4: INFORMATION ABOUT THE COMPANY

The following is a description of the business operations of Alfa Laval Special Finance AB and its respective subsidiaries. The only
substantial assets of Alfa Laval Special Finance AB are the capital stock of its subsidiaries. Such subsidiaries include the Guarantor, Alfa Laval Holding AB (renamed from Alfa Laval Credit Finance
AB), and the former Alfa Laval Holding AB, which holds several subsidiaries, including intermediate holding and operating companies.

4.A. History and Development of the former Alfa Laval Holding AB, the Company and the Guarantor

Alfa Laval was founded in 1883 as AB Separator by Gustav de Laval, the inventor of the first continuous separator, to produce and sell dairy cream separators. In
1901, Alfa Laval was listed on the Stockholm Exchange. In 1938, Alfa Laval introduced its first heat exchanger and in 1962 it expanded into the spiral heat exchanger market and introduced a series of
industrial plate heat exchangers. In 1971 Alfa Laval entered into the sanitary flow business. In 1991, the Alfa Laval Group was acquired and became privately owned by an entity within the Tetra Pak
Group, itself a privately owned Group consisting of the industry groups De Laval and Tetra Pak. At the time, Alfa Laval consisted of three major lines of business:



Alfa
Laval's industry division at the time consisted of five principal business areas: Thermal, Separation, Flow, Automation and Dosing & Analysing. Dosing & Analysing was
divested in 1993 and Alfa Laval Automation was divested in 1998. The remaining three business areas provided the basis for our internal organisational structure.

In
August 2000, Industri Kapital 2000 and management completed the Acquisition of a majority shareholding in Alfa Laval from Tetra Laval B.V. Alfa Laval Special Finance AB,
together with Alfa Laval AB, its parent company, were incorporated by Industri Kapital 2000, Tetra Laval B.V. and management on March 27, 2000 for the purposes of the Acquisition. The
Guarantor, formerly known as Alfa Laval Credit Finance AB (formerly known as Alfa Laval Bostadsförvaltning AB), was incorporated on October 11, 1926 and re-named Alfa
Laval Credit Finance AB as part of the Acquisition of the former Alfa Laval Holding AB. In 2003, Alfa Laval Credit Finance AB was merged with the former Alfa Laval Holding AB and then renamed Alfa
Laval Holding AB.

Our
registered and principal executive offices are located at Rudeboksvägan 1, Lund, Sweden, and the telephone number at that address is +46 46 36 70 00. Our agent in the
United States is CT Corporation, 1633 Broadway, New York, New York 10019. We are a private company with limited liability incorporated under the laws of the Kingdom of Sweden.

The
purchase price for the operations of Alfa Laval (conducted through the former Alfa Laval Holding AB and its subsidiaries) was SEK 8,286 million, including transaction costs of
SEK 72 million. As part of the Acquisition, an excess purchase price of SEK 7,300 million was paid over the net book value of assets acquired. This excess purchase price was attributable
to goodwill totalling SEK 3,277 million and the balance of SEK 4,023 million to tangible and intangible assets.

The
Acquisition was financed, in part, by borrowings under a bridge loan facility, which was subsequently refinanced through the issuance of our Senior Notes and a
€200 million investment by Tetra Laval B.V. in Alfa Laval AB in the form of the Subordinated Loan. The balance was subscribed

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for
in cash by Industri Kapital 2000 and management, and by Tetra Laval retaining ownership in Alfa Laval AB.

In
connection with the Offering, the capital structure of the Alfa Laval Group was changed. See "Item 5.B: Operating and Financial Review and ProspectsLiquidity and
Capital ResourcesLiquidity Requirements".

For
an illustration of our corporate organisation after the Acquisition and its financing, see "Item 4.C: Information on the CompanyOrganisational Structure".

Historic Capital Expenditures

In 2002, 2003 and 2004 we made investments in fixed assets of SEK 277 million, SEK 259 million and SEK 388 million, respectively, in each
case mainly to maintain and upgrade our machinery and equipment. Acquired product concessions were SEK 36.6 million in 2004. In 2004 we invested in expanding the capacity and production
processes in respect of our production facility in Lund, Sweden for plate heat exchangers. We also invested in expanding capacity and enhancing productivity at the Ronneby site for the growing product
group of brazed heat exchangers. This site has also seen preparatory investments to support full-scale production of the newly introduced Alfa Nova heat exchanger. Further investments
intended for most product groups, have continued in both China and India, to support the overall growth in this region. The investments during 2003 were characterized mostly by ordinary course
replacements of machinery. In 2002 an expansion of the production facility was made in Richmond, Virginia in the US and capacity investments for manufacturing of brazed heat exchangers was made in
Ronneby.

For
a discussion of our current capital expenditure programme, see "Item 5.B: Operating and Financial Review and ProspectsLiquidity and Capital
ResourcesCommitments for Future Capital Expenditure".

4.B. Business Overview

Overview

We are a leading global provider of specialised process engineering solutions and equipment based on three key technologiesheat transfer, centrifugal
separation and sanitary flow technology. Under our widely recognised brand name, Alfa Laval, we service our customers globally through ten distinct customer segments with an international sales force
in over 100 countries. We were founded in Sweden in 1883 by Gustav de Laval, the inventor of the continuous separator. We are a market leader in our target markets of compact heat exchangers,
centrifugal separators and sanitary flow equipment. Our products, which we sell individually and in combination with each other to form systems and solutions, are designed to optimise the performance
of our customers' manufacturing processes, and as a result are often critical to them. For the year ended December 31, 2004, we had net sales of SEK
14,986 million, operating income of SEK 1,252 million and EBITA (as defined herein) of SEK 1,737 million.

Our
key technologies are as follows:



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We
service over 20,000 customers through ten customer segments: Comfort & Refrigeration; Marine & Diesel; Sanitary; Fluids & Utility; OEMs; Food Technology;
Energy & Environment; Process Industry; Life Science Technology and Parts & Service. Our customers are some of the world's leading blue-chip manufacturers, distributors and
OEMs, such as Bayer, Coca-Cola, Exxon, Tetra Pak and Unilever. Through our customer segments, we cross-sell our systems and full product range, including our parts and services
business, and develop customised solutions by identifying new applications for existing products, as well as developing new products.

Our
customer segments are organised into two divisions, the Equipment division and the Process Technology division. In the Equipment division, we sell and market products to customers
that have a well defined and regular product based equipment need, such as OEMs that require a large number of small plate heat exchangers for integration into boilers, diesel engines and air
conditioning units. In the Process Technology division, we sell and market our customers with specialised or unique solutions for industrial systems and processes, such as for the production of
beverages, dairy products, beer and vegetable oils, as well as the purification of fuel and lubricating oil within power plants.

Each
of the Equipment and Process Technology divisions is responsible for the world-wide marketing and selling of our products, systems and parts and services with respect to
their respective customer segments. Our global parts and services activities cover a broad range of activities, such as provision of parts, maintenance of equipment and systems, training of personnel
and efficiency audits, and enables us to serve our customers' needs on a 24-hour basis. We derive an increasing amount of our revenue from the sale of parts and services, which typically
generates a higher margin than the sale of our products, systems and or capital sales. Our Equipment and Process Technology divisions are also responsible for research and development for their
respective customer segments. Supporting our organisation is an Operations division that performs centralised purchasing, logistics and manufacturing functions.

We
have a diverse customer and geographic base, which we believe mitigates the impact of an economic downturn in any one part of the world or in any given industry. The following charts

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illustrate
our sales by customer segment and by geographic region for the year ended December 31, 2004:

|Net sales by segments in 2004 |  | Net sales by geographic region in 2004
|----------------------------- |  | --------------------------------------
|GRAPHIC                       |  | GRAPHIC                               

Our Competitive Strengths

We believe we have a number of competitive strengths which set us apart from our competitors, more fully described under "Competition" below. These
competitive strengths include:



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Our Strategy

Our strategic objective is to grow shareholder value by delivering growth and continuous improvement in our activities. In order to achieve our strategic
objective we intend to focus on the following strategies:

Growth



Continuous improvement



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Equipment Division

The following table sets forth details of our five customer segments, their principal end-user markets and their representative customers within our
Equipment division. The Parts and Services segment for both the Equipment division and the Process Technology division constitutes the tenth customer segment within Alfa Laval.

|Customer Segment        |  | End-User Markets                                                                                  |  | Representative Customers                       |  | % of
2004
Sales |  
|----------------------- |  | ------------------------------------------------------------------------------------------------- |  | ---------------------------------------------- |  | --------------- | -
|Sanitary                |  | Dairy, food products and beverages, pharmaceutical and healthcare industries                      |  | Nestlé, Coca Cola, Procter & Gamble, Tetra Pak |  | 25              | %
|Comfort & Refrigeration |  | Heating, cooling, air conditioning and refrigeration industry                                     |  | Uppsala Energi, Climespace, York, Mycom        |  | 24              | %
|Marine & Diesel         |  | Shipping, ship building and power generation industries                                           |  | Hyundai, Finncantieri, Wärtsila                |  | 16              | %
|OEM Equipment           |  | Manufacturing (diesel engines, boilers, air conditioning, air dryer and condensing unit) industry |  | Vaillant, Caterpillar, Carrier                 |  | 9               | %
|Fluids & Utility        |  | Manufacturing (automotive, metal working and electronic) industry                                 |  | GM, Scania, Daimler Chrysler, Samsonite        |  | 3               | %
|Total Capital Sales     |  |                                                                                                   |  |                                                |  | 77              | %
|Parts and Services      |  |                                                                                                   |  |                                                |  | 23              | %
|Total                   |  |                                                                                                   |  |                                                |  | 100             | %

Our
Equipment division, employing 2,026 personnel as of December 31, 2004 and accounting for SEK 8,250 million, or 55%, of our total net sales in the year ended
December 31, 2004, serves customers who typically have a well-defined and regular need for our products and require more component-type products. Our Equipment division
utilises multiple distribution channels to generate sales, including its direct sales force, distributors, strategic partners (including Tetra Pak), OEMs (such as boiler manufacturers) and the
Internet, all as more fully described under "Marketing and Distribution" below. In 2004, approximately 45% of net sales in our Equipment division were related to our heat transfer
technology, approximately 32% to our sanitary flow equipment, and approximately 19% to our centrifugal separation technology and approximately 4% to other proprietary equipment

Sanitary.The Sanitary customer segment is focused on the provision of fluid handling equipment to the dairy, beverage, food
and pharmaceutical industries. These industries are characterised by stringent safety and hygiene requirements. Our heat exchangers, pumps, valves, installation and tank equipment are used to heat,
pump, regulate, process and transport fluid products such as milk, cheese, yoghurt, soft drinks, beer, processed food, skin lotions, shampoo and medicine. Transporting and directing such liquids
safely and efficiently is critical to our customers' processes. We believe we are a significant supplier of hygienic fluid handling equipment, manufacturing a comprehensive range of pumps, valves and
fittings. On January 31, 2003, the Danish Toftejorg A/S Group was acquired adding advanced tank cleaning equipment to Alfa Laval's offering to the Sanitary and Marine industries.

Comfort & Refrigeration.In the Comfort & Refrigeration customer segment, we sell our heat exchangers to a
broad spectrum of customers, ranging from large multinational companies to one-man installation firms, principally for use in the context of indoor climate control, refrigeration and
industrial cooling processes. In particular, our welded plate heat exchangers are suitable for extremely high temperatures and pressures and can be used in place of shell and tube technology. We
believe our brazed heat exchangers for evaporation and condensation have a well-established performance record in the market.

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Marine & Diesel.In the Marine & Diesel customer segment, we are a significant supplier of separators, compact
heat exchangers and fresh-water generators, which we sell to ship yards and diesel engine
manufacturers. We believe that more than half of all ships in service are equipped with our equipment, giving us a leading market position in this sector. Our equipment is used for fuel and
lubricating oil cleaning processes and engine cooling and fresh water production. On January 31, 2003, the Danish Toftejorg A/S Group was acquired adding advanced tank cleaning equipment to
Alfa Laval's offering to the Sanitary and Marine industries.

OEM.In the OEM customer segment, we have close relationships with manufacturers of medium and high-speed diesel
engines, air conditioning units and boilers, who typically integrate our products, such as our small brazed heat exchangers into their units. We aim to build alliances with these manufacturers in
order to undertake joint development programmes for new products. We are a significant supplier of small brazed heat exchangers to the boiler manufacturing industry, brazed heat exchangers to the
air-conditioning industry and gasketed heat exchangers to the diesel engine manufacturing industry.

Fluids & Utility.In the Fluids & Utility customer segment, our knowledge of heating, cooling and separation is
focused on a limited number of industries, principally the automotive, metalworking and electronic and plastic products industries. These industries typically use our heat exchangers, separators and
sanitary flow products for temperature control and for the cleaning of hydraulic and lubricating oils.

Process Technology Division

The following table sets forth details of our four customer segments, their principal end-user markets and their representative customers within our
Process Technology division. The Parts and Services segment for both the Process Technology division and the Equipment division constitutes the tenth customer segment within Alfa Laval.

|Customer Segment        |  | End-User Markets                                                                     |  | Representative Customers                                                              |  | % of
2004
Sales |  
|----------------------- |  | ------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------- |  | --------------- | -
|Food Technology         |  | Food products, protein and beverage industries                                       |  | Anheuser-Busch, ADM, Heineken                                                         |  | 26              | %
|Process Industry        |  | Chemical, petrochemical and natural resources (sugar, starch and yeast) industries   |  | BASF, Bayer, Cargill,                                                                 |  | 20              | %
|Energy and Environment  |  | Waste-water treatment, oil, gas and power industry, land based desalination industry |  | General Electric, Exxon, Statoil, City of Chicago, Mitsubishi (power plants), Siemens |  | 18              | %
|Life Science Technology |  | Biotech and pharmaceutical industry                                                  |  | Eli Lilly, GlaxoSmithKline, Genentech                                                 |  | 8               | %
|Total Capital Sales     |  |                                                                                      |  |                                                                                       |  | 72              | %
|Parts and Services      |  |                                                                                      |  |                                                                                       |  | 28              | %
|Total                   |  |                                                                                      |  |                                                                                       |  | 100             | %

Our
Process Technology division, employing 2,979 personnel as of December 31, 2004 and accounting for SEK 6,683 million, or 45%, of our total net sales in the year ended
December 31, 2004, serves customers that require customised solutions to optimise their processes and for which it is critical for us to demonstrate an in-depth knowledge of their
processes. For example, we supply customised turn-key process technology solutions (including high speed separators, decanter centrifuges, hydro-cyclone systems and filters) for the
extraction of starch from corn, wheat, potatoes and tapioca. Our systems handle the preparation of the raw materials through to the final processing of the various

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end
products. Our decanters, hydro-cyclone systems and dryers are used in splitting, purifying and washing processes in starch extraction. Sales to customers requiring customised solutions are
principally channeled through our own sales companies, more fully described under "Marketing and Distribution" below. Based upon our process and product expertise, in combination with our
technologies, we offer a range of bundled packages, from individual products to specialised solutions, together with attentive customer service. In 2004, approximately 54% of net sales in our Process
Technology division were related to our centrifugal separation technology, approximately 33% to our heat transfer technology, approximately 10% to other proprietary equipment, approximately 2% to our
sanitary flow technology and approximately 1% to our membrane technology.

Food Technology.Within the Food Technology customer segment, we hold a strong position as a supplier of processing solutions
to the food and beverage industry. We supply stand-alone equipment, modules, process lines, complete plants and/or specialised services according to customers' needs. The primary
products we supply are separators and plate heat exchangers, as well as pumps, valves and installation materials. Our products are used in the production of beverages (including coffee, tea, soft
drinks, fruit juices and viscous foods, such as soups, sauces and chocolate products), beer, wine, olive oil, other vegetable oils and meat and fish proteins. We are a significant supplier of process
technology in the refining of rapeseed, soy and palm oil and other vegetable oils and, with our acquisition of Scandi-Brew in 1999, we are also a significant supplier of process technology
solutions in the production of beer.

Process Industry.In the Process Industry customer segment, our heat exchangers and separators are used in a wide variety of
our customers' processes, including those processes involving high temperatures and concentrated petrochemicals, plastics, polymers, metals, minerals and paper. Our new centrifuges are
well-suited to the demands of the chemical industry. With our acquisition of the Merco Dorr Oliver starch business in 2000, we believe we are also a significant supplier of equipment to
those industries active in the extraction, refinement and modification of starch.

Energy & Environment.In the Energy & Environment customer segment, our products and systems play a critical
role in areas such as waste-water treatment, oil and gas production, the production of energy from oil, gas, other fossil fuels, hydroelectric and nuclear power. In particular, our decanters have a
leading market share for use in the treatment of sludge in waste-water treatment plants and are often combined with other core products for use in this context. We supply compact heat exchangers that
are used for a variety of heating and cooling applications on oil platforms, where weight and space savings are important criteria. Our centrifugal separation systems for the treatment of fuel oils
and lubricating oils are typically used at diesel, gas or steam power stations.

Life Science Technology.In the Life Science Technology customer segment, we have a strong position in the traditional
chemical and the pharmaceutical industry, as well as in the bio-tech industry. Our centrifugal separators play a key role in cell separation during the manufacture of pharmaceutical
products in the bio-tech industry. Our heat exchangers are used for heating, cooling and thermal regulation of their processes. On October 2, 2003, Alfa Laval acquired the Life
Science division, bioKinetics, from Kinetics Group Inc. in the United States. bioKinetics is a North American leader in technology-driven integrated process solutions for the biotech and
pharmaceutical industries. bioKinetics' main products are modular designs that mainly focus on mammalian cell cultures. These modules are predominantly bioreactor modules, but also modules for cell
harvesting, purification and bio-deactivation. In the bioKinetics customer base leading pharmaceutical and biotech companies such as Amgen, IDEC, Lonza and Merck can be found. Life Science
is a market where Alfa Laval already today is active with all core products. However, as the Life Science market shows a very high growth Alfa Laval has to secure that the potential is captured also
through acquisitions.

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Parts and Services

We have recently increased our focus on the higher margin parts and services business within both our Equipment and Process Technology divisions. Our parts and
services business covers the maintenance of equipment and systems, the supply of spare parts, the training of personnel and efficiency audits. We have 70 service centres around the world. In 2004, 25%
of Group sales were derived from this business, as compared to 22% in 1999.

We
have a large and growing installed base of heat exchangers and separators, which require service and spare parts. Due to the natural ageing of this installed base, particularly in
heat exchangers, which have a typical life span of 5 to 20 years, and separators, which have a typical life span of 10 to 20 years, we expect the demand for our parts and services to
increase. We intend to increase our parts and services business by more effectively tracking our installed base of equipment and by selling ongoing service contracts along with our systems and
products at the time of their original sale. In addition to leveraging off our large and growing installed base of heat exchangers and separators, we believe that another key driver to growth in the
parts and services business is the increased outsourcing of equipment maintenance by customers whose core competence is not in the maintenance field, particularly where the plant is sophisticated and
downtime costs are high. We also service and sell spare parts for products manufactured by our competitors in the heat transfer and sanitary flow technology markets, which also provide us with an
opportunity to expand our customer base and cross-sell our products.

Operations Division

Supporting our two principal divisions is a centralised Operations division that performs three functions for our Grouppurchasing, logistics and
manufacturing. Our Operations division employed 4,036 personnel, as of December 31, 2004. The purchasing unit, which is organised by commodity group and region, is responsible for purchasing
strategy, volume and supply agreements, development of relationships with suppliers and outsourcing. The logistics unit, which is organised by region and product, is responsible for all distribution
operations in the sales organisation supply chain between us, our customers and our distributors. It is also responsible for inventory management, order processing, warehousing, transport and freight.
The manufacturing unit, which is also organised by product and region, is responsible for all of our manufacturing sites which produce both components and complete products for supply to our
customers. The production unit has the responsibility for long-term production planning and development. In centralising these three principal functions, we aim to streamline our
operations, increase our efficiency and productivity, reduce our operating costs and exploit economies of scale. Our Group headquarters continues to have sole responsibility for all human resource,
information technology and information systems, communications, finance and legal activities.

For
a description of our manufacturing facilities, see "Item 4.D: Information about the CompanyProperty, Plant and Equipment".

Supplies

Our principal raw materials are titanium, sheet stainless steel, rubber gaskets, carbon steel frames, copper and, in relation to our sanitary flow products,
rubber, plastic and cast iron. We purchase our supplies from over 3,500 suppliers located in Europe, North America and Asia. One supplier accounted for 6% of our purchasing volume in 2004, but no
other single supplier accounted for more than 3%. We are not dependent on any one supplier and alternative sources of supply are generally available, although we do depend on three suppliers for
titanium and we are subject to a substantial lead time in ordering and obtaining titanium from other sources. Shortages of supply have occurred in the past and may occur in the future. There have been
indications of shortages of supply of titanium in 2004. This conclusion has been derived from contacts with our suppliers and certain customers. Supply contracts

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are
typically negotiated on a 6 to 12 month basis and use of consignment stock, or stock that is owned by the supplier until used in production, is more frequently being used with core
suppliers as a way to free up working capital. In addition to purchasing raw materials, we also purchase certain components, including motors and electrical systems, which we integrate into some of
our products, principally our separators.

Our Products and Services

Heat Transfer Technology Products

Heat transfer technology is used in almost all industrial process activities. Typical heat transfer applications perform heating, cooling, ventilation,
evaporation and condensation functions in a wide range of industries such as food, chemical processing and power generation industries. Heat exchangers work by passing fluids or gases close together,
with heat moving from the hot substance to the colder one. Such products are critical for the overall efficiency of a process within a manufacturing plant and are generally considered to be an
essential purchase in circumstances where technical specifications and superior quality are key factors. These products are either purchased individually, or as part of a larger piece of equipment or
an entire processing system. Our heat transfer products, many of which can be customised for specific customer needs, consist principally of:



A
heat exchanger is typically in operation for 5 to 20 years and consumes spare parts and requires qualified service throughout its life. As a result, customers who have purchased
our systems and products create a reliable customer base for our parts and services business. We have the capability to service most kinds of plate heat exchanger, including those not manufactured by
us. This capability provides a platform for expanding our higher margin parts and services business and provides exposure to new customers to whom we can market our heat transfer products.

Plate heat exchangers

The plate heat exchanger is our main product. We believe that plate heat exchangers combine high efficiency with low investment and operating cost. It consists of
a pack of metal plates with portholes for the passage of two fluids, between which heat transfer takes place. There are three types of plate heat exchangers; gasketed, brazed and welded. Gasketed
plate heat exchangers are sealed with rubber gaskets and are typically used on ships as part of the cooling process of engine oil. Brazed heat exchanges are a variant of the gasketed heat exchanger
and evolved in response to the need for a compact plate heat exchanger for high pressure and high temperature applications, such as district heating or refrigeration. Welded heat exchangers are
heavy-duty products and are typically used for high pressure and high temperature applications. The price range for gasketed plate heat exchangers is approximately SEK
5,000-SEK 2 million, for brazed heat exchangers, approximately SEK 300-SEK 20,000 and for welded heat exchangers approximately SEK 15,000-SEK
1.5 million.

Spiral heat exchangers

Spiral heat exchangers, which are self-cleaning, are typically used for more difficult applications where, for example, temperatures and pressures are
higher or where fluids contain a high level of solids, such as sludge or pulp fibers. The price range for a spiral heat exchanger is approximately SEK 20,000-SEK 2 million.

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Air cooling heat exchangers

Air cooling heat exchangers are widely used for air conditioning and refrigeration. The price range for an air cooling heat exchanger is approximately SEK
6,000-SEK 250,000.

Centrifugal Separation Products

We use technologies based on centrifugal force to separate liquids from other liquids or solids from liquids by rotating a vessel at very high speeds. Our
separators are vital to raising quality and productivity in areas such as:



Our
principal products include separators and decanters. The separation technology is mainly used for seven basic separation tasks:



A
separator or a decanter is in operation for approximately 10 to 20 years and consumes spare parts and services throughout its life.

High-speed separators

High-speed separators can perform tasks that range from separating liquid from liquid to the separation of slurries having a solids content of up to
30.0%. We manufacture a wide range of sizes and versions of high-speed separators which are used, for example, in the oil and gas industry to extract water from crude oil, the marine
industry to clean diesel oil on board ships and in the dairy industry to separate cream from milk. The price ranges for high-speed separators vary depending on the degree of customisation
and the particular end-user market, but typically range between approximately SEK 50,000-SEK 2 million in the marine and power industry and approximately SEK
200,000-SEK 5 million in the process industry.

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Decanter centrifuges

A decanter centrifuge is a horizontal separation technique which uses a slower speed than high speed separation techniques and a system of continuous discharge of
the liquid and the concentrated solid. The main uses for decanter centrifuges are applications that require separation of a relatively higher solid content. For example, decanter centrifuges are used
in municipal waste-water treatment plans to dewater sludge. Decanter centrifuges range in price from approximately SEK 300,000-SEK 6 million.

Sanitary Flow Products

Pumps, valves and installation material are used in almost every process and production industry. We provide pumps, valves and fittings for fluid handling in a
sanitary context. These applications compliment our overall engineering solutions and demand high quality products that maintain a high level of hygiene. These applications are typically used in the
production of dairy products, beverages, food, health and beauty products and pharmaceutical products. OEMs typically incorporate our sanitary flow products in their systems and therefore need
a continuing supply of our components. These products perform supportive functions within an overall process and are used with our heat transfer and centrifugal separation products.

The
average life of our sanitary flow products varies according to type and application. In a corrosive environment product life can be limited to a few months, while in other
applications our sanitary flow products have been in place for more than 20 years. Service is strategically important for us since contact with the customer is a source of repeat sales. We also
provide parts and services to customers who have products that were not manufactured by us.

Pumps

Positive displacement pumps are primarily used to aid the movement of thicker and more sensitive media, for example, in the production of syrup. Sanitary
centrifugal pumps are primarily used in circumstances where hygiene is critical, for example, in the dairy industry. Prices range from approximately SEK 5,000-SEK 300,000.

Valves

Valves are used to regulate and redirect liquid flows. Our sanitary diaphragm valve combines reliability with sterile treatment capacity. For example, butterfly
valves are shut-off valves that require limited space in a production line, are low-weight and relatively inexpensive. Prices range from approximately SEK 500-SEK
35,000.

Hynetics Formulation System

This product is aimed directly at the pharmaceuticals industry. It is a system designed for single-use and is applied for dissolving and mixing of
various types of media and drug formulations. The system consists of a simple stainless steel tank, motor and controls. A patented single use bag with an integrated mixing device is placed inside the
tank and thus acts as a liner and is used only once. After each production batch the liner and mixer are disposed of and replaced by a new bag for next production. This eliminates the need for
cleaning and validation and save cost for the user. It also prevent cross contamination between different batches. Prices range from approximately SEK 180,000-SEK 2 million (30
litre10,000 litre systems) and the single use bags for SEK 1,800-SEK 7,500 each.

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Installation material

We have a complete range of installation material, including piping and connections, available in a range of sizes. Prices range from approximately SEK
30-SEK 1,000.

Marketing and Distribution

We are represented in over 100 countries through 50 sales companies and our various distributors. Our sales companies are organised to reflect our two principal
divisions and each is responsible for selling and marketing all of our products and services to industries within our ten customer segments. Every sales company also has a senior manager responsible
for all the parts and services business. Our European and US sales companies are respectively supported by two shared-services entitiesone in the United States and the other in
Europefrom which they purchase administrative services (including financial and accounting services, information technology and information systems, order processing, billing and site
service management functions), thus allowing the managing directors of each sales company to focus purely on sales activities. Our entire sales organisation is managed centrally by our senior Group
management.

The
Equipment division depends on our own sales companies, as well as external channels such as distributors, strategic partners (including Tetra Pak), OEMs (including boiler
manufacturers) and the Internet. The Process Technology division focuses on interaction with customers and sells its systems, production lines and product service packages directly through the Alfa
Laval sales force.

The
majority of our sales force, comprising approximately 2,000 personnel, are qualified engineers and are trained in design, configuration, delivery, installation and service as part of
the sales and marketing process. Where possible, we compensate our sales force through a base salary and bonuses tied to sales volumes and consolidated gross margins on total sales volumes.

Our
sales companies are the vehicle for delivering parts and services to customers and they generally have access to centralised parts stock and workshops for repairs. We use agents and
distributors in circumstances where these additional sales channels provide access to customers who would not, due to geographical or political constraints, be reached by our sales companies, or where
it would not be cost effective for the customers to be served by one of our sales companies. We are developing our use of e-commerce in the distribution of our products and services. To
this end, we have created one Group organisation for production and logistics in order to interface with our key distributors and agents with the aim of facilitating the efficiency and speed in the
placing of orders, particularly in relation to spare parts, sanitary flow installation equipment and brazed heat exchangers.

Our Markets

The impetus behind our restructuring was a commitment to shift our focus from our products to our customers. Our products and services, however, remain based upon
our three key technologies of heat transfer, centrifugal separation and sanitary flow. Our Equipment and Process Technology divisions, therefore, continue to operate and compete in our traditional
markets for heat transfer, centrifugal separation and sanitary flow products.

The
markets for plate heat exchanger and centrifugal separation technology, in particular, have high barriers to entry, principally due to the need for:



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Heat transfer technology industry

The heat transfer technology market includes a number of different heat exchangers, including shell and tube heat exchangers, air cooling exchangers, cooling
towers and plate heat exchangers. Alfa Laval is focused on the compact heat exchanger market, in particular the plate heat exchanger market. We define the compact heat exchanger market to include
brazed, welded and gasketed plate heat exchangers. The market for plate heat exchangers, which has historically been characterised by strong growth and a small number of global players, includes a
number of different heat exchangers, including brazed, gasketed and welded heat exchangers, which are all variations on the plate design. We estimate
that the size of the global heat exchanger market is approximately EUR 10.0 billion, of which we estimate EUR 1.5 billion, represents the global market for our current range of plate
heat exchangers. Plate heat exchangers represent the fastest growing segment of the global heat exchanger markets. We believe this is due to the more compact size, modular design, lower price and
higher energy efficiency of the plate heat exchangers as compared to the more traditional shell and tube heat exchangers technology. Moreover, plate heat exchangers are typically more hygienic, easier
to maintain and better suited to the majority of applications as compared to the shell and tube heat exchangers. As end users become increasingly confident with the plate heat exchanger technology, we
believe that the European, Asian and US markets will continue their strong growth as traditional shell and tube technology is replaced with plate heat exchanger technology.

As
heat exchangers improve in sophistication, after-sales support has become an essential service for end users. There has also been a greater emphasis on giving advice to customers
relating to the operation and maintenance of equipment. Customer support has therefore become an important competitive factor. The market for parts and services business generates high margins but is
highly fragmented, consisting of a number of small companies, which primarily operate on a local basis.

Separation equipment industry

The separation equipment market includes the market for filtration equipment, gravitational (or sedimentation) separation equipment and centrifugal separation
equipment. We define the centrifugal separation market as decanters centrifuges and high speed separators. We estimate that the market for liquid sedimentation and centrifugal separation equipment is
approximately EUR 3.5 billion. Of this, EUR 2.0 billion represents the centrifugal separation equipment market, defined as decanter centrifuges, disc centrifuges and other centrifuges.
Within the centrifugal separation equipment market, disc centrifuges and decanter centrifuges are the two dominant technologies, representing more than 50% of this market. The centrifugal separation
market is served primarily by a small number of global players.

For
many years, there has been a move away from conventional methods of separation, such as gravitational separation techniques and filter presses towards centrifugal technology. Unlike
conventional techniques, which require regular interruption to the process in order to allow cleaning to take place, centrifugal separation is a continuous process. We believe our customers are
confident in the application of centrifugal technology, for example in the clarification process within the brewing industry. However, we expect the highest growth to come from the biotechnology,
pharmaceutical and environmental industries.

Parts
and services support is becoming increasingly more important. The market for parts and services for centrifugal separation equipment is highly attractive as the technology is
relatively complex and in practice only the original manufacturers possess the technological know-how. In the service environment for other less sophisticated centrifugal separators, the
competition is based on customer proximity and response time.

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Flow applications industry

The market for flow control equipment consists principally of sanitary liquid handling equipment, including pumps, valves and fittings. Alfa Laval is active
within the sanitary flow technology market, a market which demands high quality products with an ability to treat liquids with a high level of hygiene in industries such as food,
bio-technology, pharmaceutical, cosmetics, healthcare, oil and protein. We estimate that the overall market for sanitary flow applications is approximately EUR 4.0 billion. Flow
applications are integral in the context of an overall, systemic process and as companies continue to improve efficiency in their processes, automation is becoming an increasing focus evidenced by the
demand to increase the ratio of automated to manual valves.

The
market for sanitary liquid handling equipment historically has been characterised by slow market growth and a large number of small, regional industry participants, particularly in
relation to commodity products such as butterfly valves and installation material. In recent years, growth among the industry participants has been achieved by consolidation, resulting in an increase
in market share. It is expected that further significant consolidation among smaller industry participants will continue. Competitors principally compete on product range, price, a well established
brand name, delivery time and distribution networks.

Competition

Our main competitors are still differentiated according to technology. The competition we face in each of our key technologies of heat transfer, centrifugal
separation and sanitary flow equipment is as follows:



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Environmental Matters

We are subject to extensive, evolving and increasingly stringent environmental, health and safety laws and regulations governing our operations. The laws and
regulations applicable to our operations
address, among other things, emissions to the air, waste-water discharges to surface and subsurface waters, other releases into the environment, the generation, handling, storage, transportation,
treatment and disposal of wastes and the remediation of contaminated areas. We believe we are in substantial compliance with all applicable environmental laws and regulations and, based on currently
available information, this compliance has not had and is not expected to have an adverse effect on our competitive position or business.

Historical
operations at many of our facilities may have resulted in the discharge of hazardous materials to soil or groundwater that may require investigation or remediation in the
future. In addition, future regulatory developments, changes in existing requirements or enforcement policies or the development or discovery of new environmental facts or conditions could require
significant expenditures, result in the imposition of fines or penalties or prevent or restrict our operations. There can be no assurance that these developments or changes will not have a material
adverse effect on the results of our operations or our financial condition.

Tetra
Laval B.V. has indemnified us and Alfa Laval Holding AB (renamed from Alfa Laval Credit Finance AB), together with our predecessor, the former Alfa Laval Holding AB and its
subsidiaries, for any environmental liabilities existing at the time of the Acquisition and, with respect to Alfa Laval Holding AB (renamed from Alfa Laval Credit Finance AB) and the former Alfa Laval
Holding AB and its subsidiaries, for any contamination or pollution existing at the time of the Acquisition that constitutes a violation of environmental law. This indemnification is subject to a
€5.5 million (SEK 52 million) deductible and an aggregate limit of €575 million (SEK 5.4 billion) for environmental and
non-environmental matters alike. Environmental claims may be brought under the indemnity for seven years from the date of the Acquisition. However, there can be no guarantee that this
indemnification will cover all related claims or losses or that the indemnifying party will have sufficient assets to cover such claims or losses.

Insurance

We hold insurance in respect of our property portfolio, with sums insured up to the full value of our plants, equipment and other assets, and in respect of
business interruption. The indemnity period for business interruption varies depending on the activity, but is generally for periods of up to twelve months. We also hold insurance in respect of
product liability (including insurance coverage for the asbestos-related lawsuits in the United States, more fully described under "Item 8.A: Financial InformationLegal Proceedings"),
directors and officers liability and, in relation to our US operations, employment practices liability. We believe that the type and relative amounts of insurance which we hold are in accordance with
what is customary in the industries and geographic jurisdictions in which we operate.

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For
a discussion of the principal markets in which the company completes see "Item 5.A: Operating and Financial Review and ProspectsOperating ResultsGeographic
distribution of sales".

For
a discussion of the seasonality of our business see "Item 5.A: Operating and Financial Review and ProspectsOperating ResultsSeasonality of
end-user markets and invoicing".

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4.C. Organisational Structure

We are a direct wholly-owned subsidiary of Alfa Laval AB, our parent holding company. The table below outlines our corporate organisation after the Acquisition
and its financing:

GRAPHIC

For
a description of Tetra Laval B.V., see "Item 7.A: Major Shareholders and Related Party Transactions".

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The
following table sets forth our subsidiaries as at December 31, 2004:

Specification of shares in subsidiaries

|Company name                  |                                            | Domicile                                   |                               | Country of
incorporation |                | No. of
shares |            | Share of
capital %
|----------------------------- | ------------------------------------------ | ------------------------------------------ | ----------------------------- | ------------------------ | -------------- | ------------- | ---------- | ------------------
|Alfa Laval Special Finance AB |                                            | Lund                                       |                               | Sweden                   |                |               |            | 100               
|                              | Alfa Laval Holding AB                      |                                            | Lund                          |                          | Sweden         |               |            |                   
|Alfa Laval Holding AB         |                                            | Lund                                       |                               | Sweden                   |                | 12,500,000    |            | 100               
|Alfa Laval NV                 |                                            | Maarssen                                   |                               | Netherlands              |                | 227,754       |            | 100               
|                              | Alfa Laval Inc                             |                                            | Newmarket                     |                          | Canada         |               | 1,000,000  |                   
|                              |                                            | Tri-Lad Inc                                |                               | Brantford                |                | Canada        |            | 4,000             
|                              |                                            | Alfa Laval BioKinetics Inc                 |                               | Toronto                  |                | Canada        |            | 1800              
|                              | Alfa Laval S.A. DE C.V.                    |                                            | Tlalnepantla                  |                          | Mexico         |               | 45,057,057 |                   
|                              | Alfa Laval S.A.                            |                                            | San Isidro                    |                          | Argentina      |               | 699        |                   
|                              | Alfa Laval S/A                             |                                            | Sao Paulo                     |                          | Brazil         |               |            |                   
|                              |                                            | Roston do Brasil Ltda                      |                               | Sao Paulo                |                | Brazil        |            | 5,249             
|                              | Alfa Laval S.A.C.I.                        |                                            | Santiago                      |                          | Chile          |               | 2,735      |                   
|                              | Alfa Laval S.A.                            |                                            | Bogota                        |                          | Colombia       |               | 12,195     |                   
|                              | Alfa Laval S.A.                            |                                            | Lima                          |                          | Peru           |               | 4,346,832  |                   
|                              | Alfa Laval Venezolana S.A.                 |                                            | Caracas                       |                          | Venezuela      |               | 10,000     |                   
|                              |                                            | Alfa Laval Oilfield C.A.                   |                               | Caracas                  |                | Venezuela     |            | 203               
|                              | Alfa Laval Phe Co Ltd                      |                                            | Jiang Yin                     |                          | China          |               |            |                   
|                              |                                            | Alfa Laval Flow Equipment (Kunshan) Co Ltd |                               | Jiangsu                  |                | China         |            |                   
|                              | Alfa Laval Flow Equipment (Kunshan) Co Ltd |                                            | Jiangsu                       |                          | China          |               |            |                   
|                              | Alfa Laval (Shanghai) Technologies Co Ltd  |                                            | Shanghai                      |                          | China          |               |            |                   
|                              | Alfa Laval Taiwan Ltd                      |                                            | Taipei                        |                          | Taiwan         |               | 1,499,994  |                   
|                              | Alfa Laval (China) Ltd                     |                                            | Hongkong                      |                          | Hongkong       |               | 79,999     |                   
|                              | PT Alfa Laval Separatama                   |                                            | Jakarta                       |                          | Indonesia      |               | 1,000      |                   
|                              | Alfa Laval Iran Ltd                        |                                            | Teheran                       |                          | Iran           |               | 2,199      |                   
|                              | Alfa Laval KK                              |                                            | Tokyo                         |                          | Japan          |               | 1,200,000  |                   
|                              |                                            | Alfa Techno Service KK                     |                               | Kanagawa                 |                | Japan         |            | 200               
|                              | Alfa Laval Industry (PVT) Ltd              |                                            | Lahore                        |                          | Pakistan       |               | 119,110    |                   
|                              | Alfa Laval Philippines Inc                 |                                            | Makati                        |                          | Philippines    |               | 72,000     |                   
|                              | Alfa Laval Singapore Pte Ltd               |                                            | Singapore                     |                          | Singapore      |               | 5,000,000  |                   
|                              | Alfa Laval (Thailand) Ltd                  |                                            | Bangkok                       |                          | Thailand       |               | 792,000    |                   
|                              | Alfa Laval Middle East Ltd                 |                                            | Nicosia                       |                          | Cyprus         |               | 40,000     |                   
|                              | Alfa Laval Benelux NV/SA                   |                                            | Brussels                      |                          | Belgium        |               | 33,811     |                   
|                              | Alfa Laval Ltd                             |                                            | Sofia                         |                          | Bulgaria       |               | 100        |                   
|                              | Alfa Laval Slovakia S.R.O.                 |                                            | Bratislanva                   |                          | Slovakia       |               |            |                   
|                              | Cetetherm SR spol S.R.O.                   |                                            | Liptovsky Mikulas             |                          | Slovakia       |               |            |                   
|                              | Alfa Laval Spol S.R.O.                     |                                            | Hradec Kralove                |                          | Czech Republic |               |            |                   
|                              | Cetetherm S.R.O.                           |                                            | Prague                        |                          | Czech Republic |               |            |                   
|                              | Alfa Laval Denmark Holding A/S             |                                            | Kolding                       |                          | Denmark        |               | 100        |                   
|                              |                                            | Alfa Laval Kolding A/S                     |                               | Kolding                  |                | Denmark       |            | 100,000           
|                              |                                            |                                            | Alfa Laval Nordic A/S         |                          | Rödovre        |               | Denmark    |                   
|                              |                                            |                                            | Alfa Laval Copenhagen A/S     |                          | Söborg         |               | Denmark    |                   
|                              |                                            |                                            | Alfa Laval Nakskov A/S        |                          | Nakskov        |               | Denmark    |                   
|                              |                                            |                                            | Alfa Laval Tank Equipment A/S |                          | Ishoej         |               | Denmark    |                   
|                              | Alfa Laval Nordic OY                       |                                            | Espoo                         |                          | Finland        |               | 20,000     |                   
|                              |                                            | Cetetherm OY                               |                               | Tuusula                  |                | Finland       |            | 5,000             
|                              | Alfa Laval Nederland B.V.                  |                                            | Maarssen                      |                          | Netherlands    |               | 10,000     |                   
|                              |                                            | Alfa Laval Benelux B.V.                    |                               | Maarssen                 |                | Netherlands   |            | 1,475             
|                              |                                            | Alfa Laval Merco B.V.                      |                               | Hoofddorp                |                | Netherlands   |            | 1,475             
|                              |                                            |                                            |                               |                          |                |               |            |                   

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|                      | Alfa Laval Holding A/S                  |                                      | Oslo                                     |                | Norway         |             | 520,000    |            | 100    
|--------------------- | --------------------------------------- | ------------------------------------ | ---------------------------------------- | -------------- | -------------- | ----------- | ---------- | ---------- | -------
|                      | Alfa Laval ExCell AB                    |                                      | Skogstorp                                |                | Sweden         |             | 2,500      |            | 100    
|                      | Alfa Laval Nordic AB                    |                                      | Tumba                                    |                | Sweden         |             | 1,000      |            | 100    
|                      | Cetetherm AB                            |                                      | Ronneby                                  |                | Sweden         |             | 20,000     |            | 100    
|                      | Alfa Laval Corporate AB                 |                                      | Lund                                     |                | Sweden         |             | 13,920,000 |            | 100    
|                      |                                         | Alfa Laval (India) Ltd               |                                          | Poona          |                | India       |            | 11,640,118 |        
|                      |                                         |                                      | Skansen Engineering & Consultancy Co Ltd |                | Poona          |             | India      |            | 50,000 
|                      |                                         | Alfa Laval Korea Ltd                 |                                          | Seoul          |                | South Korea |            | 3,640,000  |        
|                      |                                         | Alfa Laval (Malaysia) Sdn Bhd        |                                          | Shah Alam      |                | Malaysia    |            | 10,000     |        
|                      |                                         | Alfa Laval Nordic A/S                |                                          | Oslo           |                | Norway      |            | 10,000     |        
|                      |                                         | CTC Ronneby AB                       |                                          | Ronneby        |                | Sweden      |            | 138,000    |        
|                      |                                         | Alfa Laval Tank Equipment AB         |                                          | Gothenburg     |                | Sweden      |            | 100,000    |        
|                      |                                         |                                      | Gunclean Toftejorg Pte Ltd               |                | Singapore      |             | Singapore  |            | 300,000
|                      |                                         | Mosgormash Alfa Laval Moloko         |                                          | Moscow         |                | Russia      |            |            |        
|                      |                                         | Alfa Laval Oilfield C.A.             |                                          | Caracas        |                | Venezuela   |            | 47         |        
|                      | Alfa Laval Treasury International AB    |                                      | Lund                                     |                | Sweden         |             | 50,000     |            | 100    
|                      | Alfa Laval Europe AB                    |                                      | Lund                                     |                | Sweden         |             | 500        |            | 100    
|                      | Alfa Laval Lund AB                      |                                      | Lund                                     |                | Sweden         |             | 100        |            | 100    
|                      | Alfa Laval International Engineering AB |                                      | Lund                                     |                | Sweden         |             | 4,500      |            | 100    
|                      | Alfa Laval Tumba AB                     |                                      | Lund                                     |                | Sweden         |             | 1,000      |            | 100    
|                      | Bitec Enterprise AG                     |                                      | Volketswil                               |                | Schweiz        |             | 97,900     |            | 100    
|                      | Alfa Laval Dis Ticaret Ltd Sti          |                                      | Istanbul                                 |                | Turkey         |             | 27,001,755 |            | 99     
|                      | OÜ Cetetherm                            |                                      | Tallinn                                  |                | Estonia        |             | 100        |            | 100    
|                      | Alfa Laval SIA                          |                                      | Riga                                     |                | Latvia         |             | 125        |            | 100    
|                      | SIA Cetetherm                           |                                      | Riga                                     |                | Latvia         |             | 200        |            | 100    
|                      | Alfa Laval UAB Ltd                      |                                      | Vilnius                                  |                | Lithuania      |             | 2,009      |            | 100    
|                      | UAB Cetetherm                           |                                      | Vilnius                                  |                | Lithuania      |             | 100        |            | 100    
|                      | Alfa Laval Australia Pty Ltd            |                                      | Homebush                                 |                | Australia      |             | 2,088,076  |            | 100    
|                      | Alfa Laval New Zealand Ltd              |                                      | Hamilton                                 |                | New Zealand    |             | 1,000      |            | 100    
|Alfa Laval Holding BV |                                         | Maarssen                             |                                          | Netherlands    |                | 70,000,000  |            | 100       
|                      | Alfa Laval (Pty) Ltd                    |                                      | Isando                                   |                | South Africa   |             | 2,000      |            | 100    
|                      | Alfa Laval Slovakia S.R.O.              |                                      | Bratislava                               |                | Slovakia       |             |            |            | 99     
|                      | Cetetherm SR spol S.R.O.                |                                      | Liptovsky Mikulas                        |                | Slovakia       |             |            |            | 85     
|                      | Alfa Laval Spol S.R.O.                  |                                      | Hradec Kralove                           |                | Czech Republic |             |            |            | 80     
|                      | Cetetherm S.R.O.                        |                                      | Prague                                   |                | Czech Republic |             |            |            | 95     
|                      | Alfa Laval France SAS                   |                                      | Les Clayes                               |                | France         |             | 920,000    |            | 100    
|                      |                                         | Alfa Laval SAS                       |                                          | Les Clayes     |                | France      |            | 560,000    |        
|                      |                                         |                                      | Alfa Laval Moatti SNC                    |                | Les Clayes     |             | France     |            | 24,000 
|                      |                                         |                                      | Alfa Laval Spiral SNC                    |                | Nevers         |             | France     |            | 79,999 
|                      |                                         | MCD SAS                              |                                          | Guny           |                | France      |            | 71,300     |        
|                      |                                         | Alfa Laval Vicarb SA                 |                                          | Grenoble       |                | France      |            | 200,000    |        
|                      |                                         |                                      | Canada Inc                               |                | Newmarket      |             | Canada     |            | 480,000
|                      |                                         |                                      |                                          | Alfa Laval Inc |                | Newmarket   |            | Canada     |        
|                      |                                         |                                      | SCI du Companil                          |                | Grenoble       |             | France     |            | 32,165 
|                      |                                         | Cetetherm SA                         |                                          | Lyon           |                | France      |            | 150,000    |        
|                      | Alfa Laval Holding GmbH                 |                                      | Glinde                                   |                | Germany        |             |            |            | 100    
|                      |                                         | Alfa Laval Mid Europe GmbH           |                                          | Wiener Neudorf |                | Austria     |            |            |        
|                      |                                         | Alfa Laval Mid Europe GmbH           |                                          | Glinde         |                | Germany     |            | 1          |        
|                      |                                         | Cetetherm Wärrmetauschersysteme GmbH |                                          | Glinde         |                | Germany     |            | 1          |        
|                      |                                         | Alfa Laval Mid Europe AG             |                                          | Dietlikon      |                | Schweiz     |            | 647        |        
|                      | Alfa Laval AEBE                         |                                      | Holargos                                 |                | Greece         |             | 10,000     |            | 100    
|                      | Alfa Laval Kft                          |                                      | Budapest                                 |                | Hungary        |             | 1          |            | 100    
|                      | Cetetherm Vicarb Hungary Kft            |                                      | Budapest                                 |                | Hungary        |             | 100        |            |        
|                      |                                         |                                      |                                          |                |                |             |            |           

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|               | Alfa Laval SpA                       |                           | Monza           |                            | Italy                           |                | 1,930,500        |                | 99            
|-------------- | ------------------------------------ | ------------------------- | --------------- | -------------------------- | ------------------------------- | -------------- | ---------------- | -------------- | --------------
|               | Alfa Laval Polska Sp.z.o.o.          |                           | Warzaw          |                            | Poland                          |                | 6,862            |                | 100           
|               | Cetetherm Polska Sp.z.o.o.           |                           | Warzaw          |                            | Poland                          |                |                  |                | 100           
|               | Wytwornia Separator Krakow Sp.z.o.o. |                           | Krakow          |                            | Poland                          |                |                  |                | 100           
|               | Alfa Laval (Portugal) Ltd            |                           | Linda-A-Velha   |                            | Portugal                        |                |                  |                | 1             
|               | Alfa Laval SRL                       |                           | Bucharest       |                            | Romania                         |                | 61,435           |                | 100           
|               | Alfa Laval Iberia SA                 |                           | Madrid          |                            | Spain                           |                |                  |                | 100           
|               |                                      | Alfa Laval (Portugal) Ltd |                 | Linda-A-Velha              |                                 | Portugal       |                  | 1              |               
|               |                                      | Alfa Laval Holdings Ltd   |                 | Camberley                  |                                 | United Kingdom |                  | 28,107,000     |               
|               |                                      |                           | Alfa Laval 2000 |                            | Camberley                       |                | United Kingdom   |                | 28,106        
|               |                                      |                           |                 | Alfa Laval Ltd             |                                 | Camberley      |                  | United Kingdom |               
|               |                                      |                           |                 |                            | Alfa Laval Finance Co Ltd       |                | Camberley        |                | United Kingdom
|               |                                      |                           |                 |                            | Alfa Laval Oilfield Ltd         |                | Aberdeen         |                | United Kingdom
|               |                                      |                           |                 |                            | Alfa Laval Flow Ltd             |                | Sutton Coldfield |                | United Kingdom
|               |                                      |                           |                 |                            | Alfa Laval Pumps Ltd            |                | Eastbourne       |                | United Kingdom
|               |                                      |                           |                 |                            | Alfa Laval Thermal Ltd          |                | Camberley        |                | United Kingdom
|               |                                      |                           |                 |                            | Alfa Laval Separation Ltd       |                | Camberley        |                | United Kingdom
|               |                                      |                           |                 |                            | Rolls Laval Heat Exchangers Ltd |                | Wolverhampton    |                | United Kingdom
|               |                                      |                           |                 |                            | Toftjorg Ltd                    |                | Camberley        |                | United Kingdom
|               | Alfa Laval Dis Ticaret Ltd Sti       |                           | Istanbul        |                            | Turkey                          |                | 1                |                | 1             
|               | Alfa Laval USA inc                   |                           | Kenosha         |                            | United States                   |                |                  |                | 100           
|               |                                      | Alfa Laval US Holding Inc |                 | Kenosha                    |                                 | United States  |                  | 180            |               
|               |                                      |                           | Alfa Laval Inc  |                            | Kenosha                         |                | United States    |                | 44,000        
|               |                                      |                           |                 | Alfa Laval BioKinetics Inc |                                 | Philadelphia   |                  | United States  |               
|               |                                      |                           |                 |                            | Kinetics Engineering P C        |                | Durham           |                | United States 
|               |                                      |                           |                 |                            | Hynetics Inc                    |                | Logan            |                | United States 
|               |                                      |                           |                 | Alfa Laval US Treasury Inc |                                 | Kenosha        |                  | United States  |               
|               | AO Alfa Laval Potok                  |                           | Koroljov        |                            | Russia                          |                | 31,057,529       |                | 100           
|               | OÜ Alfa Laval                        |                           | Tallinn         |                            | Estonia                         |                | 1                |                | 100           
|Alfdex AB      |                                      | Stockholm                 |                 | Sweden                     |                                 |                |                  | 50            
|Alfa Laval SpA |                                      | Monza                     |                 | Italy                      |                                 |                |                  | 1             

I-44

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4.D. Property, Plant and Equipment

The following table sets forth the location, number of employees, products manufactured and capacity utilisation of each of our manufacturing facilities for 2004:

|Manufacturing Unit  |  | Employees(1) |  | Products                                                            |  | Capacity
Utilisation
(2) |  | Size(m2) |  | Use of Unit                    |  | Production
Capacity in
Delivery
Value
|------------------- |  | ------------ |  | ------------------------------------------------------------------- |  | ------------------------ |  | -------- |  | ------------------------------ |  | -------------------------------------
|
|Europe:             |  |              |  |                                                                     |  |                          |  |          |  |                                |  |                                      
|Alonte, Italy       |  | 227          |  | Air conditioners, brazed plate heat exchangers                      |  | 90                       |  | 20,607   |  | Offices, Factory and Warehouse |  | 580                                  
|Eastbourne, UK      |  | 104          |  | Pumps                                                               |  | 70                       |  | 7,726    |  | Offices, Factory and Warehouse |  | 126                                  
|Eskilstuna, Sweden* |  | 199          |  | Separators                                                          |  | 85                       |  | 17,682   |  | Factory                        |  | 343                                  
|Grenoble, France    |  | 163          |  | Gasketed and welded plate heat exchangers                           |  | 80                       |  | 10,710   |  | Offices and Factory            |  | 248                                  
|Guny, France        |  | 61           |  | Gaskets                                                             |  | 80                       |  | 3,203    |  | Factory                        |  | 55                                   
|Ishoej, Denmark*    |  | 73           |  | Tank cleaning equipment                                             |  | 95                       |  | 3,600    |  | Factory and Warehouse          |  | 165                                  
|Kolding, Denmark    |  | 275          |  | Pumps, fittings and valves                                          |  | 85                       |  | 17,176   |  | Offices, Factory and Warehouse |  | 599                                  
|Krakow, Poland      |  | 62           |  | Separators                                                          |  | 85                       |  | 5,558    |  | Factory                        |  | 55                                   
|Les Clayes, France* |  | 21           |  | Filters                                                             |  | 75                       |  | 9,526    |  | Offices and Factory            |  | 45                                   
|Lund, Sweden        |  | 491          |  | Gasketed plate heat exchangers                                      |  | 90                       |  | 23,219   |  | Offices, Factory and Warehouse |  | 1,296                                
|Lyon, France        |  | 29           |  | Heat exchanger modules                                              |  | 85                       |  | 3,100    |  | Offices and Factory            |  | 63                                   
|Madrid, Spain       |  | 115          |  | Separators                                                          |  | 85                       |  | 13,124   |  | Offices and Factory            |  | 232                                  
|Monza, Italy        |  | 66           |  | Separator modules                                                   |  | 90                       |  | 22,149   |  | Offices, Factory and Warehouse |  | 407                                  
|Nakskov, Denmark    |  | 22           |  | Membranes                                                           |  | 50                       |  | 6,611    |  | Offices and Factory            |  | 75                                   
|Nevers, France      |  | 89           |  | Spiral heat exchangers                                              |  | 85                       |  | 16,137   |  | Offices and Factory            |  | 97                                   
|Potok, Russia       |  | 113          |  | Gasketed plate heat exchangers                                      |  | 75                       |  | 27,382   |  | Offices and Factory            |  | 100                                  
|Ronneby, Sweden     |  | 194          |  | Brazed plate heat exchangers, modules                               |  | 90                       |  | 15,000   |  | Offices, Factory and Warehouse |  | 494                                  
|Söborg, Denmark     |  | 166          |  | Decanters and modules                                               |  | 90                       |  | 21,775   |  | Offices and Factory            |  | 473                                  
|North America:      |  |              |  |                                                                     |  |                          |  |          |  |                                |  |                                      
|Lykens, USA         |  | 44           |  | Spiral heat exchangers                                              |  | 70                       |  | 5,388    |  | Factory                        |  | 77                                   
|Richmond, USA       |  | 162          |  | Scrape, brazed and gasketed plate heat exchangers, pumps and valves |  | 60                       |  | 12,355   |  | Offices, Factory and Warehouse |  | 627                                  
|                    |  |              |  |                                                                     |  |                          |  |          |  |                                |  |                                      

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|Toronto, Canada*      |  | 120 |  | Bioreactor modules                                 |  | 30 |  | 8,856  |  | Offices, Factory and Warehouse |  | 455
|--------------------- |  | --- |  | -------------------------------------------------- |  | -- |  | ------ |  | ------------------------------ |  | ---
|Asia:                 |  |     |  |                                                    |  |    |  |        |  |                                |  |    
|Jiang Yin City, China |  | 165 |  | Brazed and gasketed plate heat exchangers, gaskets |  | 85 |  | 6,294  |  | Factory                        |  | 215
|Kunshan, China*       |  | 165 |  | Fittings                                           |  | 90 |  | 6,988  |  | Factory                        |  | 113
|Pune, India           |  | 389 |  | Decanters and separators                           |  | 90 |  | 22,586 |  | Offices, Factory and Warehouse |  | 275
|Sarola, India         |  | 120 |  | Fittings                                           |  | 85 |  | 5,750  |  | Offices, Factory and Warehouse |  | 64 
|Satara, India         |  | 94  |  | Plate and spiral heat exchangers                   |  | 30 |  | 8,550  |  | Factory                        |  | 64 
|Shonan, Japan         |  | 48  |  | Gasketed plate heat exchangers                     |  | 90 |  | 7,549  |  | Offices and Factory            |  | 332

---

In addition to the manufacturing facilities set forth in the table above, Alfa Laval owns several other properties, together having a market value
that is substantially in line with book value.

For
a discussion of our material plans to construct, expand and improve our manufacturing facilities, see "Item 5.B: Operating and Financial Review and ProspectsLiquidity
and Capital ResourcesCommitments for Future Capital Expenditure".

For
a discussion of the environmental issues affecting us, see "Item 4.B Information About the CompanyBusiness OverviewEnvironmental Matters".

I-46

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ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

5.A. Operating Results

We have prepared the following operating and financial review and prospects based on our consolidated financial data for the years ended
December 31, 2002, 2003 and 2004. Our financial statements have been prepared in accordance with Swedish GAAP, which differs from US GAAP in certain material respects. For a discussion of the
principal differences between Swedish GAAP and US GAAP as they relate to us; see note 33 to our audited consolidated financial statements included elsewhere in this annual
report.

Critical Accounting Policies and Estimates

General.The following discussion and analysis of Alfa Laval's financial condition and results of operations is based upon
its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in Sweden. The preparation of its financial statements requires Group
management to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, management evaluates its estimates, including those related to bad debts, inventories, intangible assets, warranty obligations and pensions and other
post-retirement benefits. Management of the Group bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

We
believe the following critical accounting policies affect our more significant judgements and estimates used in the preparation of our consolidated financial statements.

Bad Debt.The Group maintains allowances for doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the financial condition of the Group's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be
required.

Inventories.The Group writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference
between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favourable than those projected by
management, additional inventory write-downs may be required.

Intangible Assets.The Group has significant intangible assets related to goodwill and other acquired intangibles. In
assessing the recoverability of the goodwill and other intangibles management must make assumptions regarding estimated future cash flows and other factors to estimate the fair value of the respective
assets. Changes in strategy, market conditions or other factors could impact these estimates in the future resulting in the Group recording impairment charges related to these assets.

The
Financial Accounting Standards Board in the United States has issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets".
FAS 142 requires that goodwill, including previously existing goodwill, and intangible assets with indefinite useful lives not be amortised; these assets should be tested for impairment
annually. Goodwill and intangible assets with indefinite useful lives will no longer be tested for impairment under FAS 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of". The Group has adopted the provisions of FAS 142 as of January 1, 2002 in the US GAAP reconciliation and management determined that
goodwill was not impaired. The effect of FAS 142 can be considerable for the Group if the profitability within the Group or parts of the Group goes down in the future, since

I-47

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this
could trigger a substantial impairment write down of the goodwill. Such a write down will affect the net income and thereby the position of the Group according to US GAAP.

According
to RR 17 impairments on assets including goodwill shall be calculated if there is any indication that the value of the asset has decreased. This is different to FAS 142,
which requires that the impairment test must be made annually irregardless of whether there is an indication or not. If a FAS 142 calculation shows an impairment, this can however be seen as
such an indication that could trigger a write down even in the part of the financial reporting that is regulated by the recommendations from the Financial Accounting Standards Council.

Product Claims and Warranty.The Group provides for the estimated cost of product warranties at the time revenue is
recognised. While the Group engages in extensive product quality programmes and processes, including actively monitoring and evaluating the quality of its suppliers, the Group's warranty obligation is
affected by product failure rates, material usage and repair costs incurred in correcting a product performance issue. Should actual product failure rates, material usage or repair costs differ from
the Group's estimates, revisions to the estimated warranty liability would be required.

Pension and Post-retirement Benefits.The Group has significant pension and post-retirement benefit
costs and credits that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates and expected return on plan assets. Management is required to
consider current market conditions, including changes in interest rates, in selecting these assumptions. Changes in the related pension and post-retirement benefit costs or credits may
occur in the future due to changes in these assumptions in addition to fluctuations related to changes in our employee population.

Provisions.The Group's reporting of provisions according to RR16 means that SEK 948.2 (891.2) million is reported as other
provisions. This constitutes 6.8 (6.1) percent of the Group's assets and is important for the assessment of the Group's financial position, not the least since provisions normally are based on
estimates of costs and risks. If the accounting principles for provision would be changed sometime in the future, this could have a substantial impact on the Group's financial position.

Implementation of IFRS in 2005.In 2005 Alfa Laval will change to accounting according to IFRS (International Financial
Reporting Standards). Since all IAS rules except IAS 39 have already been implemented at December 31, 2004, the transfer to IFRS will only affect the following areas.

As
of January 1, 2005 the goodwill will not be depreciated any longer but instead be tested for impairment. Minority interests have earlier been reported under a separate heading
next to equity, but shall now be reported as a separate item within equity. Since IAS 39 will be implemented first in 2005 it only has an effect on the opening balance for 2005 and not in the income
statement for 2004. The effect is relating to fair value adjustments of financial derivatives, bonds and non-listed external shares.

If
IFRS had been implemented already in 2004 it would have had the following effects on the consolidated income statement and equity.

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IMPACT ON INCOME IF IFRS HAD BEEN IMPLEMENTED IN 2004

Income
statement

Consolidated

EBITA

Operating
income

Net incomeAmounts in SEK millionsIncome statement 2004

1,737.1

1,252.2

700.4Adjustments for:Depreciation of goodwill



191.5

191.5Minority share in subsidiaries' income





45.4Adjusted income for 2004

1,737.1

1,443.7

937.3Adjusted earnings per share (SEK) *





108.89


---

IMPACT ON EQUITY IF IFRS HAD BEEN IMPLEMENTED IN 2004

Equity

Consolidated

EquityAmounts in
SEK millionsEquity at December 31, 2003

4,402.5Adjustments for:Minority interests

104.2Equity at January 1, 2004 according to IFRS

4,506.7Equity at December 31, 2004

4,676.0Adjustments for:Depreciation of goodwill

191.5Minority interests

119.2Equity at December 31, 2004 according to IFRS

4,986.7Adjustments for:Financial instruments

159.3Equity at January 1, 2005 according to IFRS

5,146.0


Overview

We are a leading global provider of specialised process engineering solutions and equipment based on three key technologiesheat transfer, centrifugal
separation and sanitary flow technology. Under our widely recognised brand name, Alfa Laval, we service our customers globally through ten distinct customer segments with an international sales force
in over 100 countries. We were founded in Sweden in 1883 by Gustav de Laval, the inventor of the continuous separator. We are a market leader in our target markets of compact heat exchangers,
centrifugal separators and sanitary flow equipment. Our systems and products are designed to optimise the performance of our customers' manufacturing processes, and as a result are often critical to
them.

We
have set a target for our revenue growth of 5% annually over the course of the business cycle. We believe we will achieve this target through a combination of organic and acquired
growth. The underlying organic growth of our markets is currently estimated at approximately 2%. In addition, we have set an EBITA margin target, excluding comparison distortion items, of
10-13%. The lower end of this target range applies during economic downturns, while the upper end applies during periods of

I-49

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expansion.
This target range has been set to maintain financial flexibility and has been revised by our Board of Directors from the previous target of 12-15% because foreign exchange rates
have changed substantially since such target was set in 2000. We have also set a target for the return on capital employed of 20%, despite our substantial goodwill and allocated surplus values. Our
Board of Directors established this target based on our low tied-up capital and as a result of our current profitability, as well as our goal of further improving our profitability. See
"Item 3.D: Key InformationRisk Factors". The statements in this paragraph are forward-looking and readers are cautioned not to place undue reliance on such statements. See
"Forward-Looking Statements".

Factors Affecting Results of Operations

Presentation of Financial Statements

Sales of our products and services are generally recorded upon delivery of the product or the performance of a particular service, except for certain longer term
projects for the development and installation of customised systems. These longer term projects, typically involving large sales of capital goods, including customised products, are recorded as sales
under the percentage of completion method and comprised no more than one-third of our sales in 2004. In respect of these sales, there is often a period between the time we receive an order
(for which there is a purchase commitment) and when we record the order as a sale. This period typically ranges from several months to, in certain cases, more than one year, depending upon the nature
of the contract.

The
principal elements comprising cost of goods sold are raw materials, labour and manufacturing overhead costs. Raw materials typically account for slightly more than half of the cost
of goods sold. Principal raw materials we use include sheet stainless steel, titanium, rubber gaskets, carbon steel frames, forged steel, cast iron and copper. We generally have a number of suppliers
of any given material in each of Europe, North America and Asia and are not dependent on any one supplier. We do however have three key suppliers of titanium and are subject to a substantial lead time
in ordering and obtaining titanium from sources other than our key suppliers. Labour costs include costs of salaried and hourly employees. Manufacturing overhead costs include lease costs,
depreciation on property, plant and equipment, utilities, property taxes and repairs and maintenance.

Operating
costs includes, among other things, sales costs, administrative costs, research and development costs and other operating costs. Sales costs consist primarily of salaries and
benefits paid to our sales force and commissions paid to independent sales representatives and agents. Members of our sales force are also paid bonuses based on sales volume and consolidated gross
margin targets. Administration costs include corporate overhead costs relating to employee costs, rent expense, professional fees and information system costs. Research and development costs are
incurred for the development of new products and the enhancement of existing products.

Other
operating income consists of, among other things, royalty and license income from third parties who use our technology, and rental income from third parties renting our property
and/or equipment. Other operating costs includes commission and royalties we pay to third parties in respect of use of their technology and certain exceptional items, such as restructuring charges,
provisions made for loss of value on net operating capital, and provisions made in respect of legal claims.

Foreign Currency Effects

As we service our customers globally through ten distinct customer segments with an international sales organisation in over 100 countries, our results of
operations are subject to currency transaction risks and currency translation risks. Currency transaction risks occur as a result of one of our operating subsidiaries entering into either a purchase
or sales transaction using a currency other than its regular operating currency. We incur most of our costs in Swedish kronor, euro, Danish kroner and US dollars. Our revenues are however far more
broadly distributed. We aim to hedge against currency transaction

I-50

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risk
by matching revenues and costs in the same currency. Currency translation risks occur as a result of fluctuations in the exchange rates between the currency in which our consolidated assets and
liabilities and profit and loss are reported, the Swedish kronor, and the various currencies in which our subsidiaries' assets and liabilities and profit and loss are reported. See
"Item 11:Quantitative and Qualitative Disclosures about Market Risk".

The
discussion under the caption "Item 5A: Operating and Financial Review and ProspectsOperating ResultsResults of Operations" below contains references to
Swedish kronor amounts on a constant exchange rate basis. These Swedish kronor amounts have been converted from various foreign currencies, including the euro at a rate of
€1.00 = SEK 9.1101, the average rate calculated on monthly closing rates issued by Reuters.

Cyclicality of end-user markets and commodity prices

Given the industrial nature of our products, we are affected by economic cycles that impact demand in our end-user markets. For example, orders from
the oil production and chemical processing industries are dependent on global oil prices, while orders from our customers in the heating, ventilation and air conditioning businesses are subject to the
cyclicality of the construction industry in each geographical market we serve. In our higher margin parts and services business, which represented approximately 25% of our net sales in 2004, we
generally experience significantly less cyclicality, which contributes to more stable margins. Although we believe our diverse geographic and customer base, as well as our parts and services business,
serve to mitigate our exposure to economic cycles in any one region and the volatility of individual industries, we have experienced fluctuations in our operating results due to economic cycles.

With
the recovery in 2000 of oil and chemical prices and renewed economic growth in Asia, our orders received increased in 2000 by 12.2% as compared to prior years, excluding currency
exchange
fluctuations and divested operations. In 2001, our orders received decreased by 1.6%, excluding currency exchange rate fluctuations and divested operations. In 2002, our orders received decreased by
2.0%, excluding currency exchange rate fluctuations. In 2003, our orders received increased by 4.9%, excluding currency exchange rate fluctuations. In 2004, our orders received increased by 15.2%,
excluding currency exchange rate fluctuations. As discussed above, market improvements reflected in our orders received generally precede sales growth by several months.

In
addition, raw material commodity prices affect our profitability. We generally pass on price increases of raw materials to customers, although increases in the prices of our products
generally lag increases in raw material costs. The length of this delay varies, depending on the composition of the relevant backlog of orders. In addition, key raw materials, such as sheet stainless
steel, are purchased on the basis of 12-month contracts, which fix the price of sheet stainless steel for the contract period. As a result, benefits in the past have been realised as a
result of increases in the price of these materials. When prices for these materials fall, however, market pressures may require us to offer our products at correspondingly lower prices, following
which we may experience margin pressures.

I-51

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Geographic distribution of sales

Our products are sold in over 100 countries. The following table illustrates our net sales by geographic region in 2002, 2003 and 2004:

Year Ended December 31,2002

2003

2004(% of total sales)European Union(1)

42

44

44Other Europe(1)

8

8

8North America(2)

21

18

17South America

4

4

4Asia

23

23

24Africa

0

1

1Oceania(3)

2

2

2Total

100
%
100
%
100
%


---

We
are exposed to changes in a specific country's or region's economic conditions. However, we believe that the diversity of our geographic base mitigates the impact of an economic
downturn in any one part of the world on our financial performance.

European Union and Other Europe.Germany, Italy, Sweden, France, United Kingdom, Denmark and Russia are our main markets in
Europe. In 2004, the sales increased in Germany, Italy, France, United Kingdom, Denmark and Russia whereas the sales were unchanged in Sweden. Exchange rate variations had no effect on the foregoing.
For the region as a whole, sales increased both before and after considering the effect of exchange rate variations.

North America.The United States has reported an increase in sales, partly offset by exchange rate variations, whereas Canada
has reported a decrease in sales. For the region as a whole, sales increased both before and after considering the effect of exchange rate variations.

Latin America.Our main markets in Latin America are Brazil, Mexico and Argentina. Sales in Brazil and Mexico decreased
during 2004, whereas sales in Argentina increased. Exchange rate variations had no effect on the foregoing. For the region as a whole, sales increased both before and after considering the effect of
exchange rate variations.

Asia.China, Japan, India and South Korea are our largest markets in Asia. In 2004, our sales into China, Japan and India
increased whereas the sales in South Korea decreased. Exchange rate variations had no effect on the foregoing. For the region as a whole, sales increased both before and after considering the effect
of exchange rate variations.

Oceania and Africa.In 2004, we experienced an increase in sales in Oceania and a decrease in Africa.

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Seasonality of end-user markets and invoicing

Some segments of our business have historically experienced generally higher sales in the third and fourth quarters of the calendar year. For example, the
heating, ventilation and air conditioning industry and the refrigeration industry experience higher sales due to increased demand for these products in the summer months and prior to the start of late
autumn and winter. We also experience strong seasonality of demand in the olive oil business, where separators and decanters must typically be delivered and installed in time for the harvest season in
September, October and November. However,
we believe our diverse geographic and customer base, in addition to our stable parts and services business, mitigate the effects of seasonality on our financial performance.

Historically,
customer spending patterns have also impacted the seasonality of our business, with a substantial number of orders being received during the first and second quarters,
which were subsequently recorded as sales in the third and fourth quarters, resulting in higher revenues in these quarters. This trend is especially apparent with regard to contracts for our
separation equipment. In contrast, lower cost items, such as valves, fittings and other standard products, are purchased regularly by our customers throughout the year.

The
following table sets forth our consolidated orders and net sales for the periods indicated, and the percentage of orders and net sales, respectively, recorded in each quarter of each
such period:

Year Ended December 31,2002

2003

2004(SEK millions)

(SEK millions)

(SEK millions)

(%)Orders ReceivedFirst quarter

3,682

3,378

3,929

25
%Second quarter

3,964

3,554

4,174

26
%Third quarter

3,528

3,463

3,866

25
%Fourth quarter

3,501

3,750

3,771

24
%Total

14,675

14,145

15,740

100
%Net salesFirst quarter

3,262

2,995

3,184

21
%Second quarter

3,654

3,402

3,798

25
%Third quarter

3,504

3,426

3,838

26
%Fourth quarter

4,175

4,086

4,166

28
%Total

14,595

13,909

14,986

100
%


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Acquisitions and Divestitures

A number of acquisitions and divestitures have affected our results of operations and financial condition and those of the former Alfa Laval Holding over the last
years. The following table highlights the most significant of these transactions.

Businesses Acquired

Date

Sales(1)(SEK in millions)Vicarb Group

January 1999

425Scandi-Brew

February 1999

67Kvaerner Hetland

March 1999

57Dorr Oliver

December 1999

127Danish Separation Systems A/S

September 2002

90Toftejorg A/S

January 2003

210BioKinetics Inc

October 2003

550


Businesses Divested

Date

Sales(1)(SEK in millions)Thermotechnik

January 1999

49Cardinal

November 1999

39Tetra Pak division of Indian subsidiary

May 2000

47Aircoil

December 2000

51Rema Control

January 2001

68Industrial Flow

April 2001

656Tri-Lad

January 2004

45


---

Properties Divested

DateOslo (Norway)

February 2000Volketswill (Switzerland)

April 2000Brentford (UK)

June 2000Les Clayes (France)

July 2000Tumba (Sweden)

August 2000Maarsen (Netherlands)

September 2000Johannesburg (South Africa)

February 2001Glinde (Germany)

October 2001Warminster (US)

March 2002Newmarket (Canada)

February 2003Madrid (Spain)

July 2004Kenosha (US)

September 2004


Step-Up in Asset Base; Goodwill Amortisation and Depreciation

Our goodwill increased significantly in 2000, relative to our Predecessor, as a result of the Acquisition of the former Alfa Laval Holding. The purchase price for
the shares of the former Alfa Laval Holding was SEK 8,286 million, including transaction costs of SEK 72 million. As part of the Acquisition, an excess purchase price of SEK
7,300 million was paid over the net book value of assets acquired. This excess purchase price was attributable to goodwill totalling SEK 3,277 million, which is being depreciated over
20 years, with the balance allocated to tangible and intangible assets in an amount of SEK 4,023 million. This allocation (or "Step-Up") was required to conform with
US GAAP and Swedish GAAP accounting standards and was finalised during the second quarter of 2001. In

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connection
with the Acquisition, a restructuring provision of SEK 408 million was recorded. For more detailed information about the book value and the fair value of these tangible and
intangible assets, see notes 13 and 14 to our consolidated financial statements, included elsewhere in this annual report.

Depreciation
on the Step-Up (the "Step-Up Depreciation") amounted to SEK 293 million in 2004, SEK 303 million in 2003 and SEK 319 million in
2002. This Step-Up Depreciation is included in costs of goods sold within the financial statements of Alfa Laval. The following table sets forth the effects of the Step-Up
Depreciation for the years shown:

Year ended December 31,2002

2003

2004(SEK millions)Depreciation on pre-Step-Up asset values

331

293

261Step-Up Depreciation

319

303

293Total Depreciation

650

596

554


Goodwill
amortisation amounted to SEK 192 million, SEK 191 million and SEK 188 million for the years ended December 31, 2004, 2003 and 2002, respectively. The
increase in goodwill amortisation in 2003 was due to the acquisition of Toftejorg A/S and bioKinetics. The increase in goodwill amortisation in 2004 was due to additional purchase price paid for
Danish Separation Systems A/S and Toftejorg A/S and currency translation effects partly offset by the settlement concerning bioKinetics. See note 22 to the consolidated financial statements
included elsewhere in this annual report.

Effective Tax Rates

Alfa Laval has significant net operating losses that it can use to offset its taxable income in a number of jurisdictions, primarily in the United States. In the
United States, operating losses can be offset against taxable income for a six year period, after which the tax-loss carry forwards expire. As of December 31, 2004, Alfa Laval had
tax-loss carry forwards amounting to SEK 332 million in the United States. Utilisation of these tax-loss carry forwards may be limited by tax restrictions. As at
December 31, 2004, Alfa Laval had SEK 9 million in deferred tax assets, comprising tax losses and tax grants.

Goodwill
amortisation and Step-Up Depreciation are not tax deductible and consequently have the effect of increasing Alfa Laval's effective tax rate. However,
Step-Up Depreciation has been fully provided for as a deferred tax asset and therefore does not result in differences between Alfa Laval's applicable tax rates and the tax rate reported in
the income statement as a consequence of the amortisation of this liability in accordance with the amount of Step-Up Depreciation each year.

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Results of Operations

The following table sets forth certain profit and loss account data as a percentage of sales for the years ended December 31, 2002, 2003 and 2004:

Year ended December 31,2002

2003

2004(SEK
millions)

(% of sales)

(SEK
millions)

(% of sales)

(SEK
millions)

(% of sales)Net sales

14,595

100.0

13,909

100.0

14,986

100.0Cost of goods sold

(9,262
)
(63.5
)
(8,976
)
(64.5
)
(9,937
)
(66.3
)Gross profit

5,333

36.5

4,933

35.5

5,049

33.7Other operating expenses:Sales costs

(2,115
)
(14.5
)
(2,246
)
(16.1
)
(2,132
)
(14.2
)Administrative costs

(1,027
)
(7.0
)
(866
)
(6.2
)
(925
)
(6.2
)Research and development costs

(355
)
(2.4
)
(368
)
(2.6
)
(404
)
(2.7
)Other operating income/(costs)

(424
)
(2.9
)
(118
)
(0.8
)
(144
)
(1.0
)Goodwill Amortisation

(188
)
(1.3
)
(191
)
(1.4
)
(192
)
(1.3
)Operating income/(loss)

1,224

8.4

1,144

8.2

1,252

8.4Interest and other financial income/(costs)

(764
)
(5.2
)
(327
)
(2.4
)
(180
)
(1.2
)Income/(loss) before taxes and minority interests

460

3.2

817

5.9

1,072

7.2Income tax benefit/(expense)

(218
)
(1.5
)
(134
)
(1.0
)
(327
)
(2.2
)Minority interests

(34
)
(0.2
)
(42
)
(0.3
)
(45
)
(0.3
)Net income/(loss)

208

(1.4
)
641

4.6

700

4.7Orders received

14,675

100.5

14,145

101.7

15,740

105.0Order backlog

4,340

29.7

4,021

28.9

4,763

31.8


Years ended December 31, 2003 and 2004

Net Sales

Consolidated.Net sales increased by SEK 1,077 million, or 7.7%, to SEK 14,986 million in 2004 from
SEK 13,909 million in 2003. Our net sales were significantly affected by currency exchange rate fluctuations. On a constant exchange rate basis, our consolidated net sales increased
SEK 1,627 million, or 11.7%. This increase in net sales was due primarily to stronger sales in both the Equipment division and especially in the Process Technology division, together
with the acquisition of bioKinetics for the Process Technology division.

Orders
received increased by SEK 1,595 million, or 11.3%, to SEK 15,740 million in the year ended December 31, 2004 from SEK 14,145 million in the year ended
December 31, 2003. Order backlog increased by SEK 742 million, or 18.5%, to SEK 4,763 million at December 31, 2004 from SEK 4,021 million at December 31,
2003.

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Net
sales by division for the year ended December 31, 2003 and 2004 were as follows:

Year ended
December 31,2003

2004(SEK in millions)Net sales by divisionEquipment

7,842

8,250Process Technology

5,994

6,683Operations and other

73

53Net sales

13,909

14,986


Equipment.Net sales increased by SEK 408 million, or 5.2%, to SEK 8,250 million in 2004 compared with
7,842 million in 2003. This increase was due primarily to increased sales volumes, partly offset by the effect of currency exchange rate fluctuations. On a constant exchange rate basis, net
sales in our Equipment division increased by SEK 674 million, or 8.6%. This increase in net sales was due to increased sales for all customer segments in the Equipment division during
2004 compared to 2003. The most significant growth is found within the "OEM" and "Fluids and Utility" segments.

Orders
received increased by SEK 792 million, or 9.8%, to SEK 8,862 million in the year ended December 31, 2004 from SEK 8,070 million in the year ended
December 31, 2003. Order backlog increased by SEK 498 million, or 31.1%, to SEK 2,097 million at December 31, 2004 from SEK 1,599 million at December 31,
2003.

Process Technology.Net sales increased by SEK 689 million, or 11.5%, to SEK 6,683 million in 2004 compared
with SEK 5,994 million in 2003. This increase was due primarily to generally increased sales together with the acquisition of bioKinetics, partly offset by the effect of exchange rate
fluctuations. On a constant exchange rate basis, sales in our Process Technology division increased by SEK 971 million, or 16.2%. All segments in the Process Technology division have reported
an increase in net sales compared to 2003. The increase affects almost all the applications the division is working within. The growth in sales volume has been largest within the "Process Industry"
and "Energy & Environment" segments.

Orders
received increased by SEK 827 million, or 13.8%, to SEK 6,818 million in the year ended December 31, 2004 from SEK 5,991 million in the year ended
December 31, 2003. Order backlog increased by SEK 243 million, or 10.1%, to SEK 2,641 million at December 31, 2004 from SEK 2,398 million at
December 31, 2003.

Operations and other.Net sales decreased to SEK 53 million in 2004 from SEK 73 million in 2003. This decrease
was due primarily to the divestment of Tri-Lad.

Costs of Goods Sold

Costs of goods sold increased by SEK 961 million, or 10.7% to SEK 9,937 million in 2004 compared with SEK 8,976 million in 2003. The
increase in cost of goods sold was due primarily to the higher sales volume. In 2004, costs of goods sold included SEK 293 million of Step-Up Depreciation in connection with the
Acquisition of the former Alfa Laval Holding compared with SEK 303 million in 2003.

Gross Profit

Gross profit in 2004 was SEK 5,049, or 33.7% of net sales, as compared to SEK 4,933, or 35.5% of net sales in 2003. The increase of SEK 116 million, or
2.3%, was primarily due to the effect of increased sales volume, partly offset by lower margins and negative currency exchange rate fluctuations.

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On
a constant exchange rate basis and exclusive of Step-Up Depreciation in 2004 of SEK 293 million, gross profit increased by SEK 248 million, or 4.7%.

Operating Expenses

Sales costs.Sales costs were SEK 2,132 million in 2004 compared with SEK 2,246 million in 2003. The decrease
of SEK 114 million, or 5.1%, was due primarily to the effect of exchange rate variations.

Administration Costs.Administration costs were SEK 925 million in 2004 compared with SEK 866 million in 2003.
The increase of SEK 59 million, or 6.8% was due primarily to automatic cost increases and restructuring activities.

Research and Development Costs.Research and development costs increased from SEK 368 million or 2.6% of net sales in
2003 to SEK 404 million or 2.7% of net sales in 2004. At constant exchange rates, this represents an increase by SEK 37 million or 9.9 percent between 2004 and 2003. This
increase was due to a higher activity level within R&D. Over the next few years, management expects research and development costs to be approximately 2.5% to 3.0% of net sales.

Other Operating Income.Other operating income increased by SEK 77 million, or 31.1%, to SEK 325 million in
2004 compared with SEK 248 million in 2003 due principally to a higher comparison distortion income in 2004 than 2003. In 2004 a comparison distortion income of SEK 54 million was
recognized attributable to the following items: (i) on July 7, 2004, the property in Madrid, Spain, was divested for SEK 265 million with a realised gain of SEK 48 million
and (ii) the sale of some minor properties in Brazil and India has resulted in a realised gain of SEK 6 million. In 2003 a comparison distortion income of SEK 6 million was
recognized attributable to a gain of SEK 4 million related to the sales of the property in Newmarket, Canada and a gain of SEK 2 million on the sale of a piece of land to the new
landlord in connection with the construction of a new headquarter building in Lund.

Other Operating Costs.Other operating costs increased by SEK 103 million, or 28.0%, to SEK 469 million in 2004
compared with SEK 366 million in 2003 due to higher restructuring costs and a higher comparison distortion cost in 2004 than 2003. In 2004 SEK 17 million was recorded as comparison
distortion cost related to the divestment in September 2004 of the property in Kenosha, USA, for SEK 45.3 million with a realised loss of SEK -2 million, the
divestment of the Tri-Lad operations in Canada which generated a loss of SEK -15 million. In 2003 SEK nil millin was recorded in comparison distortion costs.

Goodwill amortisation.Goodwill amortisation costs were SEK 192 million in 2004 compared with SEK 191 million
in 2003. The increase of SEK 1 million, or 0.5%, was due primarily to additional purchase price paid for Danish Separation Systems A/S and Toftejorg A/S and currency translation effects partly
offset by the settlement concerning bioKinetics.

Operating Income

Operating income increased to SEK 1,252 million in 2004 from SEK 1,144 million in 2003. This increase of SEK 108 million was due
primarily to the increase in sales volume, reinforced by a increased net comparison distortion income of SEK 31 million and a decrease of SEK 9 million in Step-Up
Depreciation and goodwill amortisation. The increase in operating income was partly offset by negative exchange rate fluctuations. On a constant exchange rate basis and exclusive of the decrease in
goodwill amortisation and Step-Up Depreciation of SEK 9 million and the positive increase in comparison distortion items of SEK 31 million, our operating income increased by
SEK 119 million or 7.3%. Included in our operating income are certain one-off costs of approximately SEK 25 million in 2003, related to a restructuring programme.

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EBITA

The following table shows the development of EBITA for 2003 and 2004:

Year ended
December 31,2003

2004(SEK millions)Operating Income

1,144

1,252Amortisation of goodwill

191

192Step-Up Depreciation

303

293EBITA

1,638

1,737


EBITA
increased by SEK 99 million in 2004 to SEK 1,737 million compared to SEK 1,638 million in 2003. On a constant exchange rate basis, the increase in EBITA was
SEK 150 million.

Net Interest and Other Financial Income/Costs

Interest and other financial income/costs decreased by SEK 147 million, or 45.2%, to SEK 180 million in 2004 compared with to SEK 327 million
in 2003. Total bank borrowings amounted to SEK 1,502 million at the end of 2004 compared to SEK 2,531 million at the end of 2003. The total financial indebtedness including leasing and
interest bearing pension liabilities amounted to SEK 2,556 million at the end of 2004 compared to SEK 3,614 million at the end of 2003. These two circumstances have reduced the interest
costs by SEK 121 million or 49.5%. During 2004, the net realised and unrealised exchange gains and losses improved by SEK 72 million compared to 2003.

Income Taxes

The Swedish statutory tax rate on income was 28.0% in 2004 and 2003. Our weighted average tax rate was 33% in 2004 and 2003. Alfa Laval's taxation charge was SEK
327 million in 2004, compared with a taxation charge of SEK 134 million in 2003 primarily due to a higher taxable result in 2004 and the utilization of tax losses in Sweden in 2003.

Net Income

Principally as a result of the above factors, Alfa Laval had net income of SEK 700 million in 2004 compared with net income of SEK 641 million in
2003.

Years ended December 31, 2002 and 2003

Net Sales

Consolidated.Net sales decreased by SEK 686 million, or 4.7%, to SEK 13,909 million in 2003 from
SEK 14,595 million in 2002. Our net sales were significantly affected by currency exchange rate fluctuations. On a constant exchange rate basis, our consolidated net sales increased SEK
525 million, or 3.6%. This increase in net sales was due primarily to stronger sales in the Equipment division and the acquisition of bioKinetics for the Process Technology division.

Orders
received decreased by SEK 530 million, or 3.6%, to SEK 14,145 million in the year ended December 31, 2003 from SEK 14,675 million in the year ended
December 31, 2002. Order backlog decreased by SEK 319 million, or 7.3%, to SEK 4,021 million at December 31, 2003 from SEK 4,340 million at December 31, 2002.

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Net
sales by division for the year ended December 31, 2002 and 2003 were as follows:

Year ended December 31,2002

2003(SEK in millions)Net sales by divisionEquipment

8,130

7,842Process Technology

6,377

5,994Operations and other

88

73Net sales

14,595

13,909


Equipment.Net sales decreased by SEK 288 million, or 3.5%, to SEK 7,842 million in 2003 compared with
SEK 8,130 million in 2002. This decrease was due primarily to the effect of currency exchange rate fluctuations, despite an increase in sales volumes and the acquisition of Toftejorg,
which added SEK 113 million to the 2003 net sales for the Equipment division. On a constant exchange rate basis, net sales in our Equipment division increased by SEK 301 million, or
3.7%. This increase in net sales was due to increased sales for all customer segments in the Equipment division during 2003 compared to
2002. Applications such as refrigeration, diesel power, industrial original equipment manufacturers and air conditioning reported strong sales during the year.

Orders
received decreased by SEK 23 million, or 0.3%, to SEK 8,070 million in the year ended December 31, 2003 from SEK 8,093 million in the year ended
December 31, 2002. Order backlog increased by SEK 34 million, or 2.2%, to SEK 1,599 million at December 31, 2003 from SEK 1,565 million at December 31,
2002.

Process Technology.Net sales decreased by SEK 383 million, or 6.0%, to SEK 5,994 million in 2003 compared with
SEK 6,377 million in 2002. This decrease was due primarily to the effects of exchange rate fluctuations, partly offset by the acquisition of bioKinetics, which added SEK 133 million to
the 2003 net sales for the Process Technology division. On a constant exchange rate basis, sales in our Process Technology division increased by SEK 230 million, or 3.6%. This increase in sales
was principally due to increased sales in the Food Technology, Life Science and Parts & Service customer segments, partially offset by a decrease in sales in the Energy & Environment and
Process Industry customer segments. Applications such as wine, beverages, olive oil, vegetable oil and environment have reported strong sales during the year.

Orders
received decreased by SEK 497 million, or 7.7%, to SEK 5,991 million in the year ended December 31, 2003 from SEK 6,488 million in the year ended
December 31, 2002. Order backlog decreased by SEK 355 million, or 12.9%, to SEK 2,398 million at December 31, 2003 from SEK 2,753 million at December 31,
2002.

Operations and other.Net sales decreased to SEK 73 million in 2003 from SEK 88 million in 2002. This decrease
was due primarily to the effects of exchange rate fluctuations.

Costs of Goods Sold

Costs of goods sold decreased by SEK 286 million, or 3.1% to SEK 8,976 million in 2003 compared with SEK 9,262 million in 2002. The
decrease in cost of goods sold was due primarily to the lower sales volume. In 2003, costs of goods sold included SEK 303 million of Step-Up Depreciation in connection with the
Acquisition of the former Alfa Laval Holding compared with SEK 319 million in 2002.

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Gross Profit

Gross profit in 2003 was SEK 4,933, or 35.5% of net sales, as compared to SEK 5,333, or 36.5% of net sales, in 2002. The decrease of SEK 400 million, or
7.5%, was primarily due to the effect of currency exchange rate fluctuations. On a constant exchange rate basis and exclusive of Step-Up Depreciation in 2003 of SEK 303 million,
gross profit decreased by SEK 79 million, or 1.4%.

Operating Expenses

Sales costs.Sales costs were SEK 2,246 million in 2003 compared with SEK 2,115 million in 2002. The increase
of SEK 131 million, or 6.2%, was due primarily to addition of the sales costs in the acquired Toftejorg and bioKinetics companies and customary increases in salaries for employees within the
Group.

Administration Costs.Administration costs were SEK 866 million in 2003 compared with SEK 1,027 million in
2002. The decrease of SEK 161 million, or 15.7% was due primarily to cost savings resulting from our restructuring programme, partly offset by the addition of the administration costs in the
acquired Toftejorg and bioKinetics companies.

Research and Development Costs.Research and development costs increased from SEK 355 million or 2.4% of net sales in
2002 to SEK 368 million or 2.6% of net sales in 2003. At constant exchange rates, this represents an increase by SEK 14 million or 4.0 percent between 2003 and 2002. This
increase was partly due to automatic costs increases related to salaries. Over the next few years, management expect research and development costs to be approximately 2.5% to 3.0% of net sales.

Other Operating Income.Other operating income decreased by SEK 35 million, or 12.3%, to SEK 248 million in
2003 compared with SEK 283 million in 2002 due principally to a number of different factors affecting, among other things, lower rental income, lower reversal of provisions in a large number of
our subsidiaries and a lower comparison distortion income in 2003 than 2002. In 2003 a gain of SEK 6 million was attributable to a gain of SEK 4 million related to the sales of the
property in Newmarket, Canada and a gain of SEK 2 million on the sale of a piece of land to the new landlord in connection with the construction of a new headquarter building in Lund. In 2002 a
further gain of SEK 14 million was recorded on the sale of Industrial Flow.

Other Operating Costs.Other operating costs decreased by SEK 341 million, or 48.1%, to SEK 366 million in 2003
compared with SEK 707 million in 2002 due to lower restructuring costs and a lower comparison distortion cost in 2003 than 2002. In 2003 SEK nil million was recorded as comparison distortion
items whereas a loss of SEK 43 million was recorded in 2002 related to the sale of real estate.

Goodwill amortisation.Goodwill amortisation costs were SEK 191 million in 2003 compared with SEK 188 million
in 2002. The increase of SEK 3 million, or 1.6%, was due primarily to the acquisition of Toftejorg and bioKinetics, offset by exchange rate fluctuations.

Operating Income

Operating income decreased to SEK 1,144 million in 2003 from SEK 1,224 million in 2002. This decrease of SEK 80 million was due
primarily to exchange rate fluctuations, offset by a decrease of SEK 13 million in Step-Up Depreciation and goodwill amortisation. On a constant exchange rate basis and exclusive of
the decrease in goodwill amortisation and Step-Up Depreciation of SEK 13 million and the positive increase in comparison distortion items of SEK 35 million, our
operating income increased by SEK 30 million or 2.5%. Included in our operating income are certain one-off costs of approximately SEK 72 million in 2002 and SEK
25 million in 2003, related to our restructuring programme.

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EBITA

The following table shows the development of EBITA for 2002 and 2003:

Year ended
December 31,2002

2003(SEK millions)Operating Income

1,224

1,144Amortisation of goodwill

188

191Step-Up Depreciation

319

303EBITA

1,731

1,638


EBITA
decreased by SEK 93 million in 2003 to SEK 1,638 million compared to SEK 1,731 million in 2002. On a constant exchange rate basis, the increase in EBITA was
SEK 28 million.

Net Interest and Other Financial Income/Costs

Interest and other financial income/costs decreased by SEK 437 million, or 57.2%, to SEK 327 million in 2003 compared with to SEK 764 million
in 2002. Total bank borrowings amounted to SEK 2,531 million at the end of 2003 compared to SEK 3,360 million at the end of 2002. The total financial indebtedness including leasing and
interest bearing pension liabilities amounted to SEK 3,614 million at the end of 2003 compared to SEK 4,519 million at the end of 2002. These two circumstances have reduced the interest
costs by SEK 239 million or 37.2%. During 2003, the net realised and unrealised exchange gains and losses deteriorated by SEK 88 million compared to 2002. The financial comparison
distortion costs were nil in 2003 and SEK 290.7 million in 2002. This cost is relating to two items. In connection with the repayment of the previous syndicated loans and the amortisation of
the bond loan, capitalised financing costs of totally SEK 205.5 million have been reversed. On June 24, 35 percent of the bond loan of EUR 220 million was amortised. This
was made at a premium of 12.125 percent corresponding to one year's interest, which amounted to SEK 85.2 million. Both of these costs have been reported as comparison distortion
financial costs.

Income Taxes

The Swedish statutory tax rate on income was 28.0% in 2003 and 2002. Our weighted average tax rate was 33% in 2003 and 2002. Alfa Laval's taxation charge was SEK
134 million in 2003, compared with a taxation charge of SEK 218 million in 2002 primarily due to the utilization of tax losses in Sweden.

Net Income

Principally as a result of the above factors, Alfa Laval had net income of SEK 641 million in 2003 compared with net income of SEK 208 million in
2002.

I-62

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5.B. Liquidity and Capital Resources

The following summary of certain provisions of our Senior Notes, our Current Senior Credit Facility, the Subordinated Loan, the
Intercompany Note, our Current Intercreditor Agreement and continuing indebtedness does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the underlying
documents.

The Senior Notes

In
November 2000, we issued €220 million in aggregate principal amount of 121/8% Senior Notes due 2010 in reliance on exemptions from
registration requirements under the US Securities Act of 1933, as amended (the "Securities Act"). In July 2001, we completed a public exchange offer pursuant to which our Senior Notes issued in
November 2000 were exchanged for substantially identical Senior Notes registered under the Securities Act.

Interest
on the Senior Notes is paid semi-annually in arrears on May 15 and November 15, beginning May 15, 2001. Holders of the Senior Notes may under
certain circumstances be entitled to receive additional payments in respect of taxes and similar charges in respect of payments on the Senior Notes.

The
terms of the Senior Notes provide that they are redeemable (i) at any time prior to November 15, 2005 in whole but not in part at our option at 100% of their principal
amount, plus an applicable redemption premium and accrued and unpaid interest, and (ii) at any time on or after November 15, 2005 at our option, at 106.063% of their principal amount,
plus accrued and unpaid interest, declining to 100% of their principal amount, plus accrued and unpaid interest, on or after November 15, 2008.

In
the event that, as a result of any change or amendment to the laws or treaties of Sweden or certain other jurisdictions, we become obligated to pay material additional payments that
we determine cannot be avoided by taking reasonable measures, the Senior Notes are redeemable in whole but not in part at 100% of their principal amount plus accrued and unpaid interest, at our
option. We may also, at our option, redeem up to 35% of the Senior Notes using the net proceeds of one or more public equity offerings received by us, at 112.125% of their principal amount, plus
accrued and unpaid interest to the redemption date.

On
June 24, 2002, we redeemed 35%, or €77 million, of the Senior Notes with the proceeds of the Offering. During 2002, 2003 and 2004, we purchased Senior
Notes at prevailing market rates in the open market. We intend to redeem the outstanding Senior Notes on or about November 15, 2005. Such redemption will incur additional interest cost during
the fourth quarter of 2005 of approximately SEK 63.3 million for the premium and SEK 20.6 million for the outstanding capitalized transaction costs, totaling SEK 83.9 million. The
costs of redeeming the outstanding Senior Notes are expected to be drawn from the senior credit facility that we are currently negotiating with the lenders under our Current Senior Credit Facility.
See "Item 5.BLiquidity and Capital ResourcesThe Current Senior Credit Facility".

The
Senior Notes rank equal in right of payment with all of our other unsecured and unsubordinated indebtedness, and are senior in right of payment to any of our future subordinated
indebtedness. The Senior Notes are also guaranteed on a senior subordinated basis by Alfa Laval Holding AB (renamed from Alfa Laval Credit Finance AB).

The
indenture governing the Senior Notes is subject to the Trust Indenture Act of 1939, as amended. It contains covenants applicable to us and certain of our subsidiaries, including Alfa
Laval Holding AB (renamed from Alfa Laval Credit Finance AB), limitations and requirements with respect to indebtedness, restricted payments, dividends and other payments affecting restricted
subsidiaries, the ownership of capital stock of restricted subsidiaries, issuances of guarantees of indebtedness by

I-63

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restricted
subsidiaries, transactions with affiliates, liens, asset sales, consolidations and mergers and the provision of financial statements and reports. The indenture also requires us to make an
offer to purchase all outstanding Senior Notes at a purchase price of 101% of their principal amount upon the occurrence of a change of control. Under the terms of the indenture, the Offering did not
cause a change of control to occur. In addition, under certain circumstances, we are required by the indenture to offer to purchase the Senior Notes with the proceeds of sales of certain assets. The
indenture also provides for events of default which, if any of them occurs, would permit or require the principal of, premium, if any, interest and any other monetary obligations on the Senior Notes
to become or to be declared to be immediately due and payable.

As
of April 5, 2005 our Senior Notes, which are listed on the Luxembourg Stock Exchange, traded at 112.00%. This is the most recent date the Senior Notes were traded.

For
a description of the optional redemption provisions of our Senior Notes, see "Item 5.B:Maturity Profile of Our Borrowings" below.

The Current Senior Credit Facility

Our
Current Senior Credit Facility comprises a senior multi-currency credit facility with SEB Merchant Banking, a unit within Skandinaviska Enskilda Banken AB (publ), as arranger, and is
structured in two tranchesa Tranche A US$325 million 5 year multi-currency revolving credit facility and a Tranche B €150 million 5 year
multi-currency revolving credit facility. Proceeds of Tranche A and Tranche B may only be used to refinance the previous senior credit facility and for the general corporate purposes of the Alfa Laval
AB group.

Borrowings
under the Current Senior Credit Facility are guaranteed by Alfa Laval AB, our parent, us and Alfa Laval Holding AB (renamed from Alfa Laval Credit Finance AB), the Guarantor
of our Senior Notes, on a joint and several basis.

The
Current Senior Credit Facility may be cancelled and/or pre-paid without premium in whole or in part, in minimum amounts of US$5 million in respect of Tranche A or
€5 million in respect of Tranche B, or, if greater, in either case, in integral multiples of 1 million units of that currency with the giving of appropriate notice. If a
change of control occurs (that is, if any person or group of persons, other than Tetra Laval B.V. and any of its affiliates and Industri Kapital 2000 Ltd. and any of its subsidiaries and any
partnership in which Industri Kapital 2000 Ltd. or any of its subsidiaries is general partner, acquire shares in Alfa Laval AB representing more than 50% of Alfa Laval AB's share capital or
voting rights), the borrowers will be required by the lenders to prepay the Current Senior Credit Facility.

The
interest payable on each tranche is the relevant inter-bank rate plus a relevant margin and mandatory costs.

In
connection with the Current Senior Credit Facility, on April 15, 2004, we entered into inter-creditor arrangements under which the Intercompany Note between us and Alfa Laval
Holding AB (renamed from Alfa Laval Credit Finance AB), is subordinated to debt outstanding under the Current Senior Credit Facility. The guarantee of the Senior Notes given by Alfa Laval Holding AB
(renamed from Alfa Laval Credit Finance AB) is also subordinated to outstandings under the Current Senior Credit Facility. These subordination arrangements include restrictions on the repayment of, or
payments in relation to, this intercompany loan.

The
Current Senior Credit Facility contains financial covenants which are required ratios of consolidated net debt to consolidated EBITDA of the Alfa Laval AB Group, consolidated EBITDA
to total interest expense of the Alfa Laval AB Group and consolidated net debt to shareholders' equity of the Alfa Laval AB Group. In addition to these, there are other covenants, including covenants
which restrict borrowing by certain subsidiaries, the creation of security interests over the assets of the Alfa

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Laval
AB Group, lending, the giving of guarantees by members of the Alfa Laval AB Group and the disposal of assets by members of the Alfa Laval AB Group.

The
Current Senior Credit Facility also contains standard representations and warranties customarily found in credit agreements for similar financings. There are standard events of
default, including (i) failure to pay, (ii) misrepresentation, (iii) certain events of insolvency and (iv) cross default.

We
are currently renegotiating the term of our Current Senior Credit Facility with a view to lowering the pricing of such facility in light of our continued strong credit status and
pricing changes in the syndicated loan market, as well as to incorporate an additional tranche which will be used to redeem the outstanding Senior Notes and extend the maturity of the facility in
order to strengthen our certainty of funds.

Subordinated Loan

On
August 24, 2000 Alfa Laval AB, our parent company, issued a subordinated vendor note for €200.0 million to the vendor, Tetra Laval B.V. The Subordinated
Loan carried interest at 12% per annum, which was capitalised annually in arrears and paid on maturity. The Subordinated Loan was scheduled to be repaid on the date that was (i) ten years and
six months after the later of the date of issuance of the vendor note and the date of issuance of the notes or, (ii) if earlier, a flotation or trade sale.

Upon
consummation of the Offering, Alfa Laval AB used the proceeds from the Offering and the exercise of the Management Warrants and drawings under the then prevailing senior credit
facility to, among other things, repay the Subordinated Loan on May 23, 2003, together with accrued and unpaid interest thereon.

The Intercompany Note

Funds
advanced to us at the time of the Acquisition were on lent to the Guarantor under an intercompany loan facility (the "Intercompany Note") entered into on August 22, 2000
between us and the Guarantor. The Intercompany Note remained in place following the issuance of our Senior Notes on November 9, 2000. Interest is payable thereunder semi-annually in
arrears at a rate which matches the funding requirement for interest payments on our Senior Notes.

The
Intercompany Note is repayable on demand by us. Payments and other rights under the Intercompany Note are subordinated under, or otherwise subject to the terms of, the Current
Intercreditor Agreement for the Current Senior Credit Facility. The Current Intercreditor Agreement provides for payment suspensions and limitations on enforcement in relation to the Intercompany
Note.

Current Intercreditor Agreement

On
April 15, 2004, we, the Guarantor, the lenders under the Current Senior Credit Facility and SEB Merchant Banking as facility agent entered into an intercreditor agreement (the
"Intercreditor Agreement"). The Intercreditor Agreement sets out the respective rights of certain creditors of us and the Guarantor as regards ranking of debt, security, enforcement and subordination.

Ranking of Debt and Security.The Intercreditor Agreement provides, among other things, that liabilities under the Current
Senior Credit Facility will rank for all purposes and at all times in priority to the Intercompany Note.

Certain Restrictions on Payment and Enforcement.The Intercreditor Agreement prohibits payments under the Intercompany Note
except to fund (i) any scheduled payments due on the Senior Notes, (ii) any payments of principal, interest, premium, additional amounts and amounts payable on account of taxes in
relation to the Senior Notes, (iii) any amounts payable to the trustee on the Senior Notes, and (iv) dividends to Alfa Laval AB or otherwise fund Alfa Laval AB to enable it to pay
dividends or

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other
amounts for corporate purposes. However payments to us under the Intercompany Note will be suspended, in the case of a payment default, under the Current Senior Credit Facility until such
payment default is remedied and, in the case of a non payment default, for 179 days after a payment blockage notice has been served (or if earlier until such default is remedied or waived or
the Current Senior Credit Facility is repaid in full). Only one such blockage notice can be served in a 365-day period. The Intercreditor Agreement provides that, in addition to the
payment blockage described above, no enforcement action can be taken by us in relation to the Intercompany Note prior to the date the Current Senior Credit Facility is repaid in full unless
(i) an insolvency event occurs in relation to the Guarantor or (ii) default occurs in relation to our Senior Notes (unless as a result of a default under the Current Senior Credit
Facility) and (1) we have notified the facility agent under the Current Senior Credit Facility of such default, (2) a period of not less then 120 days has passed from the date of
receipt of such notice and (3) the default is still continuing at the end of such period. Enforcement action includes any demand for payment or commencement of legal proceedings.

The
Intercreditor Agreement prohibits any payments or distributions of any kind to us by the Guarantor, except as permitted by the previous paragraph or with the consent of the facility
agent for the Current Senior Credit Facility.

In
connection with the proposed refinancing of our Current Senior Credit Facility, more fully described above under "The Current Senior Credit Facility", we intend to enter
into an amended intercreditor agreement on substantially the same terms as the Current Intercreditor Agreement.

Other Continuing Indebtedness

In
addition to the debt we will or may incur under the Current Senior Credit Facility and our Senior Notes, we and our operating subsidiaries will continue to retain other debt,
contingent liabilities and receivable discounting facilities.

We
have central bilateral committed facilities with banks for the provision of guarantees and letters of credit in amounts of up to €75 million. In addition, we
have central bilateral uncommitted facilities with banks for the provision of loans, guarantees and letters of credit in amounts of up to €34 million.

In
addition, we are entitled by the Current Senior Credit Facility to retain, at our operating subsidiaries, borrowings and guarantees for financial indebtedness, counter-indemnities for
third party performance bonds and guarantees (which are not in respect of financial indebtedness) and receivable discounting facilities (with recourse) up to agreed limits. Utilisations of our local
facilities must also fall within the general financial indebtedness ratios set by our Senior Notes and the Current Senior Credit Facility.

As
of December 31, 2004 there was approximately €10.2 million outstanding of borrowings and guarantees for financial indebtedness under local facilities,
which included loans of €4.8 million incurred in Italy by Alfa Laval SpA.

Approximately
€108 million in face amount of guarantees and performance bonds (of which €76 million refers to performance bonds) have been
issued and were outstanding as of December 31, 2004 on behalf of various operating subsidiaries by banks, insurance companies and other financial institutions. The performance bonds and
guarantees were issued to support performance under contracts entered into in the ordinary course of business.

Some
of our operating subsidiaries, principally in Italy and Spain, have receivable discounting facilities, which allow for the discounting of receivables from time to time. These
facilities were utilised in an amount of €19 million as at December 31, 2004. The financial institutions with whom these receivables are discounted have recourse to us in
respect of most of these receivables if they prove unable to collect them.

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Liquidity Requirements

Historically, our principal sources of funds have been cash flows from operations, equity contributions, financings from third-party financial institutions and,
prior to the Acquisition, borrowings from Tetra Laval. In the future, we expect that our principal sources of funds will be cash flows from operations and we intend to use a significant portion of
such cash to continue to reduce our debt. Our liquidity requirements arise primarily from funding our working capital requirements and our capital expenditures for the general maintenance of our
facilities and to meet our ongoing debt service requirements. Due to the seasonality of our business, our liquidity needs are highest in the second and third quarters of our fiscal year.

On
April 15, 2004, we entered into the Current Senior Credit Facility comprising a U.S.$325 million 5 year revolving credit facility, and a
€150 million 5 year revolving credit facility. We used drawings under the Current Senior Credit Facility to refinance our previous Senior Credit Facility. We expect that
we will need to refinance all or part of the Current Senior Credit Facility at maturity, in order to make full repayment. We are currently negotiating a refinancing of our Current Senior Credit
Facility. See "The Current Senior Credit Facility" above.

We
also retain local facilities at our operating companies within the limits provided under the Current Senior Credit Facility for financial indebtedness, receivable financing facilities
and counter-indemnities for performance bonds and guarantees (which are not treated as part of financial indebtedness).

Sources and Amounts of Cash Flows

Cash Flow from Operating, Investing and Financing Activities

The table below sets forth the principal components of Alfa Laval's cash flow for the years indicated:

Year ended December 31,2002

2003

2004(SEK in millions)Operating income

1,224

1,144

1,252Depreciation and amortisation

838

787

746Adjustment for non cash items

35

22

152,097

1,953

2,013Taxes paid

(396
)
(269
)
(335
)Cash flow from operations before changes in working capital

1,701

1,684

1,678Changes in working capital:(Increase)/decrease of current receivables

340

(26
)
(388
)(Increase)/decrease of inventories

140

(17
)
(297
)Increase/(decrease) of liabilities

(134
)
(153
)
293346

(196
)
(392
)Cash flow from operating activities

2,047

1,488

1,286Cash flow from investment activities

(548
)
(457
)
123Cash flow from financing activities

(1,443
)
(1,002
)
(1,523
)


Cash
flows from operating activities were SEK 1,286 million in 2004 compared with SEK 1,488 million in 2003. This decrease was due primarily to an increase in net working
capital. Cash flows from operating activities were SEK 1,488 million in 2003 compared with SEK 2,047 million in 2002. This decrease was due primarily to an increase in net working
capital.

Cash
flows from investing activities increased by SEK 580 million from a negative cash flow of SEK 457 million in 2003 to a positive cash flow of SEK 123 million in
2004. This increase in cash flow

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from
investing activities was principally due to sale of real estate by SEK 362 million and the reduced purchase price for bioKinetics by SEK 61 million, partly offset by higher
investments in fixed assets in 2004 compared with the cash-out for acquisition of businesses in 2003 by SEK 289 million. Cash flows from investing activities increased by SEK
91 million from a negative cash flow of SEK 548 million in 2002 to a negative cash flow of SEK 457 million in 2003. This increase in cash flow from investing activities was
principally due to the additional purchase price paid for Alfa Laval Holding (renamed from Alfa Laval Credit Finance) in 2002 partly offset by the higher cash-out for acquired businesses
in 2003 together with the decrease in proceeds from sale of fixed assets compared to 2002.

Cash
flows from financing activities decreased in 2004 to a negative cash flow of SEK 1,523 million as compared to negative cash flow of SEK 1,002 million in 2003 mainly
due to higher paid group contributions. Cash flows from financing activities increased in 2003 to a negative cash flow of SEK 1,002 million as compared to negative cash flow of
SEK 1,443 million in 2002 mainly due a reduction in the paid financial net.

Commitments for Future Capital Expenditure

For a discussion of our historical capital expenditure, see "Item 4.A: Information on the CompanyHistoric Capital Expenditures".

We
are currently investing primarily in replacement machinery and equipment. We have funded, and expect to continue funding, such capital investments from cash generated from our
business operations.

Maturity Profile of Our Borrowings

Under the Current Senior Credit Facility, if a change of control occurs, we may be required by the lenders to prepay the Current Senior Credit Facility. We are
also permitted to make voluntary prepayments on the loans under the Current Senior Credit Facility. Borrowings under the Current Senior Credit Facility will bear interest at applicable interbank
offered rates for varying interest periods, plus a margin and mandatory costs.

Our
Senior Notes are scheduled to be repaid in one instalment in 2010. However, holders of our Senior Notes will be able to require us to purchase the Senior Notes in the event of a
change of control. We will not be able to do so without the consent of our lenders under the Current Senior Credit Facility. In addition, prior to November 15, 2003, we will be permitted to
repurchase up to 35% of our Senior Notes at specified redemption rates from the proceeds of a public equity offering and, prior to November 15, 2005, we will be permitted to repurchase all but
not part of our Senior Notes at their principal amount plus an applicable redemption premium.

Following
the Offering on May 17, 2002, we redeemed 35%, or €77 million, of the outstanding principal amount of our Senior Notes, together with accrued and
unpaid interest thereon with the proceeds of the Offering. During 2002, 2003 and 2004, we purchased Senior Notes at prevailing market rates in the open market. We intend to redeem the outstanding
Senior Notes on or about November 15, 2005. Such redemption will incur additional interest cost during the fourth quarter of 2005 of approximately SEK 63.3 million for the premium and
SEK 20.6 million for the outstanding capitalized transaction costs, totaling SEK 83.9 million. The costs of redeeming the outstanding Senior Notes are expected to be drawn from the
senior credit facility that we are currently negotiating with the lenders under our Current Senior Credit Facility. See "The Current Senior Credit Facility" above.

We
believe that cash flow generated from our operations, together with amounts available under the Current Senior Credit Facility and new central bilateral facilities, local financing
facilities and existing cash balances should be sufficient to fund our debt service requirements, working capital needs,

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anticipated
capital expenditures and other operating needs for the foreseeable future. Our future operating performance and ability to service or refinance our existing and future debt, including our
Senior Notes, will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. See the discussion in the section "Item 3.D: Key
InformationRisk Factors".

Restrictions on Ability of Subsidiaries to Transfer Funds

Our only assets are shares in our wholly owned subsidiary, the Guarantor, and an intercompany loan to the Guarantor. Our cash flow and our ability to service our
Senior Notes and any other debt depend solely upon the cash flow of our subsidiaries and our receipt of funds from them in the form of loans, dividends, interest or otherwise. Our subsidiaries may not
generate cash flow sufficient to enable us to meet our payment obligations.

In
addition, the terms of the Current Senior Credit Facility and the Current Intercreditor Agreement restrict our subsidiaries' ability to provide funds to us. See "Item 5.B: Operating
and Financial Review and ProspectsLiquidity and Capital ResourcesCurrent Intercreditor Agreement" above. This ability may be further restricted by applicable laws and
regulations and the terms of other agreements to which our subsidiaries may become subject. In particular, the Current Intercreditor Agreement prohibits payments under the intercompany loan except to
fund (i) any scheduled payments due on the Senior Notes, (ii) any payments of principal, interest, premium, additional amounts and amounts payable on account of taxes in relation to the
Senior Notes, (iii) any amounts payable to the trustee on the Senior Notes, and (iv) dividends to Alfa Laval AB or otherwise fund Alfa Laval AB to enable it to pay dividends or other
amounts for corporate purposes. However payments to us under this loan will be suspended in the case of a payment default under the Current Senior Credit Facility until such payment default is
remedied and in the case of a non payment default for 179 days after a payment blockage notice has been served (or if earlier until such default is remedied or waived or the Senior Credit
Facility is repaid in full). Only one such blockage notice can be served in a 365 day period. The Current Intercreditor Agreement provides that, in addition to the payment blockage described
above, no enforcement action can be taken by us in relation to the intercompany Loan prior to the date of repayment of the Current Senior Credit Facility unless (i) an insolvency event occurs
in relation to the Guarantor or (ii) default occurs in relation to our Senior Notes (unless as a result of a default under the Current Senior Credit Facility) and (1) we have notified
the facility agent under the Current Senior Credit Facility of such default, (2) a period of not less then 120 days has passed from the date of receipt of such notice and (3) the
default is still continuing at the end of such period.

Until
the date on which all indebtedness under the Current Senior Credit Facility has been fully repaid, to the extent and subject to the restrictions described in the previous
paragraph, the Current Intercreditor Agreement and the Current Senior Credit Facility permits us to make payments of principal on our Senior Notes.

5.C. Research and Development, Patents and Licenses, etc.

Our research and development expenditure was SEK 355 million (2.4% of total sales), SEK 368 million (2.6% of total sales) and SEK 404 million
(2.7% of total sales) in the three years 2002, 2003 and 2004 respectively. Management expects research and development expenditure to be approximately 2.5% to 3.0% of net sales in the foreseeable
future.

We
conduct research and development at various facilities and employ approximately 290 qualified engineers and technicians. The research and development function for our Process
Technology division is located in four centres, in Copenhagen (Denmark), Grenoble (France), Lund (Sweden) and Tumba (Sweden). The research and development function for our Equipment division is
located in five centres, in Tumba (Sweden), Lund (Sweden), Kolding (Denmark), Ronneby (Sweden) and Alonte (Italy). The

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Process
Technology division and the Equipment division have their own R&D functions for channelling resources to areas where there is most growth potential. Such areas include biotechnology and
wastewater treatment. Alfa Laval's R&D operations are based on a long-term commitment to basic research, focusing primarily on streaming technology and heat transfer. The company launches
25-30 new products annually as well as at least as many product improvements.

As
a result of our research and development efforts in heat transfer we have achieved the following results. We are continuing to develop of the unique plate condensers and extending the
product range. Many researchers believe that heat exchangers made from only one material are the way of the future. Here, Alfa Laval is well in the forefront. AlfaNova is a completely new plate heat
exchanger made from a single material: stainless steel. The actual brazed material in combination with the manufacturing technique is patented. AlfaNova tolerates the combination of high temperature
and high pressure better than brazed plate heat exchangers. These characteristics broaden the market for the product. New areas of application include processors that involve the use of ammonia. The
product was launched in 2003 and in 2004 a number of new sizes were introduced.

In
the centrifugal separation market, we continue to develop sterilisable centrifuges for the bio-pharmacy industry. A new platform of medium sized separators has been
developed and the first version for vegetable oil was launched during May 2004. During 2004 two new platforms of decanters were also launched. Eco Stream is a system for treating polluted water
based on Alfa Laval's highspeed separator. The product is developed for the marine industry and its task is to remove contaminants in the bilge water in the engine room and internal drainage systems
on board. The product replaces the use of chemicals and filters. Eco Stream is fully automated and the effective result means that substantially less waste must be deposited on land and that the dirty
water becomes so clean that it can be returned to the sea. Alfa Laval Octopus is software for optimising the operations of decanter centrifuges (the product that separates sludge from water) in
treatment plants. The treatment of waste sludge is an area becoming increasingly self-regulating and automated. Octopus is the first totally self-regulating system for
dewatering of sludge. It can be described as an autopilot that ensures that the decanter centrifuge works as effectively as possible. The wastewater treatment plant can realize major savings through
efficient sludge dewatering and through reducing the use of polymers and fresh water. Another major advantage is that the purity of the water separate from the sludge is higher.

In
the sanitary flow sector, our main product launches during 2004 were Hynetics and a small set valve. Hynetics is a product developed as a result of the acquisition of North American
Biokinetics. The product is aimed directly at the pharmaceuticals industry. It is a system designed for
single-use and is applied for dissolving and mixing of various types of media and drug formulations. Hynetics is the first system on the market in which single use products (mixing tanks)
are used in production scale, between 1,000 to 10,000 litres. The product was launched in the first quarter of 2004 in conjunction with the major Interphex biotech exhibition in New York. A small seat
valve completes Alfa Laval's already broad range of seat valves. The new seat valve is designed for the biotech, pharmaceutical and food processing industries. The simple design, featuring few moving
parts, makes it highly reliable. Other competitive advantages are its sanitary feature and that it is highly reliable even in vacuum induced environments due to its special double-lip
sealing.

We
have a strong focus on future market requirements and customer demands and research and development projects are often conducted in close cooperation with OEMs (Original
Equipment Manufactures) who are using Alfa Laval products as an integrated part of their product offering. York International, Carrier International and US companies within cooling, heating and
ventilation are such examples. Expanding and developing our technology into new applications is one of our growth strategies. One such example is Alfdex, an innovative solution for cleaning exhaust
fumes from diesel engines by separating oil drops and particles from crankcase gases. The market potential for the products is believed to be very large: in the next few years, environmental
legislation in both the EU and the US will regulate levels of exhaust emissions from heavy vehicles much more sharply than is the

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case
today. Alfdex is a project in which Alfa Laval cooperates, on market terms, with the Swedish listed company Haldex.

We
own more than 200 patents relating to the design of our products, a number of which we consider to be important to our business. The Alfa Laval® trademark is owned by us
and is registered in approximately 100 countries.

Many
of our products are based on established technology but all material improvements are continuously patented to the extent possible. Our pool of proprietary information, consisting
of know-how and trade secrets relating to the design, manufacture and operation of our products and their use, is considered particularly important and valuable. Accordingly, we protect
this proprietary information, principally through the inclusion of confidentiality clauses in employment contracts with our workforce. In general, we are the owner of the rights to the products, which
we manufacture and sell, and we are not dependent in any material way upon any license or franchise to operate.

5.D. Trend Information

In most of the markets that Alfa Laval serves the demand is expected to be on the same high level as during 2004. Alfa Laval also believes that the current high
price level for some raw materials will remain, at least short term.

5.E. Off -balance sheet financing arrangements

The Group does not have any off-balance sheet financing arrangements, except for receivables sold with recourse. As of December 31, 2004, the
Group had sold receivables with recourse totalling SEK 96.5 (113.7) million. These are disclosed as discounted bills in note 28 (Pledged assets and contingent liabilities) in the consolidated
financial statements. Under US GAAP, the recourse provisions prevent the transaction from being reported as a sale. Accordingly, the receivables would be kept on the balance sheet, and a loan would be
reported for the amount of cash received. The loss on the sale was not material, and this transaction results in no significant impact on US GAAP equity.

Other Commercial Commitments

|                             |  |         |  | Amount of Commitment Expiration Per Period
|---------------------------- |  | ------- |  | ------------------------------------------
|
|
|Guarantees                   |  | 688.1   |  | 229.4                                     
|Other Commercial Commitments |  | 714.7   |  | 331.2                                     
|Total Commercial Commitments |  | 1,402.8 |  | 560.6                                     

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5.F.  Tabular disclosure of contractual obligations

Contractual Obligations and Commercial Commitments

The following summaries our contractual obligations and other commercial commitments as of December 31, 2004, and the effect such obligations and
commitments are expected to have on our liquidity and cash flow in future periods:

Contractual Obligations

|                                   |  |         |  | Payments Due by Period
|---------------------------------- |  | ------- |  | ----------------------
|
|
|Long Term Debt                     |  | 2,307.1 |  | 26.0                  
|Capital Lease Obligations          |  | 4.2     |  | 1.2                   
|Operating Leases                   |  | 213.8   |  | 65.5                  
|Total Contractual Cash Obligations |  | 2,525.1 |  | 92.7                  

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ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A. Directors, Senior Management and Employees

Directors

At present, our board of directors is composed of three members, including the chairman. None of the directors are affiliated with our principal shareholders. The
current members of our board, their positions and the years of their original elections are as follows:

Name

Member Since

Age

PositionThomas Thuresson

2002

47

ChairmanLars Renström

2004

53

Director and PresidentJohan Ahlgren

2002

43

Director


Thomas Thuressonhas been our chairman since 2002. He is also our chief financial officer of the Group. He held various positions at PLM
in Sweden and Germany. Mr. Thuresson joined Alfa Laval in 1988 and has held various positions, including controller of business area Automation from 1988 to 1990, controller of business area
Flow from 1990 to 1991 and vice president Group controller from 1991 to 1994. He has served in his current role since 1995, with key responsibilities including Group finance and control, treasury,
real estate and information technology. Mr. Thuresson received his Bachelor's Degree in Business Administration from the University of Lund in 1981. Mr. Thuresson has no outside
directorships.

Johan Ahlgrenhas been our director since 2002. Mr. Ahlgren is General Counsel of the Alfa Laval Group. He worked as a notarial
clerk at the District Court of Ängelholm from 1986 to 1988 and as a lawyer at Wistrand Advokatbyrå from 1988 to 1992. Mr Ahlgren joined Alfa Laval in 1992. He worked as
Corporate Counsel from 1992 to December 1999 in Group staff legal matters. He has held his current position since January 2000. Mr. Ahlgren received a Master of Law from the
University of Lund in 1986. Mr. Ahlgren has no outside directorships.

Lars Renström, the Alfa Laval Group chief executive officer since October 2004, has been our director and our
President since October 2004. Mr. Renström served most recently with Seco Tools AB, a company listed at the Stockholm Stock Exchange, where he was President and CEO
between 2000 and 2004. Previously he served as a division manager within Ericsson and Atlas Copco. Mr. Renström holds a Bachelor's Degree in Business Administration from the
University of Stockholm in 1980 and a M.Sc. from KTH in 1976. Mr. Renström is a member of the board of Profilgruppen AB.

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Senior Management

Alfa Laval Special Finance has no directly employed members of senior management. However, the following table sets forth the names of the Alfa Laval Group's
executive officers. Such executive officers are appointed by and serve at the discretion of the board of directors of Alfa Laval AB.

|Name              |  | Year of
Employment |  | Age |  | Position                                            
|----------------- |  | ------------------ |  | --- |  | ----------------------------------------------------
|Lars Renström     |  | 2004               |  | 53  |  | President and Chief Executive Officer               
|Thomas Thuresson  |  | 1988               |  | 47  |  | Executive Vice President and Chief Financial Officer
|Svante Karlsson   |  | 1984               |  | 49  |  | President Equipment Division                        
|Ulf Granstrand    |  | 1975               |  | 57  |  | President Process Technology Division               
|Göran Mathiasson  |  | 1979               |  | 51  |  | President Operations Division                       
|Lars Henriksson   |  | 1977               |  | 54  |  | Executive Vice President, Regions                   
|Ray Field         |  | 1985               |  | 50  |  | Executive Vice President, Regions                   
|Peter Leifland    |  | 1985               |  | 51  |  | Executive Vice President, Regions                   
|Peter Torstensson |  | 1999               |  | 49  |  | Vice President, Corporate Communications            
|David Ford        |  | 1993               |  | 50  |  | Senior Vice President, Human Resources              
|Nils Olof Björk   |  | 1975               |  | 58  |  | Senior Vice President, Corporate Development        

Lars Renström.See above.

Thomas Thuresson.See above.

Svante Karlssonis an executive vice president of Alfa Laval and president of our Equipment division. Mr. Karlsson joined us in
1984, where he has held various positions, including president of our former business area Thermal from 2000 until 2001, managing director of business segment Marine & Power from 1995 to 2000,
business area controller of our former business area Separation from 1991 to 1995 and financial controller of Alfa Laval Industrie B.V., the Netherlands from 1986 to 1988. He has held his current
position since 2001. Mr. Karlsson holds a B.Sc. in Business Administration.

Ulf Granstrandis an executive vice president of Alfa Laval and president of our Process Technology division. Since joining us in 1975,
Mr. Granstrand has been executive vice president with regional responsibilities from 1999 to 2000, president of business area Thermal from 1992 to 1999 and head of business unit "Heat Transfer
Components" from 1987 to 1992. Mr. Granstrand holds a M.Sc. from CTH.

Göran Mathiassonis an executive vice president of Alfa Laval and president of our Operations division since
April 2003. Since joining us in 1979, Mr. Mathiasson has been in charge of Alfa Laval manufacturing and prior to that of thermal technology, including research and development,
production development, system development and purchasing. Mr. Mathiasson holds a M.Sc. from LTH.

Lars Henrikssonis an executive vice president of Alfa Laval with regional responsibilities. Since joining us in 1977,
Mr. Henriksson has been president of Alfa Laval Inc in Canada from 1996 to 2004 and prior
to that held executive positions for Alfa Laval in Sweden, Spain and Brazil. He has held his current position since September 2004. Mr. Henriksson holds a M.Sc. from LTH.

Ray Fieldis an executive vice president of Alfa Laval with regional responsibilities. Since joining us in 1985, Mr. Field has been
president of Alfa Laval China from 1993 to 2004. He has held his current position since September 2004. Mr. Field holds a HND from Newport College of Technology.

Peter Leiflandis an executive vice president with regional responsibilities. Since joining us in 1985, Mr. Leifland has been
senior vice president in Alfa Laval Group management from 1997 to 1999, president of Alfa Laval Engineering AB from 1995 to 1997 and vice president and General Counsel

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from
1990 to 1995. He has held his current position since 1999. Mr. Leifland holds an LL.B., Lic. Spec and IMD (PED).

Peter Torstenssonis a vice president with overall responsibility for corporate communications. He has held this position since 1999.
Prior to that, he was managing director and key account director of Borstahusen Informationsdesign from 1992 to 1998 and managing director and account director of Marknadsbyrån,
Malmö, Sweden from 1988 to 1991.

David Fordis senior vice president with overall responsibilities for personnel and human resources. Mr. Ford has held this
position since 1993. Prior to that, he was personnel manager and director of Tetra Pak U.K. from 1990 to 1993, and technical training manager of Tetra Pak, U.K. from 1986 to 1990. He holds a diploma
in Careers Guidance and a B.Sc. in Mechanical Engineering.

Nils Olof Björkbecame our senior vice president responsible for corporate development in April 2002.
Mr. Björk joined Alfa Laval in 1975 and since then has held various positions in the company. He started as head of the materials laboratory in Lund, followed by positions as
product manager for heat exchangers, head of Thermal in Canada, marketing director at Alfa Laval Thermal in Lund, head of Alfa Laval, Asia Pacific in Hong Kong and, since 1996, president of Alfa
Laval, Japan. Mr. Björk has an M.Sc. and Ph.D. in chemistry from Lund University, Sweden.

None
of the above members of senior management has any family relationship with any director or any other member of senior management.

6.B. Compensation

Total compensation, including salaries and pension payments paid by us and our subsidiaries to (a) the current members of our board of directors and
(b) the executive officers who were employed by us in the year ended December 31, 2004 were SEK nil million and SEK 28 million, respectively.

Total
compensation paid to our auditors, Ernst & Young, for the year ended December 31, 2004 was approximately SEK 17 million.

6.C. Board Practices

Under the Swedish Companies Act, our board of directors is ultimately responsible for the organisation and the management of our affairs. According to our
articles of association, the board of directors shall consist of no less than three members and no more than eight members.

Under
Swedish law, the managing director and at least half of our board members must be resident in a European Economic Area country unless exempted by the Swedish Patent and
Registration Office. Under Swedish law, a director's term of office (other than a union appointee) may not be more than four years, but is normally one year. Our articles of association provide that
board members shall be elected at the annual general meeting of shareholders for a period until the end of the next annual general meeting of shareholders. A director may, however, serve any number of
consecutive terms.

Directors
elected at the general meeting of the shareholders may be removed from office by a meeting of the shareholders, and vacancies on the board, except when filled by an alternate
director, may only be filled by a resolution of shareholders. Each year, if not otherwise stipulated in our articles of association, one director is elected chairman of the board by resolution of the
board (unless elected by our shareholders) at the first meeting following its appointment.

Committees of the Board

Our remuneration committee of the Board of Alfa Laval AB consists of Anders Narvinger, Björn Savén and Jörn Rausing.
The remuneration committee meets when necessary, but usually not less than

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twice
a year. Executive directors are invited to attend the remuneration committee's meetings as the members consider appropriate. The remuneration committee establishes and reviews remuneration and
terms of employment of our executive directors, senior executives and other key personnel.

The
question of appointing an audit committee according to the "Sarbanes-Oxley Act" has been discussed in the Board of Alfa Laval AB. The Board has chosen not to appoint an audit
committee since the judgement is that the financial reporting and control within the Alfa Laval Group, the Alfa Laval Group's policies concerning internal control, the external and internal audit and
the reporting to the Board in these matters are such that a separate audit committee within the Board would not increase the Board's insight and control over the operations. As a result, the entire
Board will act as the audit committee. At four Board meetings during 2004 the Board has received reports from and met the external auditors of the Group. At one Board meeting during 2004, the Board
has received reports from and met the internal auditor of the Group.

Management Service Contracts

Unless required by legislation, we aim to have "at will" contracts with our senior management. Upon termination, our senior management is typically entitled to
one month's pay per year of service, subject to a minimum of 6 months' and a maximum of 24 months' compensation. Each contract with our senior management includes a
non-competition clause.

Lars
Renström, in his capacity as our chief executive officer, currently has a base salary of SEK 4,000,000 per annum. He has a bonus opportunity with an
un-guaranteed target bonus of 25 percent of the base salary and with a maximum opportunity of 50 percent.

Lars
Renström does not have an agreement on early retirement.

For
the part of Lars Renström's salary at the time of retirement that corresponds to an amount up to 30 basic amounts (one basic amount being equivalent to SEK 39,300 in
2004 under the National Insurance
Scheme), Lars Renström is entitled to Swedish mandatory legal benefits and the Swedish ITP pension plan scheme ("IPT"). The ordinary ITP up to a salary of 30 base amounts is funded in
order to achieve full ITP benefits at the age of 60. If Lars Renström continues his work in Alfa Laval after the age of 60 he will not receive any pension during the time he receives
salary. On top of the ordinary ITP he has a defined contribution benefit comprising 50 percent of the base salary. If he dies during the first two years of service these contributions to the
defined contribution pension scheme will total at least SEK 4,000,000.

For
that part of Lars Renström's salary at the time of retirement that corresponds to an amount up to 30 basic amounts, Mr Renströms's surviving family is
entitled to a family pension in accordance with ITP. The defined contribution benefit mentioned in the preceding clause can be used also for family pension purposes.

If
Alfa Laval terminates his employment before the age of 59 he will receive two years' remuneration, between 59 and 60 he will receive one year's remuneration and from 60 he will
receive 6 months' remuneration.

During
the year, Alfa Laval has recorded costs for pension premiums of SEK 1.2 million.

Sigge
Haraldsson, in his capacity as our former chief executive officer, had an early retirement clause in his service contract, which gave him the option of retiring at 60 years
of age at his request, or 55 years of age at the request of the company. In a press release on January 27, 2004 Sigge Haraldsson communicated his intention to retire in accordance with
the agreement in connection with his sixtieth birthday in October 2004. He retired on September 30, 2004. He was entitled to a pension equal to 70.0% of his pensionable salary at the
time of retirement after 58 years of age irrespective of when he retires. At early retirement, the company maintains the payments of pension premiums as if the

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employment
had lasted until the age of 65. In connection with the early retirement Alfa Laval has paid premiums related to the period up to age 65 of SEK 12.9 million. Out of this SEK
12.6 million had been provided for in prior years, which means that the cost in 2004 was SEK 0.3 million.

After
the age of 65 years, Sigge Haraldsson is entitled to the following pension benefits:

For
the part of Sigge Haraldsson's salary at the time of retirement that corresponds to an amount up to 30 basic amounts (one basic amount being equivalent to SEK 39,300 in 2004 under
the National Insurance Scheme), Sigge Haraldsson was entitled to Swedish mandatory legal benefits and the Swedish ITP pension plan scheme ("IPT"). For that part of Sigge Haraldsson's salary at the
time of retirement that corresponds to an amount between 30 basic amounts and 80 basic amounts, Sigge Haraldsson was
entitled to receive an amount, which is 52.5% of such salary. For that part of Sigge Haraldsson's salary that corresponds to an amount above 80 basic amounts Haraldsson was entitled to receive an
amount, which is 32.5% of such salary.

For
that part of Sigge Haraldsson's salary at the time of retirement that corresponds to an amount up to 30 basic amounts,, Mr Haraldsson's surviving family was entitled to a family
pension in accordance with ITP. For that part of Sigge Haraldsson's salary at the time of retirement that corresponds to an amount of 30 basic amounts and above, Mr Haraldsson's surviving family was
entitled to receive a family pension, which is 16.3% of such amount. In addition to his entitlements under ITP, Sigge Haraldsson had a special family pension that represents a life long supplement.

Sigge
Haraldsson did not have any separate agreement in relation to severance pay.

During
2004, we have recorded costs in relation to Mr. Haraldsson's pension premiums of SEK 4.1 million, of which SEK 1.4 million relates to premium payments he
would be entitled to receive upon early retirement.

Early
retirement agreements are also in place for those directors and members of senior management over 50 years of age. This currently includes Ulf Granstrand, President for our
Process Technology division, and approximately 20 managing directors throughout Alfa Laval. No other termination agreements exist with our directors and members of senior management.

6.D. Employees

Alfa Laval Special Finance AB has no direct employees. However, during the years ended December 31, 2004, 2003 and 2002 the Group employed 9,400, 9,194,
and 9,292 employees, respectively. These figures are based on the average number of employees in each year.

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The
following charts illustrate the geographical and functional distribution of the Group's workforce for the year ended December 31, 2004:

|Employees by geographic region in 2004 |  | Employees by functions in 2004
|-------------------------------------- |  | ------------------------------
|GRAPHIC                                |  | GRAPHIC                       

The
majority of our manufacturing personnel are members of a trade union, with the exception of those located at our manufacturing unit in Richmond, USA and those located at smaller
manufacturing units in countries where union representation is not customary. Our sales personnel are typically not represented by trade unions. None of our senior management are members of any trade
union. We believe that our relations with our employees and the unions to which they belong are good and we expect favourable relations to continue in the future.

6.E. Share Ownership

For a discussion of share ownership of the Company, see "Item 7: Major Shareholders and Related Party Transaction".

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ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7.A. Major Shareholders

We were incorporated on March 27, 2000 by Alfa Laval AB as part of the Acquisition more fully described in "Item 4.A: Information About the
CompanyHistory and Development of the former Alfa Laval Holding AB, the Company and the Guarantor". At the time of this Acquisition, Alfa Laval AB owned all of our outstanding shares. The
outstanding shares of the Guarantor were previously held by Alfa Laval N.V. until August 24, 2000. As part of the Acquisition the Guarantor was sold to us.

The
following table sets forth information regarding the ownership of Alfa Laval AB's ordinary shares as of March 31, 2005. Alfa Laval AB still owns all of our outstanding shares,
and we still own all of the outstanding shares of Alfa Laval Holding AB (renamed from Alfa Laval Credit Finance AB), the Guarantor. As of the date of this annual report, Alfa Laval AB had 111,671,993
shares outstanding. All shareholders have the same voting rights.

Beneficial Owner

Number of Shares
Beneficially Owned

Percentage of
Shares
Beneficially
OwnedTetra Laval B.V.
Amsteldijk 166
1079 LH Amsterdam
The Netherlands

19,744,014

17.7
%Tredje AP-fonden

6,362,050

5.7
%Fjärde AP-fonden

5,173,100

4.6
%Robur Fonder

5,064,450

4.5
%SEB Fonder

3,415,200

3.1
%HQ Fonder

2,678,200

2.4
%AMF Pension Fonder

2,646,100

2.4
%Lannebo Fonder

2,587,595

2.3
%Handelsbanken Fonder

2,512,536

2.2
%Första AP-fonden

2,408,900

2.2
%Other

59,079,848

52.9
%Total

111,671,993

100
%


Tetra
Laval B.V. is a member of the Tetra Laval Group. Tetra Laval is a privately owned Swedish group headquartered in Switzerland with its major subsidiary being Tetra Pak. Tetra Pak
develops, manufacturers and markets systems for the processing, packaging and distribution of liquid food. With approximately 20,905 employees, Tetra Pak had
€ 7.5 billion in sales in 2004.

On
March 7, 2005, Industri Kapital sold its remaining 8.5% holding in Alfa Laval AB to a range of Swedish and international institutional investors.

To
our knowledge, there are no arrangements the operation of which may at a subsequent date result in a change of control of us or the Guarantor.

In
order to repay € 220 million under a bridge loan facility, which was arranged as part of the financing of the Acquisition, we issued
€ 220 million Senior Notes. Our Senior Notes are guaranteed by the Guarantor.

7.B. Related Party Transactions

The Tetra Laval Group of companies, which includes Tetra Pak International S.A. and all affiliated companies which are under the management control of Tetra Pak
International S.A., together with the Tetra Laval holding and financial entities as of the date of this annual report, is a privately owned

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group
of companies with its major subsidiary being Tetra Pak. Tetra Pak develops, manufacturers and markets systems for the processing, packaging and distribution of liquid food. With approximately
20,905 employees, Tetra Pak had € 7.5 billion in sales in 2004. The Tetra Laval Group acquired the Alfa Laval Group in 1991. The former Alfa Laval Holding AB was
acquired by us in August 2000. See "Item 4.A: Information about the CompanyHistory and Development of the former Alfa Laval Holding AB, the Company and the Guarantor" for a
description of this Acquisition.

The
Tetra Laval Group is one of our most important customers. For example, Tetra Pak, the major subsidiary within the Tetra Laval Group which develops, manufactures and markets systems
for the processing, packaging and distribution of liquid food, is currently our single largest customer, accounting for 5.4% of our sales in 2004. Tetra Pak is also the preferred distributor of
certain of our
sanitary products, principally to liquid food processor end-users, the area in which Tetra Pak itself operates.

Both
Finn Rausing and Jörn Rausing, each a director of Alfa Laval AB, are directors of Tetra Laval. Tetra Laval B.V., which currently owns 17.7% of our outstanding share
capital of Alfa Laval AB, is a wholly-owned subsidiary of Tetra Laval.

Purchasing Contract with Tetra Pak

In June 1999, Alfa Laval AB, on behalf of itself and all the companies in which our subsidiary, the former Alfa Laval Holding AB, directly or indirectly
holds or controls more than 50% of the votes of all shares, and Tetra Pak International SA, on behalf of all the Tetra Pak companies under the control of the Tetra Laval Group, entered into an
agreement which governs the relationship between the two companies in the areas of distribution, research and development, market sales and information, use of trademarks and intellectual property.

The
agreement addresses the price and terms upon which all purchasing transactions between the Alfa Laval companies and the Tetra Pak companies are effected. The agreement provides that
representatives acting on behalf of the Alfa Laval companies and the Tetra Pak companies will, subject to the terms of the agreement, agree upon the following matters from time to time:



The
agreement was prolonged by two years from December 31, 2003. It has a 12-month period of notice.

Prices
are fixed on a calendar year basis, taking into account the following factors:



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Tetra Pak as Preferred Distributor in Tetra Pak Areas

Under this agreement, Tetra Pak is the preferred distributor of those Alfa Laval products covered by the agreement in specified geographical areas for specified
customer segments. The Alfa Laval companies do not actively sell directly to end-users in the Tetra Pak areas, except for spare parts under certain limited circumstances, subject to Tetra
Pak using reasonable endeavors to ensure good and adequate market coverage with end-users in these areas. The Alfa Laval companies also offer Tetra Pak certain lead time advantages
(ranging from six to twelve months) in introducing certain new products for which Tetra Pak has contributed in the development or design through joint research and development activity. These lead
time advantages do not apply in relation to customers outside the Tetra Pak areas or in respect of customers who request to buy from the Alfa Laval companies directly. The agreement does not restrict
the ability of the Alfa Laval companies to market and sell their products to indirect channels such as OEMs, contractors and distributors; provided, however, the Alfa Laval companies have agreed,
where such an undertaking is in compliance with applicable legislation, not to actively market and sell Alfa Laval dairy separators to these indirect channels. Alfa Laval is unrestricted in actively
promoting its products to end-users if the products will be used for purposes other than food processing.

Use of Tetra Pak Trademarks; Market and Sales Information

Tetra Pak has the right to brand with its own trademark certain Alfa Laval products for which Alfa Laval has granted written permission to Tetra Pak. In order to
evaluate the efficiency of the parties' activities under the agreement, the parties exchange market and sales information in accordance with this agreement.

Intellectual Property Rights

The agreement also provides for cooperation in research and development processes relating to the products subject to the agreement. The agreement provides that
Alfa Laval retains ownership of any invention related to products that result from joint research and development efforts by the parties; Tetra Pak is granted a perpetual, irrevocable, free and
non-exclusive license to use the invention. Tetra Pak owns any invention deriving from joint research and development and related to process applications within the Tetra Pak areas,
provided that Alfa Laval has a perpetual, irrevocable, free and non-exclusive license to use this invention. Tetra Pak further owns any invention that was 100% funded by Tetra Pak,
provided that Alfa Laval has a non-exclusive, perpetual and irrevocable right to use such invention outside the Tetra Pak Areas subject to a royalty payment to be agreed upon on a
case-by-case basis. Sub-licensing of either the Alfa Laval or the Tetra Pak licenses granted under the agreement requires consent from both parties during an
initial period of five years from the time a product incorporating the invention is first marketed.

Future Offerings Agreement

Tetra Laval B.V. has entered into an agreement with Alfa Laval AB regarding future offerings and sales of ordinary shares by Tetra Laval. The agreement provides,
among other things, that at the request of Tetra Laval, Alfa Laval will cooperate in future offerings of ordinary shares, including assisting in the preparation of an offering circular, making all
filings with all relevant authorities and stock exchanges required to complete such transaction, participating in marketing efforts and entering into customary agreements for such transactions. The
agreement provides that Alfa Laval cannot be required to cooperate in more than two offerings and that Tetra Laval will pay the offering related expenses.

7.C. Interest of Experts and Counsel

Not applicable.

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ITEM 8: FINANCIAL INFORMATION

8.A. Consolidated Statements and Other Financial Information

The audited consolidated financial statements for Alfa Laval Special Finance AB are included under "Item 17: Financial Statements". Except for the consolidated
financial statements included under Item 17, our auditors have audited no other information in this annual report.

Export Sales

For a breakdown of our net sales in Europe, North America, Latin America, Asia and other jurisdictions, see "Item 4.B: Information about the
CompanyBusiness Overview".

Legal Proceedings

Desert Storm.In addition to routine legal proceedings incidental to the conduct of our business, some of our subsidiaries,
along with approximately 70 other defendants, have been sued in two lawsuits in the District Court for Brazoria County in Texas USA arising from claims related to injuries allegedly suffered in the
Gulf War. The lawsuits, which were initiated in 1994, claim damages in excess of US$1.0 billion (SEK 7.6 billion) each and allege that equipment supplied by our subsidiaries, among other
defendants, was used to create Iraqi weaponry. With the exception of one of our defendant subsidiaries, we have filed motions to dismiss for lack of personal jurisdiction in the state of Texas and
have been awaiting a ruling from the trial court since November 1995. While we consider our liability
remote, litigation is impossible to predict and there can be no assurance that we will not be found liable for these claims, which could have a material adverse effect on our financial condition.

Tetra
Laval B.V. has indemnified us in respect of any losses we may suffer in respect of these claims in accordance with indemnification provisions set forth in the Share Sale and
Purchase Agreement. These provisions provide that any amounts paid under this indemnification shall not exceed an amount determined by reference to a formula set forth in the Share Sale and Purchase
Agreement. This amount is approximately €800 million (SEK 7.5 billion). Claims may be brought under the indemnity for fifteen years from the date of the Acquisition. This
indemnity from Tetra Laval B.V. was secured by a pledge of its shares in Alfa Laval AB to us, Alfa Laval Special Finance AB, the wholly owned subsidiary of Alfa Laval AB. However, this pledge was
released upon consummation of the Offering. Tetra Laval B.V. currently owns 17.7% of the outstanding share capital in Alfa Laval AB. Tetra Laval B.V. may sell further shares in Alfa Laval AB. In
addition, the Share Sale and Purchase Agreement requires Tetra Laval B.V. to maintain minimum net worth targets, which decrease over time. Tetra Laval B.V. is currently obliged to maintain minimum
shareholders' equity of €140 million through December 31, 2006 and €70 million from January 1, 2007 through December 31, 2010. There
can be no guarantee that this indemnification will cover all related claims or losses or that the indemnifying party will have sufficient assets to cover such claims or losses.

Asbestos related lawsuits in the United States.Alfa Laval's subsidiary in the United States, Alfa Laval Inc., was as
of December 31, 2004, named as co-defendant in a total of 175 asbestos-related lawsuits with a total of approximately 13,800 plaintiffs.

Alfa
Laval strongly believes the claims against the company are without merit and intends to vigorously contest each lawsuit.

During
the fourth quarter 2004, Alfa Laval Inc. was named as co-defendant in an additional 29 lawsuits with a total of approximately 50 plaintiffs. During the fourth
quarter 2004, 12 lawsuits involving approximately 680 plaintiffs have been resolved. Alfa Laval Inc. has in addition been dismissed from the proceedings in respect of 840 plaintiffs in ongoing
multiple plaintiffs lawsuits.

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Furthermore,
the claims of approximately 5,700 plaintiffs pending against Alfa Laval Inc. in Mississippi were, during the fourth quarter 2004, transferred to a federal court in
Pennsylvania responsible for asbestos matters. The transferred claims are in addition to the claims of 522 plaintiffs, which were previously transferred to the same federal court. The court will
administratively treat these claims as inactive unless the plaintiffs are able to demonstrate that they have been injured by asbestos. Alfa Laval will treat these claims as effectively dismissed,
although it cannot be ruled out that one or more of the claims might be reinstated.

Alfa
Laval Inc. has insurance coverage for the asbestos-related claims under a large number of insurance policies issued by several insurance companies. Primary insurance policies
issued in favour of Alfa Laval Inc. provide for coverage of defence costs. Most of these insurance carriers have confirmed that they will, taken together, provide coverage for a substantial
majority of the costs arising from the claims. Alfa Laval is in the process of negotiating settlement agreements with certain of its insurance carriers. These negotiations primarily relate to the
extent of coverage and/or the documentation concerning the existence of certain insurance policies.

Based
on current information and Alfa Laval's understanding of these lawsuits, Alfa Laval continues to believe that these lawsuits will not have a material adverse effect on the
company's financial condition or results of operation.

Dividend Policy

We have never declared or paid any dividends on our ordinary shares and we do not anticipate paying any cash dividends in the foreseeable future. The indenture
that governs our Senior Notes limits and, for the foreseeable future, effectively prohibits our ability to declare or pay cash dividends.

8.B. Significant Changes

None.

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ITEM 9: THE OFFER AND LISTING

9.A. Offer and Listing Details

Not applicable.

9.B. Plan of Distribution

Not applicable.

9.C. Markets

Our ordinary shares are not listed on any stock exchange. Our Senior Notes are listed on the Luxembourg Stock Exchange.

9.D. Selling Shareholders

Not applicable.

9.E. Dilution

Not applicable.

9.F. Expenses of the Issue

Not applicable.

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ITEM 10: ADDITIONAL INFORMATION

10.A. Share Capital

Not applicable.

10.B. Memorandum and Articles of Association of the Issuer

Alfa Laval Special Finance AB

Our corporate name is Alfa Laval Special Finance Aktiebolag. Our objects and purposes can be found in section 2 of our articles of association. The object
of our business is to own and manage property as well as to carry out other activities compatible therewith. Our registered office shall be in the municipality of Stockholm.

Board of Directors

The board shall consist of no less than three members and no more than eight members with no more than three deputy members. In the event that only one or two
members are appointed, a deputy member shall be elected. Members and deputy members shall be elected annually at the annual
shareholders' meeting for the time until the end of the next annual shareholders' meeting. In addition to the board any person, within or outside the board, appointed by the board, shall be authorised
to sign for us.

Share Capital

Our share capital shall amount to not less than SEK two hundred and ten million (210,000,000) and not more than SEK eight hundred and forty million (840,000,000).

The
nominal value of each share shall be SEK one hundred (100).

Shareholder Meetings

At the annual shareholders' meeting, the following matters shall be dealt with:



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At
a shareholders' meeting anyone having the right to vote may vote for the full number of shares represented by him.

Notice
convening a shareholders' meeting shall be issued by mail not earlier than four and not later than two weeks before the meeting.

Financial Year

The financial year of the company shall be January 1-December 31.

10.C. Material Contracts

Purchasing Contract with Tetra Pak

In June 1999, Alfa Laval AB, on behalf of itself and all the companies in which the former Alfa Laval Holding AB directly or indirectly holds or controls
more than 50% of the votes of all shares (the "Alfa Laval Companies"), and Tetra Pak International SA, on behalf of all the Tetra Pak companies under the control of the Tetra Laval Group (the "Tetra
Pak Companies"), entered into an agreement which governs the relationship between the two companies in the areas of distribution, research and development, market sales and information, use of
trademarks and intellectual property. A description of the terms of this contract can be found in "Item 7.B: Major Shareholders and Related Party TransactionsRelated Party Transactions".

Current Senior Credit Facility

For a description of our Current Senior Credit Facility see "Item 5.B.: Operating and Financial Review and ReportsCurrent Senior Credit Facility".

Intercompany Notes

For a description of the Intercompany Note between us and the Guarantor, see "Item 5.B: Operating and Financial Review and ProspectsLiquidity and
Capital ResourcesThe Intercompany Note".

Current Intercreditor Agreement

For a description of the Current Intercreditor Agreement between us, the Guarantor, the financial institutions named therein as lenders and SEB Merchange Banking,
Skandinavista Enskilda Banken AB (publ) as facility agent, see "Item 5.B: Operating and Financial Review and ProspectusLiquidity and Capital ResourcesCurrent Intercreditor
Agent".

Purchase Agreement

In connection with our issuance of Senior Notes we, together with the Guarantor, entered into a purchase agreement with Donaldson, Lufkin and Jenrette
International and UBG AG, acting through its business group UBS Warburg, as underwriters. The purchase agreement obliged the underwriters to purchase and accept delivery of our Senior Notes, subject
to certain conditions. The purchase agreement obliges us, together with the Guarantor, to indemnify the underwriters and certain person controlling the underwriters against certain liabilities and
expenses, including liabilities under the US Securities Act of 1933, or to contribute to payments the underwriters are required to make in respect thereof.

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Indenture

Our Senior Notes, issued in November 2000, were issued under an indenture which we, together with the Guarantor, executed with The Bank of New York, as
trustee. The indenture, among other things, place certain limitations on our ability and the ability of our restricted subsidiaries to borrow money, pay dividends on, make distributions on or
repurchase stock, make certain investments, create liens on our assets to secure debt, substitute another person as issuer of the Senior Notes, sell certain assets or
merge with or into other companies, enter into transactions, with affiliates and enter into joint ventures.

10.D. Exchange Controls

There are currently no foreign exchange control restrictions, other than in certain national crisis situations, that would restrict payments that may be remitted
by a Swedish company to non-Swedish residents. There is no maximum transferable amount either to or from Sweden, although single cross-border transactions in a principal amount greater
than SEK 100,000 must be reported to the Swedish Central Bank, orRiksbanken, for statistical purposes. Furthermore, payments to or from Sweden
exceeding SEK 100,000 may be reported to Swedish tax authorities. Such information may also be forwarded to authorities in the countries where the holders of the shares are resident.

10.E. Taxation

Swedish Taxation

The following is a general description of certain Swedish income tax considerations relating to our Senior Notes. It does not purport to
be a complete analysis of all tax considerations relating to the Senior Notes. Investors in our Senior Notes should consult their own tax advisers as to which countries' tax laws could be relevant to
acquiring, holding and disposing of Senior Notes and receiving payments of interest, principal and/or other amounts under our Senior Notes and the consequences of such actions under the tax laws of
those countries. This summary is based upon the law as in effect on the date of this annual report and is subject to any change in law that may take effect after such date.

Under
Swedish law as presently in effect, payments of any principal or interest to the holder of any Senior Note will not be subject to Swedish income tax, provided that such holder is
not resident in Sweden for tax purposes and provided that the Senior Note does not pertain to a permanent establishment or fixed place of business in Sweden. Payments of any principal or interest to
the holder of any Senior Note are not subject to withholding tax under Swedish law. However, for a private individual or an estate of a deceased individual with tax residence in Sweden a preliminary
tax of 30 percent on payments of interest is normally withheld.

US Federal Income Tax

The following describes certain US federal income tax consequences relating to the ownership and disposition of Senior Notes by a "US
holder" (as defined below). The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a US holder of Senior Notes. A US holder is a
beneficial owner of Senior Notes that is (a) a citizen or individual resident of the United States for US federal income tax purposes; (b) a corporation (or other entity taxable as a
corporation for US federal income tax purposes) created or organized in or under the laws of the United States or any state thereof (including the District of Columbia); (c) an estate the
income of which is subject to US federal income taxation regardless of its source; or (d) a trust if a court within the United States is able to exercise primary supervision over its
administration and one or more US persons have the authority to control all of the substantial decisions of the trust. In particular, the following discussion deals only with US holders that purchased
their Senior Notes at the issue price as part of the initial distribution and who hold Senior Notes as capital assets, and does not address the tax treatment of holders that are subject to special tax
rules, such

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as US expatriates, persons subject to the alternative minimum tax, banks, financial institutions, regulated investment companies, tax-exempt entities, insurance companies, dealers or
traders in securities or currencies, traders in securities electing to mark to market, persons that hold Senior Notes as a hedge against currency risk or as a position in a "straddle" or conversion
transaction, individual retirement or other tax deferred accounts and persons that have a "functional currency" other than the US dollar. If a partnership (including for this purpose any entity
treated as a partnership for US federal income tax purposes) holds Senior Notes, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the
partnership. If a US holder is a partner in a partnership that holds Senior Notes, the holder is urged to consult with its tax adviser regarding the specific tax consequences of holding and disposing
of the Senior Notes. The summary is based on the Internal Revenue Code of 1986, as amended, existing, temporary and proposed Treasury regulations, administrative pronouncements, rulings and judicial
decisions, all as in effect on the date of this annual report and all of which are subject to change, possibly with retroactive effect, and differing interpretations. Holders should consult their own
advisers regarding the tax consequences of holding and disposing of the Senior Notes in light of their particular circumstances, including the effect of any state, local or other national laws. Rules
under the Code relating to amortizable bond premium, acquisition premium or market discount may, in particular instances, apply to US holders that purchase the Senior Notes at a time other than the
initial offering or at a price other than the issue price. These US holders should consult their own tax advisors as to the possible applicability of such rules.

Interest

Interest (including any payments of additional amounts) on the Senior Notes will be includable in a US holder's income at the time the interest is accrued or
received, in accordance with the holder's method of tax accounting for US federal income tax purposes and the rules described below relating to payments received in foreign currency.

A
US holder that uses the cash method of accounting for tax purposes will realise interest income equal to the US dollar value of the interest payment received (based on the spot rate in
effect on the date the payment is received), regardless of whether the payment is in fact converted to US dollars at that time. No exchange gain or loss will be realised with respect to the receipt of
such interest payment, other than exchange gain or loss that is attributable to the disposition of the euro amounts so received.

A
US holder that uses the accrual method of accounting for tax purposes will be required to accrue interest income on the Senior Notes in euros and translate that amount into US dollars
at the average exchange rate in effect during the interest accrual period (or, with respect to an interest accrual period that spans two taxable years, at the average rate for the partial period
within the taxable year). The average rate of exchange for an interest accrual period is the simple average of the spot exchange rates for each business day of such period (or other average rate that
is reasonably derived and consistently applied by the US holder). Alternatively, an accrual basis holder may make an election (which must be applied consistently to all debt instruments from year to
year and may not be revoked without the consent of the Internal Revenue Service (the "IRS")) to translate accrued interest income at the spot rate of exchange on the last day of the accrual period (or
the last day of the taxable year within that accrual period if the accrual period includes more than one taxable year), or at the spot rate on the date of receipt, if that date is within five business
days of the last day of the accrual period. A US holder that uses the accrual method of accounting for tax purposes will recognise foreign currency gain or loss in an amount equal to the difference,
if any, between the US dollar value of the foreign currency payment received (determined on the basis of the spot rate on the date of such payment is received) in respect of the accrual period and the
US dollar value of interest income that has accrued during such accrual period (as determined above). This foreign currency gain or loss will

I-88

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be
treated as ordinary income or loss, and generally will not be treated as an adjustment to interest income.

Interest
generally will be treated as foreign source income for purposes of calculating a US holder's foreign tax credit limitation. The limitation on foreign taxes eligible for the
foreign tax credit is calculated separately with respect to specific classes of income. For this purpose, the interest on a Senior Note should generally constitute "passive income," or, in the case of
certain US holders, "financial services income". Under recently enacted legislation, for taxable years beginning January 1, 2007, interest income generally will constitute "passive category
income" or in the case of certain US holders, "general category income".

Sale and Retirement of Senior Notes

A US holder's initial tax basis in a Senior Note generally will equal the US dollar value of the foreign currency amount paid for the note determined at the spot
rate on the date of purchase. In the case of a Senior Note that is traded on an established securities market, a cash basis US holder (or an accrual-basis US holder that makes a special election),
will determine the US dollar value of the cost of the Senior Note by translating the amount of the foreign currency paid for the Senior Note at the spot rate of exchange on the settlement date of the
purchase. The conversion of US dollars to a foreign currency and the immediate use of the foreign currency to purchase a Senior Note generally will not result in taxable gain or loss for a US holder.
A US holder's adjusted tax basis in a Senior Note generally will equal the cost of the Senior Note, decreased by any payments other than qualified stated interest made on the Senior Note and any
principal payments previously received by the holder.

Upon
the sale, exchange, retirement or other disposition of a Senior Note, a US holder generally will recognise capital gain or loss equal to the difference between the US dollar value
of the amount realised (less any accrued and unpaid interest, which will be taxable as interest income) and the US holder's adjusted tax basis (determined in US dollars) in such Senior Note. If a US
holder receives foreign currency in respect of the sale, exchange, retirement or other disposition of a Senior Note, the amount realised will be the US dollar equivalent of the amount received,
calculated at the exchange rate in effect at the time of the sale, exchange or retirement. If Senior Notes are traded on an established securities market, a cash basis taxpayer (and if it elects, an
accrual basis taxpayer) will determine the US dollar equivalent of the amount realised by translating that amount at the exchange rate on the settlement date of the sale, exchange or retirement. If an
accrual method taxpayer makes such an election, the election must be applied consistently to all debt instruments from year to year and may not be changed without the consent of the IRS.

Except
as discussed below with respect to foreign currency gain or loss, gain or loss recognised by a US holder on the sale, exchange, retirement or other disposition of a Senior Note
generally will be US source capital gain or loss and will be treated as long-term capital gain or loss if the US holder has held the Senior Note for more than one year at the time of
disposition. The deductibility of capital losses is subject to significant limitations. If the US holder is an individual, any capital gain generally will be subject to US federal income tax at
preferential rates if specified minimum holding periods are met.

Gain
or loss recognised by a US holder on the sale, exchange, retirement or other disposition of a Senior Note that is attributable to fluctuations in currency exchange rates will
constitute exchange gain or loss with respect to the principal amount and generally will be treated as US source ordinary income or loss. Gain or loss attributable to fluctuations in exchange rates
will equal the difference between the US dollar value of the principal amount of the Senior Note, determined at the spot rate on the date such payment is received or the Senior Note is disposed of,
and the US dollar value of the Senior Note, determined at the spot rate on the date the US holder acquired such Senior Note. However, upon a sale, exchange or retirement of a Senior Note, a US holder
will realize foreign currency gain or

I-89

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loss
with respect to principal and accrued interest only to the extent of the total gain or loss realized on the disposition. This foreign currency gain or loss generally will not be treated as an
adjustment to interest income received on the Senior Note.

US Information Reporting and Backup Withholding

Interest payments on the Senior Notes and proceeds from the sale, exchange or other disposition of the Senior Notes may be subject to information reporting to the
IRS and possible US backup withholding at a current rate of 28%. Backup withholding will not apply to a holder who furnishes a correct taxpayer identification number or certificate of foreign status
and makes any other required certification or who is otherwise exempt from backup withholding. US persons who are required to establish their exempt status generally must provide such certification on
a duly completed IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-US holders generally will not be subject to US information reporting or
backup withholding. However, such holders may be required to provide certification of non-US status (generally on IRS Form W-8BEN) in connection with payments received
in the United States or through certain US-related financial intermediaries.

Backup
withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder's US federal income tax liability, and a holder may obtain a refund
of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and furnishing any required information.

10.F. Dividends and Paying Agents

Not applicable.

10.G. Statement by Experts

Not applicable.

10.H. Documents on display

The documents that are exhibits to this annual report can be read at the Securities and Exchange Commission's public reference facilities at Room 1024, 450 Fifth
Street, N.W., Washington, D.C., 20549, You can request copies of these documents, upon payment of a duplication fee, by writing to the SEC. Please call the SEC at (202) 942-8090 for
further information on the operations of the SEC's public reference room. Copies of the documents referred to herein may also be inspected at our offices by contacting Thomas Thuresson, our chief
financial officer, on +46 4636 7240.

10.I. Subsidiary Information

Not applicable.

I-90

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ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

11.A. Quantitative Information about Market Risk

Interest Rate Exposure

On April 15, 2004, we entered into the Current Senior Credit Facility with SEB Merchant Banking, Skandinaviska Enskilda Banken AB (publ) as arranger. The
new multi currency revolving credit facility is USD 325 million and EUR 150 million, corresponding to SEK 3,492.2 million. At December 31, 2004, SEK 1,286.1 million
of the facility are utilised. The following table presents our debt instruments sensitive to changes in interest rates based on our Current Senior Credit Facility.

Maturity datesCarrying
value at

Fair value
at2005

2006

2007

2008

Thereafter(SEK millions)

(SEK millions)

(SEK millions)

(SEK millions)Current Senior Credit Facility:USD









1,003

1,003

1,003EUR

49











JPY









234

234

23449







1,237

1,237

1,237Notes (fixed interest)









1,044

1,044

1,238


Amounts outstanding under the Current Senior Credit Facility bear annual interest at applicable interbank offered rates plus a margin depending on
the status of the Net Debt to EBITDA ratio. The Senior Notes carry a 121/8% fixed rate of interest and are due 10 years from the date of issue.

Foreign Currency Exchange Rate Exposure

Our operations are conducted by entities in many countries, and accordingly the results of operations are subject to currency translation risk and currency
transaction risk. Our historical results were particularly affected by exchange rate fluctuations between the Swedish kronor and other currencies such as the US dollar, British pound, and the euro.
Foreign exchange exposures are managed against various local currencies, as we have a significant amount of worldwide production and sales.

As
a result of investments, production facilities and other operations on a global basis, we have assets and liabilities and cash flows in currencies other than the Swedish kronor. The
equity changes caused by movements in foreign exchange rates are shown as a translation difference in the financial statements. The primary objective of our foreign exchange risk management will be to
continue to optimise the Swedish kronor value of net assets and cash flows, keeping the adverse impact of currency movements to a minimum. The translation differences are a central responsibility and
are managed by distributing the Group's loans on different currencies based on the net assets in each currency and through currency forward contracts. Loans taken in the same currency as there are net
assets in the Group, decrease these net assets and thereby decrease the translation exposure. Our main exposures are related to assets and liabilities denominated in the currencies of the United
States, the United Kingdom, Denmark, Japan and European countries that have adopted the euro.



I-91

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The
effect of currency translation on our assets and liabilities and profit and loss arising from the depreciation of the Swedish kronor against other currencies shows a positive impact
on our revenues and net income, while the appreciation of the Swedish kronor against other currencies shows a negative impact. These decreases or increases have in the past had, and may in the future
have, an effect on our reported assets and liabilities and profit and loss and also affect the comparability of our results between financial periods.



At
December 31, 2004, we had foreign exchange contracts outstanding in various currencies. Our primary net foreign currency exposures at December 31, 2004 included US
dollar, euros, Swedish kronor and Danish kroner. Consistent with the nature of the economic hedge of these foreign currency exchange contracts, decreases or increases of the underlying instrument or
transaction being hedged would offset any corresponding unrealised gains or losses, respectively. The fair value of our forward exchange contracts that were outstanding as of December 31, 2004
resulted in a receivable of SEK 211 million.

The
following table provides information about our foreign exchange forward contracts at December 31, 2004.

I-92

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Forward Exchange Contracts as of December 31, 2004 are:

Notional amountBuying currency

Selling
currency

Average
contractual
rate

Maturity
Date

Original
currency

SEK

Fair
value
SEK(amounts in millions)DKK

EUR

7.438

2005

611

739

0DKK

USD

5.986

2005

105

126

11EUR

JPY

133.520

2005

12

109

6EUR

DKK

7.436

2005

10

87

0EUR

GBP

1.449

2005

8

72

2EUR

USD

1.258

2005

149

1,337

108EUR

SEK

9.051

2005

15

137

(1
)SEK

DKK

1.216

2005

1,707

1,707

2SEK

EUR

9.099

2005

2,597

2,597

31SEK

NOK

1.091

2005

89

89

0SEK

USD

7.448

2005

771

771

67USD

EUR

1.277

2005

15

96

(8
)USD

GBP

1.906

2005

21

137

(3
)USD

DKK

6.018

2005

10

63

(5
)USD

CAD

0.783

2005

10

67

(5
)Various

Various



2005-2006



853

68,987

211


As
a result of the Acquisition and related financing transactions we have not significantly changed our foreign currency hedging strategy. The composition of the senior debt serves as a
natural hedge of our investments in foreign subsidiaries. We plan to continue to use foreign currency forward contracts and currency options to hedge our foreign currency cash flows.

As
part of our hedging strategy to minimize interest rate risk we have entered into forward rate arrangements to effectively convert 26% of our variable rate exposure associated with the
senior debt into fixed rate debt.

Foreign Currency Exchange Rate Exposure Sensitivity Analysis

If the currency rates between SEK and the most important foreign currencies are changed by +/- 10%, it has the following effect on operating income, if no hedging
measures are taken:

Exchange rate change against the SEK

+10%

-10%(SEK millions)USD

113.0

(113.0
)EUR

159.0

(159.0
)DKK

(120.0
)
120.0Other USD related currencies

15.0

(15.0
)Other

45.0

(45.0
)Total

212

(212
)


11.B. Qualitative Information about Market Risk

Financial Risk Management

Our business operations give rise to market risk exposure due to changes in foreign exchange rates and interest rates. To manage these risks effectively, we have
established guidelines and a detailed

I-93

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financial
policy relating to those financial risks we are prepared to accept and how such risks should be limited and managed. Our financial policy also establishes the division of responsibility
between our subsidiaries and our central finance function within Alfa Laval Treasury International AB.

Pursuant
to our established guidelines and financial policy, we enter into hedging transactions and generally use derivative financial instruments, which enable us to mitigate the
adverse effects of financial market risk. These hedging instruments are classified in a manner consistent with the item being hedged, meaning that the associated asset and liability items are recorded
at their hedged values. With respect to the hedging of future cash flows, our treatment differs between Swedish GAAP and US GAAP. According to Swedish GAAP, we do not
mark-to-market our hedging contracts, which is the case in our US GAAP treatment. We do not enter into financial instruments for trading or speculative purposes.

We
do not anticipate any material adverse effect on our consolidated financial position, results of operations or cash flows resulting from the use of derivative financial instruments.
We cannot guarantee, however, that our hedging strategies will be effective or that transaction or translation losses can be minimised or forecast accurately.

Interest Rate Risk

The main objective of interest rate risk management will continue to be to reduce our total funding cost and to alter the interest rate exposure to the desired
risk profile. Historically we borrowed funds primarily in euro, US dollars, British pounds and Swedish kronor. We use interest rate swaps to accomplish this objective.

I-94

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ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

I-95

---





PART II

ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

II-1

---



ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

II-2

---



ITEM 15: CONTROLS AND PROCEDURES

(a)Disclosure Controls and Procedures.We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such
information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.

As
of the end of the period covered by this Form 20-F, we carried out an evaluation, under the supervision and with the participation of our management, including our
Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in United States Securities Exchange Act
of 1934, as amended, Rule 13a-15(e)). Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective in timely identifying material information potentially required to be included in our SEC filings.

(b)Internal Control Over Financial Reporting.There were no changes in our internal control over financial reporting that
occurred during the year ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

II-3

---



ITEM 16:

16.A. Audit committee financial expert

The Board of Directors of Alfa Laval Special Finance AB has determined that Mr Thomas Thuresson is an 'audit committee financial expert' as defined in Item 16A of
Form 20-F.

16.B. Code of Ethics

The Board of Alfa Laval AB has established a code of ethics for senior financial officers based on the requirements in section 406 of the Sarbanes-Oxley
Act. It applies to our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer. This code of ethics is incorporated by reference into this Form 20-F. See Item
19Exhibits.

16.C. Principal Accountants' Fees and Services

Independent auditor fees

Ernst & Young have served as our independent public accountants for each of the financial years in the three-year period ended
December 31, 2004, for which audited financial statements appear in this annual report on Form 20-F.

The
following table presents the aggregate fees for professional services and other services rendered by Ernst & Young to Alfa Laval Special Finance AB in 2004.

2003

2004(SEK millions)

(SEK millions)Audit Fees(1)

10.9

10.9Audit-related Fees(2)

1.5

2.5Tax Fees(3)

0.9

2.0All Other Fees(4)

0.3

1.8Total

13.6

17.2


---

II-4

---



Audit committee pre-approval policies and procedures

The Board has approved a pre-approval policy for all auditing and non-auditing services provided by audit firms in accordance with
Section 202 of the Sarbanes-Oxley Act. This pre-approval policy is incorporated by reference into this Form 20-F. See Item 19Exhibits.

16.D. Exemptions from the listing standards for audit committees

Not applicable.

16.E. Purchases of equity securities by the issuer and affiliated purchasers

Not applicable.

II-5

---





PART III

ITEM 17: FINANCIAL STATEMENTS

The following financial statements are filed as part of this annual report on Form 20-F:

|                                                                                                                                 |  | Page  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ------
|Report of Independent Auditors to Board of Directors and Shareholders of Alfa Laval Special Finance AB                           |  | III-3 
|Consolidated Income Statements of Alfa Laval Special Finance AB for the three years ended December 31, 2004                      |  | III-4 
|Consolidated Balance Sheet of Alfa Laval Special Finance AB as at December 31, 2003 and 2004                                     |  | III-5 
|Consolidated Cash Flow Statements of Alfa Laval Special Finance AB for the three years ended December 31, 2004                   |  | III-7 
|Consolidated Statement of Changes in Equity Capital of Alfa Laval Special Finance AB for the three years ended December 31, 2004 |  | III-8 
|Notes to Consolidated Financial Statements of Alfa Laval Special Finance AB                                                      |  | III-10

III-1

---



INDEX TO FINANCIAL STATEMENTS

|                                                                                                |  | Page  
|----------------------------------------------------------------------------------------------- |  | ------
|Report of Independent Auditors                                                                  |  | III-3 
|Consolidated Statements of Income for the three years ended December 31, 2004                   |  | III-4 
|Consolidated Balance Sheets as at December 31, 2003 and 2004                                    |  | III-5 
|Consolidated Cash-Flow Statements for the three years ended December 31, 2004                   |  | III-7 
|Consolidated Statement of Changes in Equity Capital for the three years ended December 31, 2004 |  | III-8 
|Notes to the Financial Statements                                                               |  | III-10

III-2

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Shareholders of Alfa Laval Special Finance AB

We
have audited the accompanying consolidated balance sheets of Alfa Laval Special Finance AB as of December 31, 2004 and 2003 and the related consolidated statements of income,
changes in equity capital and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of Alfa Laval Special Finance AB's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and auditing standards generally accepted in Sweden. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of
the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Alfa Laval Special Finance AB at
December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004 in conformity with
accounting principles generally accepted in Sweden.

Accounting
principles generally accepted in Sweden vary in certain significant respects from U.S. generally accepted accounting principles. Information relating to the nature and effect
of such differences is presented in Note 33 to the consolidated financial statements.

Malmö,
Sweden

March 7,
2005



Ingvar
Ganestam
Authorised Public Accountant
Ernst & Young AB

III-3

---





ALFA LAVAL SPECIAL FINANCE AB  CONSOLIDATED INCOME STATEMENTS

CONSOLIDATED INCOME STATEMENT

Note

Jan 1-
Dec 31
2004

Jan 1-
Dec 31
2003

Jan 1-
Dec 31
2002Amounts in SEK millionsNet sales

1

14,985.8

13,909.3

14,594.9Cost of goods sold

7

(9,937.0
)
(8,976.3
)
(9,262.2
)Gross profit

1

5,048.8

4,933.0

5,332.7Sales costs

2, 3, 5

(2,132.4
)
(2,245.8
)
(2,115.1
)Administration costs

2, 3, 4, 7

(925.0
)
(865.8
)
(1,026.8
)Research and development costs



(403.9
)
(368.1
)
(355.2
)Other operating income*

6

325.2

248.0

282.7Other operating costs*

6, 7

(469.0
)
(366.4
)
(706.8
)Amortisation of goodwill

7, 8

(191.5
)
(191.3
)
(187.7
)Operating income



1,252.2

1,143.6

1,223.8Dividends

9

3.1

6.9

7.8Interest income

10

166.4

267.5

322.7Interest expense*

6, 10

(349.1
)
(601.3
)
(1,094.2
)Result after financial items



1,072.6

816.7

460.1Minority share in subsidiaries' income

11

(45.4
)
(41.6
)
(33.6
)Taxes on this year's result

12

(297.2
)
(114.7
)
(185.7
)Other taxes

12

(29.6
)
(19.8
)
(32.6
)Net income for the year



700.4

640.6

208.2Earnings per share (SEK)



85.51

78.21

39.82Average number of shares**



8,191,000

8,191,000

5,229,137


---

The
accompanying notes form an integral part of these financial statements.

III-4

---



ALFA LAVAL SPECIAL FINANCE AB        CONSOLIDATED BALANCE SHEETS

ASSETS

Note

2004

2003Amounts in SEK millionsFixed assetsIntangible assets

13, 14Concessions, patents, licenses, trademarks and similar rights



923.1

1,100.8Renting and similar rights



0.8

0.7Goodwill



2,794.6

3,098.53,718.5

4,200.0Property, plant and equipment

13, 15Real estate



945.4

1,171.2Machinery and other technical installations



753.9

858.5Equipment, tools and installations



609.1

668.6Construction in progress and advances to suppliers concerning property, plant and equipment



171.9

58.22,480.3

2,756.5Financial long-term assetsOther long-term securities

16

2.9

22.5Pension assets

23

123.5

126.7Capitalised financing costs, acquisition loans



40.5

44.6Deferred tax asset



453.4

472.4620.3

666.2Total fixed assets



6,819.1

7,622.7Current assetsInventories

17

2,452.5

2,217.8Current receivablesAccounts receivable

18

2,613.3

2,463.3Other receivables

19

1,240.2

1,070.4Prepaid costs and accrued income



89.8

85.0Capitalised financing costs, acquisition loans



12.2

12.23,955.5

3,630.9Current depositsOther current deposits

20

257.2

658.6Cash and bank

21

414.8

554.6Total current assets



7,080.0

7,061.9TOTAL ASSETS



13,899.1

14,684.6


The
accompanying notes form an integral part of these financial statements.

III-5

---



ALFA LAVAL SPECIAL FINANCE AB        CONSOLIDATED BALANCE SHEETS, continued

EQUITY CAPITAL AND LIABILITIES

|                                                    |  | Note |  | 2004     |  | 2003    
|--------------------------------------------------- |  | ---- |  | -------- |  | --------
|
|Equity capital                                      |  |      |  |          |  |         
|Restricted equity capital                           |  |      |  |          |  |         
|Share capital, 8,191,000 shares (par value SEK 100) |  |      |  | 819.1    |  | 819.1   
|Restricted reserves                                 |  |      |  | 57.4     |  | 119.3   
|                                                    |  |      |  |          |  |         
|                                                    |  |      |  | 876.5    |  | 938.4   
|Unrestricted equity capital                         |  |      |  |          |  |         
|Unrestricted reserves                               |  |      |  | 3,099.1  |  | 2,823.5 
|Net income for the year                             |  |      |  | 700.4    |  | 640.6   
|                                                    |  |      |  |          |  |         
|                                                    |  |      |  | 3,799.5  |  | 3,464.1 
|                                                    |  |      |  |          |  |         
|Total equity                                        |  |      |  | 4,676.0  |  | 4,402.5 
|Minority interest                                   |  | 11   |  | 119.2    |  | 104.2   
|Provisions                                          |  |      |  |          |  |         
|Provisions for pensions and similar commitments     |  | 23   |  | 788.9    |  | 754.8   
|Provisions for taxes                                |  | 12   |  | 737.8    |  | 817.0   
|Other provisions                                    |  | 24   |  | 948.2    |  | 891.2   
|                                                    |  |      |  |          |  |         
|                                                    |  |      |  | 2,474.9  |  | 2,463.0 
|Long-term liabilities                               |  | 25   |  |          |  |         
|Liabilities to credit institutions                  |  |      |  | 1,262.7  |  | 2,427.0 
|Bond loan                                           |  |      |  | 1,044.4  |  | 1,064.8 
|                                                    |  |      |  |          |  |         
|                                                    |  |      |  | 2,307.1  |  | 3,491.8 
|Current liabilities                                 |  |      |  |          |  |         
|Liabilities to credit institutions                  |  | 25   |  | 239.4    |  | 103.7   
|Advances from customers                             |  |      |  | 542.0    |  | 512.1   
|Accounts payable                                    |  |      |  | 1,235.8  |  | 1,076.0 
|Notes payable                                       |  |      |  | 113.8    |  | 123.4   
|Liability to Alfa Laval AB (publ)                   |  |      |  | 380.2    |  | 491.6   
|Tax liabilities                                     |  |      |  | 530.4    |  | 451.7   
|Other liabilities                                   |  | 26   |  | 479.3    |  | 648.7   
|Accrued costs and prepaid income                    |  | 27   |  | 801.0    |  | 815.9   
|                                                    |  |      |  |          |  |         
|                                                    |  |      |  | 4,321.9  |  | 4,223.1 
|TOTAL EQUITY CAPITAL AND LIABILITIES                |  |      |  | 13,899.1 |  | 14,684.6
|                                                    |  |      |  |          |  |         
|PLEDGED ASSETS AND CONTINGENT LIABILITIES           |  |      |  |          |  |         
|Pledged assets                                      |  | 28   |  | 50.6     |  | 45.4    
|Contingent liabilities                              |  | 28   |  | 1,402.8  |  | 1,471.1 

The
accompanying notes form an integral part of these financial statements.

III-6

---





ALFA LAVAL SPECIAL FINANCE AB        CONSOLIDATED CASH-FLOW STATEMENTS

|                                                          |                                            | Note |  | Jan 1-
Dec 31
2004 |        | Jan 1-
Dec 31
2003 |        | Jan 1-
Dec 31
2002 |       
|--------------------------------------------------------- | ------------------------------------------ | ---- |  | ------------------ | ------ | ------------------ | ------ | ------------------ | ------
|
|Cash flow from operating activities                       |                                            |      |  |                    |        |                    |        |                    |       
|Operating income                                          |                                            |      |  | 1,252.2            |        | 1,143.6            |        | 1,223.8            |       
|Adjustment for depreciation                               |                                            |      |  | 745.8              |        | 787.2              |        | 838.0              |       
|Adjustment for other non-cash items                       |                                            |      |  | 15.4               |        | 22.1               |        | 35.0               |       
|                                                          |                                            |      |  |                    |        |                    |        |                    |       
|                                                          |                                            |      |  | 2,013.4            |        | 1,952.9            |        | 2,096.8            |       
|Taxes paid                                                |                                            |      |  | (335.5             | )      | (268.6             | )      | (396.2             | )     
|Cash flow from operations before working capital          |                                            |      |  | 1,677.9            |        | 1,684.3            |        | 1,700.6            |       
|Changes in working capital:                               |                                            |      |  |                    |        |                    |        |                    |       
|                                                          | (Increase)/decrease of current receivables |      |  |                    | (388.0 | )                  | (25.7  | )                  | 340.0 
|                                                          | (Increase)/decrease of inventories         |      |  |                    | (297.0 | )                  | (17.2  | )                  | 140.4 
|                                                          | Increase/(decrease) of liabilities         |      |  |                    | 292.6  |                    | (152.9 | )                  | (134.2
|                                                          |                                            |      |  |                    |        |                    |        |                    |       
|                                                          |                                            |      |  | (392.4             | )      | (195.8             | )      | 346.2              |       
|                                                          |                                            |      |  |                    |        |                    |        |                    |       
|Cash flow from operating activities                       |                                            |      |  | 1,285.5            |        | 1,488.5            |        | 2,046.8            |       
|                                                          |                                            |      |  |                    |        |                    |        |                    |       
|Cash flow from investing activities                       |                                            |      |  |                    |        |                    |        |                    |       
|Investments in fixed assets                               |                                            |      |  | (387.5             | )      | (258.5             | )      | (276.7             | )     
|Divestment of fixed assets                                |                                            |      |  | 361.5              |        | 40.1               |        | 120.7              |       
|Additional purchase price                                 |                                            |      |  | (9.4               | )      |                   |        | (367.5             | )     
|Acquisition of businesses                                 |                                            | 22   |  |                   |        | (289.5             | )      | (135.7             | )     
|Reduction of purchase price                               |                                            | 22   |  | 61.2               |        |                   |        | 81.6               |       
|Divestment of businesses                                  |                                            | 22   |  | 10.0               |        |                   |        |                   |       
|Provisions                                                |                                            |      |  | 87.3               |        | 50.5               |        | 29.8               |       
|                                                          |                                            |      |  |                    |        |                    |        |                    |       
|Cash flow from investing activities                       |                                            |      |  | 123.1              |        | (457.4             | )      | (547.8             | )     
|                                                          |                                            |      |  |                    |        |                    |        |                    |       
|Cash flow from financing activities                       |                                            |      |  |                    |        |                    |        |                    |       
|Financial net, paid                                       |                                            |      |  | (204.2             | )      | (237.1             | )      | (590.1             | )     
|New issue of shares                                       |                                            |      |  |                   |        |                   |        | 819.0              |       
|Paid group contribution                                   |                                            |      |  | (613.4             | )      | (53.4              | )      |                   |       
|(Increase)/decrease of other financial assets             |                                            |      |  | 472.4              |        | (256.9             | )      | (84.2              | )     
|Capitalised financing costs, acquisition loans            |                                            |      |  | (7.3               | )      |                   |        | (39.7              | )     
|Increase/(decrease) of liabilities to credit institutions |                                            | 25   |  | (1,170.2           | )      | (454.8             | )      | (1,548.2           | )     
|                                                          |                                            |      |  |                    |        |                    |        |                    |       
|Cash flow from financing activities                       |                                            |      |  | (1,522.7           | )      | (1,002.2           | )      | (1,443.3           | )     
|                                                          |                                            |      |  |                    |        |                    |        |                    |       
|Net increase (decrease) in cash and bank                  |                                            |      |  | (114.1             | )      | 28.9               |        | 55.7               |       
|Cash and bank at the beginning of the year                |                                            |      |  | 554.6              |        | 605.9              |        | 666.4              |       
|Translation difference in cash and bank                   |                                            |      |  | (25.7              | )      | (80.2              | )      | (116.2             | )     
|Cash and bank at the end of the period                    |                                            | 21   |  | 414.8              |        | 554.6              |        | 605.9              |       
|                                                          |                                            |      |  |                    |        |                    |        |                    |       
|Free cash flow per share (SEK)*                           |                                            |      |  | 171.97             |        | 125.88             |        | 286.66             |       
|Average number of shares**                                |                                            |      |  | 8,191,000          |        | 8,191,000          |        | 5,229,137          |       

---

The accompanying notes form an integral part of these financial statements.

III-7

---



ALFA LAVAL SPECIAL FINANCE AB        CHANGES IN CONSOLIDATED EQUITY CAPITAL

|                                                                              |  | Share
capital |  | Restricted
equity |   | Unrestricted
equity |   | Total   |  
|----------------------------------------------------------------------------- |  | ------------- |  | ----------------- | - | ------------------- | - | ------- | -
|
|As of December 31, 2001                                                       |  | 0.1           |  | 36.9              |   | 3,591.9             |   | 3,628.9 |  
|                                                                              |  |               |  |                   |   |                     |   |         |  
|2002                                                                          |  |               |  |                   |   |                     |   |         |  
|New issue of shares                                                           |  | 819.0         |  |                  |   |                    |   | 819.0   |  
|Equity part of group contribution                                             |  |              |  |                  |   | (38.4               | ) | (38.4   | )
|Deferred tax on group contribution                                            |  |              |  |                  |   | (15.0               | ) | (15.0   | )
|Transfer between restricted equity and unrestricted equity in Group companies |  |              |  | 76.9              |   | (76.9               | ) |        |  
|Translation difference                                                        |  |              |  | 0.8               |   | (190.5              | ) | (189.7  | )
|Net income for 2002                                                           |  |              |  |                  |   | 208.2               |   | 208.2   |  
|                                                                              |  |               |  |                   |   |                     |   |         |  
|As of December 31, 2002                                                       |  | 819.1         |  | 114.6             |   | 3,479.3             |   | 4,413.0 |  
|                                                                              |  |               |  |                   |   |                     |   |         |  
|2003                                                                          |  |               |  |                   |   |                     |   |         |  
|Equity part of group contribution                                             |  |              |  |                  |   | (441.6              | ) | (441.6  | )
|Deferred tax on group contribution                                            |  |              |  |                  |   | (171.8              | ) | (171.8  | )
|Transfer between restricted equity and unrestricted equity in Group companies |  |              |  | 4.3               |   | (4.3                | ) |        |  
|Translation difference                                                        |  |              |  | 0.4               |   | (38.1               | ) | (37.7   | )
|Net income for 2003                                                           |  |              |  |                  |   | 640.6               |   | 640.6   |  
|                                                                              |  |               |  |                   |   |                     |   |         |  
|As of December 31, 2003                                                       |  | 819.1         |  | 119.3             |   | 3,464.1             |   | 4,402.5 |  
|                                                                              |  |               |  |                   |   |                     |   |         |  
|2004                                                                          |  |               |  |                   |   |                     |   |         |  
|Equity part of group contribution                                             |  |              |  |                  |   | (245.0              | ) | (245.0  | )
|Deferred tax on group contribution                                            |  |              |  |                  |   | (95.3               | ) | (95.3   | )
|Transfer between restricted equity and unrestricted equity in Group companies |  |              |  | (62.9             | ) | 62.9                |   |        |  
|Translation difference                                                        |  |              |  | 1.0               |   | (87.6               | ) | (86.6   | )
|Net income for 2004                                                           |  |              |  |                  |   | 700.4               |   | 700.4   |  
|                                                                              |  |               |  |                   |   |                     |   |         |  
|As of December 31, 2004                                                       |  | 819.1         |  | 57.4              |   | 3,799.5             |   | 4,676.0 |  
|                                                                              |  |               |  |                   |   |                     |   |         |  

III-8

---



ALFA LAVAL SPECIAL FINANCE AB        CHANGES IN CONSOLIDATED EQUITY CAPITAL, continued

Comments on changes in consolidated equity capital

The share capital of SEK 819,100,000 (819,100,000) is divided among 8,191,000 (8,191,000) shares at par value SEK 100 (100).

At
the ordinary shareholders' meeting on June 13, 2002 it was decided to increase the share capital by SEK 819,000,000 through a new issue of 8,190,000 shares to Alfa Laval AB
(publ).

The
proposed dispositions of earnings for the subsidiaries suggest transfers to restricted equity capital of SEK 52.4 (54.3) (22.0) million. After deduction for this, the net available
for distribution is thus SEK 3,747.1 (3,409.8) (3,457.3) million.

The
possibilities to distribute un-appropriated profits from foreign subsidiaries are limited in certain countries due to currency regulations and other legislation.

Specification of changes in number of shares and share capital

|Year |  | Event               |  | Date           |  | Change in
number
of shares |  | Total
number
of shares |  | Change in
equity
capital |  | Total
equity
capital
|---- |  | ------------------- |  | -------------- |  | -------------------------- |  | ---------------------- |  | ------------------------ |  | --------------------
|2000 |  | Company formation   |  | March 27, 2000 |  | 1,000                      |  | 1,000                  |  | 0.1                      |  | 0.1                 
|2002 |  | New issue of shares |  | June 13, 2002  |  | 8,190,000                  |  | 8,191,000              |  | 819.0                    |  | 819.1               

Specification of accumulated translation differences reported against equity capital

|Year |  | Change |   | Accumulated |   | Main explanation to change                                                    |  | The change has
been affected by
hedging measures of |  
|---- |  | ------ | - | ----------- | - | ----------------------------------------------------------------------------- |  | --------------------------------------------------- | -
|
|2000 |  | (94.5  | ) | (94.5       | ) | The EUR was appreciated by 6%, which affected the EUR based acquisition loans |  | (312.5                                              | )
|2001 |  | 96.7   |   | 2.2         |   | The USD was appreciated by 10.7%                                              |  | (105.5                                              | )
|2002 |  | (189.7 | ) | (187.5      | ) | The USD was depreciated by 16.7%                                              |  | 164.9                                               |  
|2003 |  | (37.7  | ) | (225.2      | ) | The USD was depreciated by 17.5%                                              |  | 140.3                                               |  
|2004 |  | (86.6  | ) | (311.8      | ) | The USD was depreciated by 9.0%                                               |  | (13.8                                               | )

III-9

---





ALFA LAVAL SPECIAL FINANCE AB        NOTES TO THE FINANCIAL STATEMENTS        Amounts in SEK millions unless otherwise stated

Ownership and legal structure

Alfa Laval Special Finance AB is a wholly owned subsidiary of Alfa Laval AB (publ).

The
parent company Alfa Laval AB (publ) is listed on the Stockholm Stock Exchange since May 17, 2002. Alfa Laval AB (publ) had 11,758 (7,254) shareholders on December 31,
2004. The two largest owners are Tetra Laval and Industri Kapital, where 17.7 (17.7) percent are owned by Tetra Laval B.V., the Netherlands and 8.5 (17.9) percent are owned by the partnerships that
are controlled by Industri Kapital 2000 Ltd, United Kingdom. At the beginning of May 2004 Industri Kapital decreased the holding in Alfa Laval from 17.9 percent to
8.5 percent. Next to the two largest owners there are eight institutional investors with ownership in the range of 7.4 to 1.9 percent. These ten largest owners own 54.6 (60.1) percent of
the shares.

Operations

The Alfa Laval Special Finance Group is engaged in the development, production and sales of products and systems based on three main technologies:
separation/filtration, heat transfer and fluid handling. Alfa Laval's primary segments are the two divisions"Equipment" and"Process Technology", where the sales and marketing activities are performed.
The divisions are based on ten customer segments. The customers to the Equipment division purchase products whereas the customers to the Process Technology division purchase solutions for processing
applications. The Group also has a common
function "Operations" for procurement, production and logistics. The Group's secondary segments are geographical markets.

Applied recommendations/General

Alfa Laval Special Finance follows Swedish GAAP as expressed in law, recommendations issued by accounting bodies and relevant good accounting practice. This
differs in certain respects from US GAAP, see Note 33.

Alfa
Laval Special Finance follows the recommendations issued by the Financial Accounting Standards Council in Sweden and has strived for early implementation of the recommendations,
that is prior to when they must be applied. To the extent that recommendations from the Council have not yet been issued corresponding to already issued International Accounting Standards, the IAS
statement has been applied instead. This is referring to IAS 19 Employee Benefits for 2000 and 2001 and IAS 14 Segment Reporting for 2001. A comparison has been made with the draft recommendations
issued by the Council, which have only been available in 2001 and 2002 respectively.

Alfa
Laval Special Finance does not report the depreciation on goodwill distributed on the different functions in the income statement since almost the entire goodwill depreciation is
referring to the goodwill that appeared in a leveraged buy out transaction in 2000. The comparability with other companies will be severely suffering if the goodwill depreciation is allocated to the
income statement functions. For this reason the goodwill depreciation is isolated to a specifically identified item. The specific financial construction used in the ownership change will otherwise
result in a misleading income reporting during two decades. The change of ownership in 2000 in fact meant that the net assets of Alfa Laval Special Finance were re-valued to market value,
which does not apply generally for other listed companies. In anticipation of the new international accounting statements, where goodwill is not depreciated but instead tested for impairment, the
current treatment avoids any problem with comparability between years.

III-10

---



Implementation of International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS) is the new name for all new International Accounting Standards. IFRS are still issued by the International
Accounting Standards Board (IASB). IFRS 1 covers the transitional provisions for the implementation of IFRS. All companies within the European Union are obliged to change to IFRS as of
January 1, 2005.

Already
in 2000 Alfa Laval started to implement the International Accounting Standards (IAS) issued by IASB and translated and adapted to Swedish legislation by the Financial Accounting
Standards Council in Sweden. Since there are some minor differences between the Swedish recommendations and IAS, Alfa Laval Special Finance has never claimed to be following IAS. Technically this
means that Alfa Laval Special Finance will be a first time applicant under IFRS 1 in 2005. The adoption to IFRS is however already in place since Alfa Laval Special Finance has implemented all
relevant IAS standards, except IAS 39. This statement will be implemented as of January 1, 2005.

The
effects of implementing IFRS during 2005 are described under a separate section in the Board of Directors' report.

Changed/implemented accounting principles

During 2003 RR27 "Financial Instruments: Disclosure and Presentation" was implemented. This did not introduce any major changes or amendments to the disclosure
and presentation in 2002. Chapter 5 § 18b in Swedish Annual Report's Acts (ÅRL) "Gender among managers" was also implemented. The definition of members of the Board and
managers is not at all as clear as in the Industry and Commerce Stock Exchange Committee's statement concerning executive officers below. For this reason, several measures have been supplied in order
to enlighten the subject.

During
2002 RR26 Events after the balance sheet date was implemented. The updated statement by the Industry and Commerce Stock Exchange Committee on information about remunerations to
executive officers (approved during 2002) was also implemented during 2002.

The
application of these new accounting standards has not resulted in any change of accounting principles and has therefore not resulted in any effect on income or equity capital for
2004, 2003 or 2002.

During
2001 RR 15 Intangible Assets, RR 21 Borrowing Costs, RR22 Presentation of Financial Statements and RR23 Related Party Disclosures were implemented. Segment reporting is from the
same point in time reported according to IAS 14 in the absence of a Swedish recommendation at the time (currently RR25 Segment Reportingbusiness and geographical segments).

During
2000, considerable work was devoted to the implementation of new accounting standards. As of the closing for 2000, deferred tax is accounted for according to RR 9, impairments
according to RR17, revenue recognition on large projects according to RR10 and provisions, contingent liabilities and contingent assets according to RR16. As of the same date, employee benefits are
accounted for according to IAS 19 in the absence of a Swedish standard (currently RR29 Employee Benefits). The effect on equity of the changes in accounting principles for income taxes and pensions
amounted to an increase of SEK 225 million for the predecessor the Alfa Laval Holding Group for 1999. Since the effect on the equity because of changed accounting principles changes the opening
equity, the net asset

III-11

---



value
that was acquired by the new group increased correspondingly. Because the acquired equity is fully eliminated, the above adjustment to equity does not appear in the new Alfa Laval Group.

Implementation of the Swedish Financial Accounting Standards Council's recommendations before they become effective

The Swedish Financial Accounting Standards Council's recommendations RR 1:00 Business combinations, RR 15 Intangible Assets, RR16 Provisions, Contingent
Liabilities and Contingent Assets, RR17 Impairment of Assets, RR21 Borrowing Costs and RR23 Related Party Disclosures became effective on January 1, 2002. RR22 Presentation of Financial
Statements, RR25 Segment Reportingbusiness and geographical segments and RR26 Events After the Balance Sheet Date became effective on January 1, 2003. RR 29 Employee Benefits
became effective on January 1, 2004. Earlier application of all these recommendations was encouraged and the Group has also applied them earlier as described above.

Critical accounting principles

The Financial Accounting Standards Board in the US has issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.
FAS 142 requires that goodwill, including previously existing goodwill, and intangible assets with indefinite useful lives not be amortised; these assets should be tested for impairment
annually. Goodwill and intangible assets with indefinite useful lives are no longer tested for impairment under FAS 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. The group has adopted the provisions of FAS 142 as of January 1, 2002 in the US GAAP reconciliation. The effect of FAS 142 can be
considerable for the Group if the profitability within the Group or parts of the Group goes down in the future, since this could trigger a substantial impairment write down of the goodwill. Such a
write down will affect the net income and thereby the position of the Group according to US GAAP.

According
to RR 17 impairments on assets including goodwill shall be calculated if there is any indication that the value of the asset has decreased. This is different to FAS 142,
which requires that the impairment test must be made annually irregardless of whether there is an indication or not. If a FAS 142 calculation shows an impairment, this can however be seen as
such an indication that could trigger a write down even in the part of the financial reporting that is regulated by the recommendations from the Financial Accounting Standards Council. With the
implementation of IFRS 3 Business Combinations as of January 1, 2005 this difference compared to US GAAP will disappear and goodwill will be tested for impairment both annually and when there
is an indication.

The
Group's reporting of provisions according to RR16 means that SEK 948.2 (891.2) million is reported as other provisions. This constitutes 6.8 (6.1) percent of the Group's assets and
is important for the assessment of the Group's financial position, not the least since provisions normally are based on estimates of costs and risks. If the accounting principles for provision would
be changed sometime in the future, this could have a substantial impact on the Group's financial position.

Advertising costs

Advertising costs are expensed as incurred.

III-12

---



Borrowing costs

Borrowing costs are accounted for according to the main principle in RR 21 Borrowing costs, which means that the borrowing costs are charged to the profit and
loss in the period to which they relate. This means, among other things, that transaction costs that arise in connection with raising a loan are capitalised and amortised over the maturity of the
loan.

Business combinationsconsolidation principles (including associates and joint ventures)

The consolidated financial statements have been prepared according to the RR1:00 recommendation issued by the Financial Accounting Standards Council in Sweden.

For
the period after August 24, 2000, the consolidated financial statements include the parent company Alfa Laval Special Finance AB and the subsidiaries in which it holds more
than 50 percent during the period. For the period up to August 24, 2000, the consolidated financial statements include the parent company the former Alfa Laval Holding AB and the
subsidiaries in which it holds more than 50 percent during the period.

The
consolidated balance sheet has been prepared in accordance with the purchase method, which means that the book value of shares in the subsidiaries is eliminated from the reported
equity capital in the subsidiaries at the time of their acquisition. Accordingly, the unrestricted reserves in the subsidiaries at the time of acquisition are not included in the consolidated
unrestricted reserves. Alfa Laval owns 50 percent in three different joint ventures: Rolls Laval Heat Exchangers Ltd with Rolls Royce as partner, Hynetics Inc with Hyclone Inc as partner
and Alfdex AB (renamed from Gigantissimo 2444 AB) with Haldex as partner. These companies are consolidated according to the proportional consolidation method in RR 14 Joint Ventures. The Group has
only one company that fulfils the definition of an associate in RR 13 Accounting for Investments in Associates, that is that the ownership is between 20 and 50 percent, namely Dalian Haven
Automation Co Ltd. This company is totally dormant. Since its net assets are not material, it is not consolidated.

The
difference between the purchase price paid and the net assets of the acquired companies, with deduction for restructuring provisions, is allocated to the step-up values
related to each type of asset, with any remainder accounted for as goodwill.

The
foreign subsidiaries have been translated using the current method. This means that assets and liabilities are translated at closing exchange rates and income and expenses are
translated at the year's average exchange rate. The translation difference that arises is a result of the fact that net assets in foreign companies are translated at one rate at the beginning of the
year and another at year-end and that the result is translated at average rate. The translation differences are charged against equity capital.

Comparison distortion items

Items that do not have any link to the normal operations of the Group or that are of a non-recurring nature are classified as comparison distortion
items. In the income statement these are reported gross as a part of the most concerned lines in the income statement, but are specified separately in a note. A reporting together with other items in
the income statement without this separate reporting in a note would have given a comparison distortion effect that would have made it difficult to judge the development of the ordinary operations
from an outside viewer. Comparison distortion items affecting operating income are reported as a part of operating income, while

III-13

---



comparison
distortion items affecting the result after financial items are reported as a part of the financial net.

Employee benefits

Employee benefits are reported according to RR29. The main difference compared with previous reporting (1999 and earlier) has been the reporting for defined
benefit pension plans. The present value of the benefit obligations in the defined benefit plans is decided through yearly actuarial calculations made by independent actuaries. The plan assets are
valued at market value. The net plan asset or liability is arrived at in the following way.

+
The present value of the defined benefit obligation at December 31+
any actuarial gains not recognised-
any actuarial losses not recognised-
any past service costs not yet recognised-
the fair value of the plan assets at December 31=
a net liability if positive/a net asset if negative


If
the calculation gives a net asset, the lower of this asset and the sum of any cumulative unrecognised net actuarial losses and past service costs and the present value of refunds or
reductions in future contributions is reported as the net plan asset.

If
the net cumulative unrecognised actuarial gains and losses at the end of the previous year is outside a 10 percent corridor calculated on the greater of the present value of
the defined benefit obligation or the fair value of the plan assets, then the excess is recognised over the remaining service period of the employees participating in the plan.

The
costs for defined contribution plans are reported in Note 3.

The
Swedish ITP plan is a multi-employer plan insured by Alecta. It is a defined benefit plan, but since the plan assets and liabilities cannot be allocated on each employer it is
reported as a defined contribution plan according to item 30 in IAS 19 and RR29. The construction of the plan does not enable Alecta to provide each employer with its share of the assets and
liabilities or the information to be disclosed. The cost for the plan is reported together with the costs for other defined contribution plans in Note 3. Alecta reported a collective
consolidation level at December 31, 2004 of 128.0 (119.9) percent. The collective consolidation level is defined as the fair value of Alecta's plan assets in percent of the insured pension
commitments calculated according to Alecta's actuarial assumptions, which are not in accordance with IAS 19. Such a surplus can be distributed among the employers or the beneficiaries, but there does
not exist any agreement concerning this that enables the company to report a receivable on Alecta.

Events after the balance sheet date

Events after the balance sheet date are reported according to RR26 under a separate heading in the Board of Directors' report.

III-14

---



Financial instruments

During 2003 RR27 "Financial Instruments: Disclosure and Presentation" has been implemented. This has not introduced any major changes or amendments to the
disclosure and presentation in 2002. RR27 is based on IAS 32 and describes how financial instruments are presented in the balance sheet and the required disclosures to enable a reader of financial
reports to understand how the financial instrument is influencing the income statement, balance sheet and cash flow of a company. It does not regulate when a financial instrument is reported in or
removed from the balance sheet or the valuation of financial instruments. This will instead be covered by IAS 39.

Financial
instruments are valued at acquisition value. If a derivative instrument has been used to fix the exchange rate to be used for settling a commercial or financial receivable or
liability, the balance sheet item is valued at the forward rate. The accrued interest rate for loans is valued including the effect of interest rate swaps. Derivative instruments covering projected
flows are not reported until maturity and this is where the effect of IAS 39 will be most apparent.

The
Group uses a limited number of financial instruments to hedge currency rates or interests. These include currency forward contracts, currency options, interest-rate swaps
and interest-forward contracts. To demonstrate the exposure, the outstanding contracts are presented in the financial risk section. If possible, loans are raised in the currencies that match the net
investment in each currency. The fair value of financial instruments is shown in Note 32.

Fixed assets (tangible and intangible)

Assets have been accounted for at cost, net after deduction of accumulated depreciation according to plan. Depreciation according to plan is based on the assets'
acquisition values and is calculated according to estimated economic lives of the assets.

The
following depreciation periods have been used:

|Computer programs, computers |  | 3.3 years   |  | The Predecessor: Alfa Laval Holding AB      
|---------------------------- |  | ----------- |  | --------------------------------------------
|Office equipment             |  | 4 years     |  | Intangible assets                           
|Vehicles                     |  | 5 years     |  | Goodwill, harmonisation                     
|Machinery and equipment      |  | 7-14 years  |  | Goodwill, other                             
|Land improvements            |  | 20 years    |  |                                             
|Buildings                    |  | 25-33 years |  | The Successor: Alfa Laval Special Finance AB
|                             |  |             |  | Patents and trademarks                      
|                             |  |             |  | Step-up values, technology                  
|                             |  |             |  | Goodwill, strategic                         
|                             |  |             |  | Goodwill, other                             

The
acquisition of the former Alfa Laval Holding AB Group and Danish Separation Systems A/S are considered as strategic acquisitions where the intangible assets have a lifetime of more
than 20 years. The acquisition of Toftejorg and bioKinetics are complimentary to the existing business. The reason why the depreciation period is more than five years also for these
acquisitions is that Toftejorg has a strong position in tank cleaning equipment and bioKinetics has a powerful modular process concept, both of which are perceived to have economic life expectancies
of much more than five years.

Any
additions to the purchase price in connection with investments in fixed assets or acquisitions of businesses are amortised over the same period as the original purchase price. This
means that the

III-15

---



time
when the asset is fully depreciated is identical regardless of when payments are made. This is a reflection of the fact that the estimated economic live of the asset is the same.

Upon
sale or scrapping of assets, the results are calculated in relation to the net book value after depreciation according to plan. The result on sales is included in operating income.

When
there are indications that the value of a fixed asset has decreased, there is a valuation made if it must be written down according to RR17. If the reported value is higher than the
net realisable value, a write down is made that burdens net income. When assets are up for sale, for instance items of real estate, a clear indication of the net realisable value is received that can
trigger a write down.

Income Taxes

Income taxes are reported in accordance with RR9 Income Taxes.

Current
tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for a period. Current tax liabilities (receivables) for the current and prior
periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet
date. In essence, this means that current tax is calculated according to the rules that apply in the countries where the profit was generated.

Deferred
tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences. Deferred tax liabilities are recognised for all taxable
temporary differences, except for goodwill and certain other items.

Deferred
tax assets are the amounts of income taxes recoverable in future periods in respect of: (a) deductible temporary differences; (b) the carry-forward of unused tax
losses; and (c) the carry-forward of unused tax credits. Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable (>50 percent) that
taxable profit will be available against which the deductible temporary difference can be utilised. Deferred tax assets are recognised for the carry-forward of unused
tax losses and unused tax credits to the extent that it is probable (>50 percent) that future taxable profit will be available against which the unused tax losses and unused tax credits can be
utilised.

Deferred
tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and
tax laws) that have been enacted or substantively enacted by the balance sheet date.

If
it is not any longer probable that sufficient taxable profits will be available against which a deferred tax asset can be utilised, then the deferred tax asset is reduced by
increasing the valuation allowance accordingly.

Inflationary accounting

Subsidiaries in highly inflationary countries report their closings in the functional hard currency that is valid in each country, which in all cases is USD.
During 2004 Colombia, Indonesia, Mexico, Russia, Turkey and Venezuela are regarded as highly inflationary countries.

III-16

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Inventories

The Group's inventory has been accounted for after elimination of inter-company gains. The inventory has been valued according to the
"First-In-First-Out" (FIFO) method at the lowest of cost or net realisable value, taking into account obsolescence.

This
means that raw material and purchased components normally are valued at the acquisition cost, unless the market price has fallen. Work in progress is valued at the sum of direct
material and direct labour costs with a mark-up for the product's share in capital costs in the manufacturing and other indirect manufacturing costs based on a forecasted assumption on the
capacity utilisation in the factory. Finished goods are normally valued at the delivery value (i.e. at cost) from the factory if the delivery is forthcoming. Spare parts that can be in the inventory
during longer periods of time are normally valued at net realisable value. Out of the total inventory, the valuation at net realisable value therefore constitutes a considerable part.

Leasing

Leasing is accounted for in accordance with RR6:99 Leasing agreements.

When
Alfa Laval is the lessor, leased assets that are regarded as financial leases are accounted for as a financial receivable from the lessee in the balance sheet. The leasing fee
received from the lessee is accounted for as financial income calculated as interest on the outstanding receivable and as amortisation of the receivable.

When
Alfa Laval is the lessee, leased assets that are regarded as financial leases are accounted for as capitalised assets and a corresponding financial payable to the lessor in the
balance sheet. The leasing fee to the lessor is accounted for as financial cost calculated as interest on the outstanding payable and as amortisation of the payable. Depreciation according to plan is
done in the same manner as purchased assets.

Leased
assets regarded as operational leases are not capitalised. The leasing fees are expensed as incurred.

Long-term construction projects

Revenue for projects is recognised using the percentage of completion method in RR10 Construction projects. This means that when the outcome of a construction
project can be calculated reliably, the revenue and the costs related to the project are recognised in relation of the percentage of completion at the balance sheet date. An estimated loss is
recognised immediately. The percentage of completion for a construction project is normally established through the relationship between incurred project costs for work performed at the closing date
and the estimated total project costs.

Other operating income and other operating costs

Other operating income in the income statement relates to commission, royalty and license income. Other operating costs refer mainly to restructuring costs and to
royalty costs.

Provisions

The Group is applying RR16 for the reporting of provisions, contingent liabilities and contingent assets.

III-17

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A
provision is recognised when, and only when:



The
amount recognised as a provision is the best estimate of the cost required to settle the present obligation at the balance sheet date.

In
measuring the provision:



If
a reimbursement of some or all of the costs to settle a provision is expected (e.g. through insurance contracts, indemnity clauses or supplier's warranties), the reimbursement is
recognised:



Provisions
are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that a cost to settle the obligation will be incurred,
the provision is reversed.

A
provision must only be used for the purpose it was originally recognised for. Provisions are not recognised for future operating losses. An expectation of future operating losses is
though an indication that certain assets of the operation may be impaired. If a contract is onerous, the present obligation under the contract is recognised and measured as a provision.

A
provision for restructuring costs is recognised only when the general recognition criteria are met. A constructive obligation to restructure arises only when there is:



III-18

---





A
management or board decision to restructure does not give rise to a constructive obligation at the balance sheet date unless the company has, before the balance sheet date:



When
a restructuring involves the sale of an operation, no obligation arises for the sale until the company is committed to the sale, i.e. through a binding sales agreement.

A
restructuring provision only includes the direct costs arising from the restructuring, which are those that are both:



Research and development

Research and development costs are charged to the income statement in the year in which they are incurred. RR15 Intangible Assets requires development costs to be
capitalised if certain requirements are fulfilled. The development costs within Alfa Laval do normally not meet the requirements for capitalisation according to RR15 Intangible Assets.

Revenue recognition

Revenue recognition is made according to RR11 Revenue. Sales revenue for products and services is recognised at the time of delivery. Net sales are referring to
sales value less sales taxes, cancellations and discounts. Long-term construction projects are accounted for through the percentage of completion method.

Sick leave in Sweden

The Swedish Annual Report's Acts (ÅRL) requires the sick leave among Swedish employees to be reported split on different specifically defined
categories. This is a way to get focus on the contemporary problem of high sick leave rates and if certain employers are having a high or a low sick rate within the company. The specification is found
in Note 2.

Transactions in foreign currencies

Receivables and liabilities denominated in foreign currencies have been valued at year-end rates of exchange or at the rate fixed by forward contract.
Within the parent company there were no unrealised exchange gains on long-term receivables and liabilities that have not been possible to offset against unrealised exchange losses within
the same currency. Unrealised exchange gains on short-term receivables and liabilities are, however, included in the result.

Within
the Group, exchange gains and losses on loans denominated in foreign currencies that finance acquisitions of foreign subsidiaries are transferred to unrestricted equity if the
loans act as a

III-19

---



hedge
to the acquired net assets. In the parent company, the exchange differences are reported in the income statement.

Events after the balance sheet date

The balance sheets and the income statements will be adopted at the Annual General Meeting of shareholders on April 27, 2005.

In
a news release on February 15, 2005 Alfa Laval communicated that an agreement had been signed to acquire Packinox S.A. in France. Packinox is a world leader in large welded
plate heat exchangers for oil & gas and refinery applications, with expected sales of about SEK 450 million in 2005 and approximately 145 employees within R&D, manufacturing and sales.

In
a press release on March 7, 2005 Industri Kapital communicated that it had sold its entire holding in Alfa Laval AB to a range of Swedish and international institutional
investors.

Work procedures of the Board of Alfa Laval AB

The Board of Alfa Laval AB has held eight (twelve) (thirteen) meetings during 2004. The Board has issued rules of procedures for the Board of Directors and an
instruction regarding the allocation of work between the Board of Directors and the Managing Director. The rules of procedure establish, among other things, how often the Board of Directors shall meet
and how the work shall be organised.

The
Board has a remuneration committee, consisting of the Chairman, Björn Savén and Jörn Rausing, with Lars Renström as
presenting. The committee shall handle remuneration matters for the members of Group Management.

Matters
that the Board has been discussing during the year include liquidity and funding, financial performance, share and ownership developments, dividends, asbestos litigations, larger
capacity investments and development projects, acquisition of businesses, purchase and divestment of real estate, raw material prices, corporate governance, internal audit, external audit planning and
the strategic positioning of the Group.

The
Board has issued a code of ethics for senior financial officers based on the requirements in section 406 of the Sarbanes-Oxley Act, a pre-approval policy for all
auditing and non-auditing services provided by audit firms in accordance with Section 202 of the Sarbanes-Oxley Act, an updated communication policy and updated internal rules for
prevention of misuse of insider information. The code of ethics for senior officers applies to the Chief Executive Officer, the Chief Financial Officer and the Chief Accounting Officer of the Group.
The pre-approval policy stipulates what audit and non-audit services provided by Ernst & Young that the Board has pre-approved and what services that needs
to be approved separately by the Board. The update of the communication policy is due to changes in the contract with the Stockholm Stock Exchange. The update of the insider rules relates mainly to
the trading prevention periods prior to financial reports.

Since
the Group has a bond loan that is registered with the Securities and Exchange Commission (SEC) in the US, the question of appointing an audit committee according to the
"Sarbanes-Oxley Act" has been discussed. The Board has chosen not to appoint an audit committee since the judgement is that the financial reporting and control within the Group, the Group's policies
concerning internal control, the external and internal audit and the reporting to the Board in these matters are such that a special audit committee within the Board would not increase the Board's
insight and control over the

III-20

---



operations.
At four Board meetings during 2004 the Board has received reports from and met the external auditors of the Group. At one Board meeting during 2004, the Board has received reports from and
met the internal auditor of the Group.

Section 407
of the Sarbanes-Oxley Act requires the company to disclose whether it has a financial expert on the audit committee. The Board of Directors of Alfa Laval Special
Finance AB has determined that Mr Thomas Thuresson is an "audit committee financial expert' as defined in Item 16A of Form 20-F.

Financial risks

Financial instruments

Financial risks are referring to financial instruments. Alfa Laval has the following instruments: cash, deposits, bank loans, the bond loan and a limited number
of derivative instruments to hedge currency rates or interests. These include currency forward contracts, currency options, interest-rate swaps and interest-forward contracts.

Financial policy

In order to control and limit the financial risks, the Board of the Group has established a financial policy. The Group has an aversive attitude toward financial
risks. This is expressed in the policy. It establishes the distribution of responsibility between the local companies and the central finance
function in Alfa Laval Treasury International AB, what financial risks the Group can accept and how the risks should be limited.

Price risk

There are three different types of price risks: currency risk, interest risk and market risk. See below.

Currency risk

Transaction exposure

The Group is principally exposed to currency risk from potential changes in contracted and projected flows of payments and receipts. The objective of foreign
exchange risk management is to reduce the impact of foreign exchange movements on the Group's income and financial position.

The
Group normally has natural risk coverage through the sale as well as costs in local currencies. The financial policy states that the local companies are responsible for identifying
and hedging exchange rate exposures on all commercial flows via Alfa Laval Treasury International. Contract based exposures must be fully hedged. In addition, the balance of projected flows the next
12 months must be hedged to at least 50 percent. The remaining part of the projected flows can be partially hedged after conferring with the Group's central finance function. Alfa Laval
Treasury International can add to or reduce the total hedging initiated by the local companies in the currencies that Alfa Laval has commercial exposure up to but not exceeding 100 percent of
one year's commercial exposure for each currency.

III-21

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The Group's net exposure in different currencies before and after derivatives during 2004 has amounted to:

GRAPHIC

Currency
contracts are entered into continuously during the year with 12 months maximum duration. This means that the company experiences the effects from the market currency rate
movements with a varying degree of delay.

If
the currency rates between SEK and the most important foreign currencies are changed by +/- 10% it has the following effect on operating income, if no hedging measures are taken:

|                                                   |  | 2004 |   | 2003 |   | 2002 |  
|-------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|
|Effect on operating income without hedging measure |  |      |   |      |   |      |  
|USD                                                |  | 113  |   | (113 | ) | 97   |  
|EUR                                                |  | 159  |   | (159 | ) | 152  |  
|DKK                                                |  | (120 | ) | 120  |   | (127 | )
|Other USD related currencies                       |  | 15   |   | (15  | ) | 46   |  
|Other                                              |  | 45   |   | (45  | ) | 39   |  
|                                                   |  |      |   |      |   |      |  
|Total                                              |  | 212  |   | (212 | ) | 207  |  
|                                                   |  |      |   |      |   |      |  

III-22

---



Outstanding
currency forward contracts and currency options for the Group amounted to the following at the end of the year:

|      |  | 2004   |   | 2003     |   | 2002   |  
|----- |  | ------ | - | -------- | - | ------ | -
|
|
|EUR   |  | (159.3 | ) | (1,431.9 | ) | (275.7 | )
|USD   |  | (285.6 | ) | (1,884.4 | ) | (161.5 | )
|DKK   |  | (817.1 | ) | (988.1   | ) | (750.3 | )
|HKD   |  |       |   |         |   |       |  
|NOK   |  | (136.2 | ) | (148.5   | ) | (165.8 | )
|JPY   |  |       |   |         |   | (765.7 | )
|CAD   |  | (17.0  | ) | (92.6    | ) | (17.8  | )
|GBP   |  | (16.4  | ) | (207.7   | ) | (7.6   | )
|Other |  |        |   | (109.8   | ) |        |  
|      |  |        |   |          |   |        |  
|Total |  |        |   | (4,863.0 | ) |        |  
|      |  |        |   |          |   |        |  

|             |  | 2004    |  | 2003    |  | 2002   
|------------ |  | ------- |  | ------- |  | -------
|
|
|SEK          |  | 4,984.6 |  | 4,984.6 |  | 5,172.8
|SGD          |  |        |  |        |  | 7.2    
|JPY          |  | 1,499.0 |  | 95.4    |  |       
|Other        |  |         |  |        |  |        
|             |  |         |  |         |  |        
|Total        |  |         |  | 5,080.0 |  |        
|             |  |         |  |         |  |        
|Net exposure |  |         |  | 217.0   |  |        

Translation exposure

When the subsidiaries' balance sheets in local currency are translated into SEK a translation difference arises that is due to the current year being translated
at a different closing rate than last year and that the income statement is translated at the average rate during the year whereas the balance sheet is translated at the closing rate at
December 31. The translation differences are reported in the unrestricted equity capital. The translation exposure consists of the risk that the translation difference represents in relation to
changes in the equity capital. The risk is largest for the currencies where the Group has the largest net assets and where the exchange rate movements against SEK are largest.

The
translation differences are a central responsibility and are managed by distributing the loans on different currencies based on the net assets in each currency and through currency
forward contracts. Loans taken in the same currency as there are net assets in the Group, decrease these net assets and thereby decrease the translation exposure.

Interest risk

By interest risk is meant how changes in the interest level affect the financial net of the Group and how the value of financial instruments vary due to changes
in market interest rates. The Group attempts to manage interest-rate risk by matching fixed interest periods of financial assets and liabilities and through the use of derivative financial
instruments such as interest-rate swaps.

III-23

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The
financial policy states that the interest rate risk and duration are measured by each main currency. The interest duration for the loans must be between 0 and 3 months for
66 percent of the loans and between 6 and 36 months for 33 percent of the loans.

The
loan with the new banking syndicate accrues interest at floating rate. The Group has chosen to hedge 26 (22) (64) percent of the loan, with a duration of 9 months. The
subordinated loan from Tetra Laval Finance Ltd accrued interest at fixed rate, but has now been repaid. The bond loan accrues interest at fixed rate. Combined, this means that the Group has a
comparably low interest risk.

Calculated
on an overall increase of market rates by 100 interest points (1 percentage unit), the interest costs of the Group would increase by about SEK 9 (17) (16)
million.

Market risk

Market risk is defined as the risk for changes in the value of a financial instrument due to changed market prices. For all financial instruments, except the bond
loan, the price risk only consists of currency risk and interest risk. For the bond loan there is a market risk, but as long as a market value that is higher than the booked value does not have to be
reported in the balance sheet, this does not present a problem. IAS 39 will not change the reporting of the bond loan since it will still be valued at its acquisition value.

Liquidity risk

Liquidity risk is defined as the risk that the Group would incur increased costs due to lack of liquid funds.

On
April 15, 2004 Alfa Laval has signed a new senior credit facility with a banking syndicate. The former facility was transferred to a multi currency revolving credit facility.
The new facility is USD 325 million and EUR 150 million, corresponding to SEK 3,492.2 million. At December 31, 2004, SEK 1,286.1 million of the facility are
utilised. The new facility provides increased flexibility, improved terms and extended security of funding. The maturity of this facility is five years.

Cash flow risk

Cash flow risk is defined as the risk that the size of future cash flows linked to financial instruments is fluctuating. This risk is mostly linked to changed
interest and currency rates. To the extent that this is perceived as a problem, different derivative instruments are used to fix rates. See description of exposure and hedging measures under interest
risk.

Refinancing risk

Refinancing risk is defined as the risk that the refinancing of maturing loans becomes difficult or costly. The loans of the Group are mainly long term and only
mature when the agreed loan period expires. This means that the Group during the foreseeable future does not need to refinance maturing loans. On April 15, 2004 Alfa Laval has signed a new
senior credit facility with a banking syndicate. The former facility was transferred to a multi currency revolving credit facility. The new facility is USD 325 million and EUR
150 million, corresponding to SEK 3,492.2 million. At December 31, 2004, SEK 1,286.1 million of the facility are utilised. The new facility provides increased
flexibility, improved terms and extended security of funding. The maturity of this facility is five years.

Counterpart risks

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

III-24

---



The
Group maintains cash and bank and short and long-term investments with various financial institutions approved by the Group. These financial institutions are located in
major countries throughout the world and the Group's policy is designed to limit exposures to any one institution. The risk for a counterpart not fulfilling its commitments is limited through the
selection of financially solid counterparts and by limiting the engagement per counterpart. The Group performs periodic evaluations of the relative credit standing of those financial institutions that
are considered in its investment strategy. The Group does not require collateral on these financial instruments.

The
Group is exposed to credit risk in the event of non-performance by counterparts to derivative instruments. The Group limits this exposure by diversifying among
counterparts with high credit ratings and by limiting the volume of transactions with each counter party.

In
total it is the Group's opinion that the counterpart risks are limited.

Operational risks

Risk for bad debts

The risk for bad debts is referring to the risk that the customer cannot pay for delivered goods due to financial difficulties. The Group sells to a large number
of customers in countries all over the world. That some of these customers from time to time face payment problems or go bankrupt is unfortunately part of reality in an operation of Alfa Laval's
magnitude. All customers except Tetra Laval represent less than 1 percent of net sales and thereby represent a limited risk. Alfa Laval regularly collects credit information on new customers
and, if needed, on old customers. Earlier payment habits have an impact on the acceptance of new orders. On markets with political or financial risks, the Group strives to attain credit insurance
solutions. The Group's costs for bad debts are SEK 75.4 (42.2) (32.2) million.

Risk for claims

The risk for claims refers to the costs Alfa Laval would incur to rectify faults in products or systems and possible costs for penalties. Alfa Laval strives to
minimize these costs through an ISO certified quality assurance. The major risks for claim costs appear in connection with new technical solutions and new applications. The risks are limited through
extensive tests at the manufacturing site and at the customer site. The Group's claim costs have amounted to SEK 160.5 (151.5) (204.0) million.

Risk connected to technical development

This risk refers to the risk that some competitor develops a new technical solution that makes Alfa Laval's products technically obsolete and therefore difficult
to sell. Alfa Laval addresses this risk by a deliberate investment in research and development aiming at being in the absolute frontline of technical development.

Economic risk

Competition

The Group operates in competitive markets. The implemented split in divisions based on customer segments is a further step in the efforts to address this
competition. The restructuring programme being implemented gives the Group a cost level that is very competitive.

Business climate

In an overall economic downturn the Group tends to be affected with a delay of 6 to 12 months depending on customer segment. The same applies with an
economic upturn. The fact that the Group

III-25

---



is
operating on a large number of geographical markets and within a wide range of customer segments means a diversification that limits the effects of fluctuations in the business climate.
Historically, fluctuations in the business climate have not generated decreases in orders received by more than 10 percent.

Prices of raw material

The Group depends on deliveries of stainless steel, carbon steel, copper and titanium etc for the manufacture of products. The prices in some of these markets are
volatile and the supply of titanium has occasionally been limited. There is a limited number of possible suppliers of titanium. The risk for severely increased prices or limited supply constitutes
serious risks for the operations. The possibilities to pass on higher input prices to an end customer vary from time to time and between different markets depending on the competition. The Group is
addressing this risk by securing long-term supply commitments and through fixed prices from the suppliers during six to twelve months. During 2004 the Group has experienced higher prices
for many raw materials, but in particular for stainless steel, carbon steel, copper and titanium. The Group is considering starting to use metal futures to secure the price on strategic metals.

Environmental risks

This risk relates to the costs that the Group may incur to reduce emissions according to new or stricter environmental legislation, to restore land at previously
or currently owned industrial sites, to arrange more effective waist disposal, to obtain prolonged or new concessions etc. The Group has an ambition to be well within the boundaries that local
legislation sets, which should reduce the risks. The operations of the Group are not considered to have a significant environmental impact.

Political risk

Political risk is the risk that the authorities, in the countries where the Group is operating, by political decisions or administration make continued operations
difficult, expensive or impossible for the Group. The Group is mainly operating in countries where the political risk is considered to be negligible or minor. The operations that are performed in
countries where the political risk is deemed to be higher are not material.

Risk for and in connection with litigations

This risk pertains to the costs the Group may incur in managing litigations, costs in connection with settlements and costs for imposed penalties. The Group is
involved in a few litigations, mainly with customers. Any estimated loss risks are fully provided for.

Some
of the Group's subsidiaries are involved in two so-called Desert Storm litigations, where war veterans from the Persian Gulf war have sued a large number of companies
that are alleged to have delivered equipment to Iraq. The lawsuits, which were initiated in 1994, claim damages in excess of USD 1,000 million each. In Alfa Laval's opinion, adequate guarantees
have been received from Tetra Laval, covering possible losses related to these litigations.

Alfa
Laval's subsidiary in the United States, Alfa Laval Inc., was as of December 31, 2004, named as co-defendant in a total of 175 asbestos-related lawsuits
with a total of approximately 13,800 plaintiffs.

Alfa
Laval strongly believes the claims against the company are without merit and intends to vigorously contest each lawsuit.

During
the fourth quarter 2004, Alfa Laval Inc. was named as co-defendant in an additional 29 lawsuits with a total of approximately 50 plaintiffs. During the fourth
quarter 2004, 12 lawsuits involving

III-26

---



approximately
680 plaintiffs have been resolved. Alfa Laval Inc. has in addition been dismissed from the proceedings in respect of 840 plaintiffs in ongoing multiple plaintiffs lawsuits.

Furthermore,
the claims of approximately 5,700 plaintiffs pending against Alfa Laval Inc. in Mississippi were, during the fourth quarter 2004, transferred to a federal court in
Pennsylvania responsible for asbestos matters. The transferred claims are in addition to the claims of 522 plaintiffs, which were previously transferred to the same federal court. The court will
administratively treat these claims as inactive unless the plaintiffs are able to demonstrate that they have been injured by asbestos. Alfa Laval will treat these claims as effectively dismissed,
although it cannot be ruled out that one or more of the claims might be reinstated.

Alfa
Laval Inc. has insurance coverage for the asbestos-related claims under a large number of insurance policies issued by several insurance companies. Primary insurance policies
issued in favour of Alfa Laval Inc. provide for coverage of defence costs. Most of these insurance carriers have confirmed that they will, taken together, provide coverage for a substantial
majority of the costs arising from the claims. Alfa Laval is in the process of negotiating settlement agreements with certain of its insurance carriers. These negotiations primarily relates to the
extent of coverage and/or the documentation concerning the existence of certain insurance policies.

Based
on current information and Alfa Laval's understanding of these lawsuits, Alfa Laval continues to believe that these lawsuits will not have a material adverse effect on the
company's financial condition or results of operation.

Risk for technically related damages

This risk refers to the costs Alfa Laval may incur in connection with a product delivered by the Group breaking down and causing damages to life and property. The
main risk in this context concerns high-speed separators, due to the large forces that are involved when the bowl in the separator spins with a very high number of revolutions. In a
breakdown the damages can be extensive. Alfa Laval addresses these risks through extensive testing and an ISO certified quality assurance. The
Group has product liability insurance. The number of damages is low and few damages have occurred historically.

Insurance risks

These risks refer to the costs that Alfa Laval may incur due to an inadequate insurance coverage for property, business interruption, liability, transport, life
and pensions. The Group strives to maintain an insurance coverage that keeps the risk level at an acceptable level for a Group of Alfa Laval's size and is still cost efficient. At the same time a
continuous work is going on to minimise the risks in the operations through proactive measures.

Risks connected to credit terms

This risk is referring to the limited freedom of action that can be imposed on the Group through restrictions connected to credit terms in loan agreements. The
loan agreement with the new banking syndicate does not contain any such restrictions.

III-27

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Note 1. Segment reporting

Alfa Laval's primary segments are the two divisions"Equipment" and"Process Technology". The divisions are based on a split into a number of customer segments. The
customers to the Equipment division purchase products whereas the customers to the Process Technology division purchase solutions for processing applications. The Equipment division consists of six
customer segments: Comfort & Refrigeration, Fluids & Utility Equipment, Marine & Diesel, OEM (Original Equipment Manufacturers), Sanitary Equipment and the aftermarket segment
Parts & Service. The Process Technology division consists of five customer segments: Energy & Environment, Food Technology, Life Science, Process Industry and the aftermarket segment
Parts & Service.

Operations
are responsible for procurement, production and logistics. Other is referring to corporate overhead and non-core businesses.

Divisional reporting

Orders receivedConsolidated2004

2003

2002SEK in millionsEquipment

8,862.3

8,069.9

8,092.6Process Technology

6,818.0

5,990.6

6,488.1Operations and other

59.7

84.8

94.1Total

15,740.0

14,145.3

14,674.8


Order backlogConsolidated2004

2003

2002SEK in millionsEquipment

2,097.3

1,598.9

1,564.5Process Technology

2,640.6

2,398.0

2,752.6Operations and other

25.5

24.2

23.0Total

4,763.4

4,021.1

4,340.1


Net salesConsolidated2004

2003

2002SEK in millionsEquipment

8,250.4

7,841.8

8,129.6Process Technology

6,683.3

5,993.6

6,377.1Operations and other

52.1

73.9

88.2Total

14,985.8

13,909.3

14,594.9


III-28

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Operating incomeConsolidated2004

2003

2002SEK in millionsEquipment

1,002.4

1,022.6

1,098.8Process Technology

540.8

363.3

537.5Operations and other

(327.7
)
(247.9
)
(383.3
)Subtotal

1,215.5

1,138.0

1,253.0Comparison distortion items

36.7

5.6

(29.2
)Total

1,252.2

1,143.6

1,223.8


|                     |  | Assets   |  | Liabilities
|-------------------- |  | -------- |  | -----------
|
|
|
|Equipment            |  | 4,396.3  |  | 4,529.7    
|Process Technology   |  | 3,853.9  |  | 3,791.4    
|Operations and other |  | 3,959.8  |  | 4,129.7    
|                     |  |          |  |            
|Subtotal             |  | 12,210.0 |  | 12,450.8   
|Corporate            |  | 1,689.1  |  | 2,233.8    
|                     |  |          |  |            
|Total                |  | 13,899.1 |  | 14,684.6   
|                     |  |          |  |            

Corporate
refers to balance sheet items that are interest bearing or are related to taxes.

InvestmentsConsolidated2004

2003

2002SEK in millionsEquipment

31.8

25.1

24.8Process Technology

85.1

33.4

33.7Operations and other

270.6

200.0

218.2Total

387.5

258.5

276.7


DepreciationConsolidated2004

2003

2002SEK in millionsEquipment

226.3

236.6

250.5Process Technology

223.8

224.0

236.2Operations and other

295.7

326.6

351.3Total

745.8

787.2

838.0


Reporting by geographical markets

Alfa Laval's secondary segments are geographical markets. Countries with more than 10 percent of net sales, assets or investments are reported separately.

III-29

---



Presentation of geographical markets

Net sales

|Consolidated |                     | 2004
SEK in millions |         | %     |      | 2003
SEK in millions |         | %     |      | 2002
SEK in millions |         | %     |     
|------------ | ------------------- | -------------------- | ------- | ----- | ---- | -------------------- | ------- | ----- | ---- | -------------------- | ------- | ----- | ----
|Customers in |                     |                      |         |       |      |                      |         |       |      |                      |         |       |     
|             | Sweden              |                      | 887.6   |       | 5.9  | %                    | 893.2   |       | 6.4  | %                    | 835.1   |       | 5.7 
|             | Other EU            |                      | 5,706.5 |       | 38.0 | %                    | 5,186.4 |       | 37.3 | %                    | 5,343.4 |       | 36.7
|             | Other Europe        |                      | 1,196.5 |       | 8.0  | %                    | 1,118.7 |       | 8.0  | %                    | 1,116.2 |       | 7.6 
|             | USA                 |                      | 2,197.4 |       | 14.7 | %                    | 2,159.0 |       | 15.5 | %                    | 2,638.7 |       | 18.1
|             | Other North America |                      | 296.2   |       | 2.0  | %                    | 315.0   |       | 2.3  | %                    | 423.5   |       | 2.9 
|             | Latin America       |                      | 583.9   |       | 3.9  | %                    | 553.6   |       | 4.0  | %                    | 626.7   |       | 4.3 
|             | Africa              |                      | 177.3   |       | 1.2  | %                    | 182.7   |       | 1.3  | %                    | 69.6    |       | 0.5 
|             | Asia                |                      | 3,619.9 |       | 24.2 | %                    | 3,242.6 |       | 23.3 | %                    | 3,287.9 |       | 22.5
|             | Oceania             |                      | 320.5   |       | 2.1  | %                    | 258.1   |       | 1.9  | %                    | 253.8   |       | 1.7 
|             |                     |                      |         |       |      |                      |         |       |      |                      |         |       |     
|Total        |                     | 14,985.8             |         | 100.0 | %    | 13,909.3             |         | 100.0 | %    | 14,594.9             |         | 100.0 | %   
|             |                     |                      |         |       |      |                      |         |       |      |                      |         |       |     

Assets

|Consolidated |                     | 2004
SEK in millions |         | %     |      | 2003
SEK in millions |         | %     |      | 2002
SEK in millions |         | %     |     
|------------ | ------------------- | -------------------- | ------- | ----- | ---- | -------------------- | ------- | ----- | ---- | -------------------- | ------- | ----- | ----
|             | Sweden              |                      | 2,524.1 |       | 18.2 | %                    | 2,251.8 |       | 15.3 | %                    | 2,202.4 |       | 14.3
|             | Denmark             |                      | 1,549.9 |       | 11.1 | %                    | 1,578.8 |       | 10.7 | %                    | 1,627.0 |       | 10.5
|             | Other EU            |                      | 3,763.8 |       | 26.9 | %                    | 4,032.9 |       | 27.5 | %                    | 4,316.2 |       | 28.0
|             | Other Europe        |                      | 289.2   |       | 2.1  | %                    | 278.6   |       | 1.9  | %                    | 334.0   |       | 2.2 
|             | USA                 |                      | 1,578.2 |       | 11.4 | %                    | 1,877.2 |       | 12.8 | %                    | 2,208.7 |       | 14.3
|             | Other North America |                      | 206.7   |       | 1.5  | %                    | 323.6   |       | 2.2  | %                    | 247.2   |       | 1.6 
|             | Latin America       |                      | 244.0   |       | 1.8  | %                    | 220.4   |       | 1.5  | %                    | 237.4   |       | 1.5 
|             | Africa              |                      | 23.7    |       | 0.2  | %                    | 14.2    |       | 0.1  | %                    | 25.8    |       | 0.2 
|             | Asia                |                      | 1,879.9 |       | 13.5 | %                    | 1,687.9 |       | 11.5 | %                    | 1,924.9 |       | 12.5
|             | Oceania             |                      | 150.5   |       | 1.1  | %                    | 185.4   |       | 1.3  | %                    | 167.3   |       | 1.1 
|             |                     |                      |         |       |      |                      |         |       |      |                      |         |       |     
|Subtotal     |                     | 12,210.0             |         | 87.8  | %    | 12,450.8             |         | 84.8  | %    | 13,290.9             |         | 86.2  | %   
|             | Corporate           |                      | 1,689.1 |       | 12.2 | %                    | 2,233.8 |       | 15.2 | %                    | 2,135.7 |       | 13.8
|             |                     |                      |         |       |      |                      |         |       |      |                      |         |       |     
|Total        |                     | 13,899.1             |         | 100.0 | %    | 14,684.6             |         | 100.0 | %    | 15,426.6             |         | 100.0 | %   
|             |                     |                      |         |       |      |                      |         |       |      |                      |         |       |     

III-30

---



Investments

|Consolidated |                     | 2004
SEK in millions |       | %     |      | 2003
SEK in millions |      | %     |      | 2002
SEK in millions |      | %     |     
|------------ | ------------------- | -------------------- | ----- | ----- | ---- | -------------------- | ---- | ----- | ---- | -------------------- | ---- | ----- | ----
|             | Sweden              |                      | 166.2 |       | 42.8 | %                    | 85.4 |       | 32.9 | %                    | 62.8 |       | 22.7
|             | Denmark             |                      | 34.9  |       | 9.0  | %                    | 39.0 |       | 15.1 | %                    | 34.0 |       | 12.3
|             | Other EU            |                      | 96.9  |       | 25.0 | %                    | 59.0 |       | 22.8 | %                    | 56.6 |       | 20.5
|             | Other Europe        |                      | 4.2   |       | 1.1  | %                    | 3.3  |       | 1.3  | %                    | 6.9  |       | 2.5 
|             | USA                 |                      | 19.6  |       | 5.1  | %                    | 36.2 |       | 14.0 | %                    | 84.8 |       | 30.6
|             | Other North America |                      | 1.6   |       | 0.4  | %                    | 1.2  |       | 0.5  | %                    | 1.9  |       | 0.7 
|             | Latin America       |                      | 3.7   |       | 1.0  | %                    | 3.0  |       | 1.2  | %                    | 2.2  |       | 0.8 
|             | Africa              |                      | 0.2   |       | 0.1  | %                    | 0.7  |       | 0.3  | %                    | 0.6  |       | 0.2 
|             | Asia                |                      | 59.4  |       | 15.3 | %                    | 29.9 |       | 11.6 | %                    | 26.0 |       | 9.4 
|             | Oceania             |                      | 0.8   |       | 0.2  | %                    | 0.8  |       | 0.3  | %                    | 0.9  |       | 0.3 
|             |                     |                      |       |       |      |                      |      |       |      |                      |      |       |     
|Total        |                     | 387.5                |       | 100.0 | %    | 258.5                |      | 100.0 | %    | 276.7                |      | 100.0 | %   
|             |                     |                      |       |       |      |                      |      |       |      |                      |      |       |     

The
values for the "Other EU" and "Other Europe" regions have been adjusted for all periods in order to reflect the extension of the European Union on May 1, 2004 with 10 new
membership countries: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic and Slovenia.

Note 2. Average number of employeestotal

|                          |  | Number of female employees |  | Total number of employees
|------------------------- |  | -------------------------- |  | -------------------------
|
|
|Parent company            |  |                           |  |                         
|Subsidiaries in Sweden(7) |  | 353                        |  | 392                      
|                          |  |                            |  |                          
|Total in Sweden(7)        |  | 353                        |  | 392                      
|Total abroad(76)          |  | 1,499                      |  | 1,434                    
|                          |  |                            |  |                          
|Total for the group(83)   |  | 1,852                      |  | 1,826                    
|                          |  |                            |  |                          

The
figures in brackets in the text column state how many companies had employees as well as salaries and remunerations in 2004.

III-31

---



Note 2 Continued. Average number of employeesin Sweden by municipality

|Employees in Sweden   |  | 2004  |  | 2003  |  | 2002 
|--------------------- |  | ----- |  | ----- |  | -----
|Botkyrka              |  | 462   |  | 482   |  | 483  
|Eskilstuna            |  | 185   |  | 179   |  | 175  
|Göteborg              |  | 2     |  | 13    |  | 2    
|Lund                  |  | 967   |  | 965   |  | 951  
|Malmö                 |  | 3     |  | 3     |  | 3    
|Ronneby               |  | 242   |  | 234   |  | 240  
|Stockholm             |  | 4     |  | 3     |  | 3    
|Other municipalities* |  | 34    |  | 62    |  | 34   
|                      |  |       |  |       |  |      
|Total                 |  | 1,899 |  | 1,941 |  | 1,891
|                      |  |       |  |       |  |      

---

Note 2 Continued. Average number of employeesby country

|                     |  | Number of female employees |  | Total number of employees
|-------------------- |  | -------------------------- |  | -------------------------
|
|
|Argentina            |  | 11                         |  | 8                        
|Australia            |  | 17                         |  | 19                       
|Belgium              |  | 27                         |  | 28                       
|Brazil               |  | 20                         |  | 21                       
|Bulgaria             |  | 4                          |  | 4                        
|Canada               |  | 41                         |  | 59                       
|Chile                |  | 5                          |  | 5                        
|Colombia             |  | 5                          |  | 5                        
|Denmark              |  | 281                        |  | 269                      
|Estonia              |  | 2                          |  | 2                        
|Philippines          |  | 3                          |  | 3                        
|Finland              |  | 28                         |  | 28                       
|France               |  | 118                        |  | 119                      
|United Arab Emirates |  | 7                          |  | 7                        
|Greece               |  | 0                          |  | 5                        

III-32

---



|                                                    |  | Number of female employees |  | Total number of employees
|--------------------------------------------------- |  | -------------------------- |  | -------------------------
|
|
|Hong Kong                                           |  | 7                          |  | 7                        
|India                                               |  | 32                         |  | 32                       
|Indonesia                                           |  | 13                         |  | 13                       
|Iran                                                |  | 3                          |  | 2                        
|Italy                                               |  | 79                         |  | 69                       
|Japan                                               |  | 39                         |  | 31                       
|China                                               |  | 100                        |  | 88                       
|Korea                                               |  | 18                         |  | 15                       
|Latvia                                              |  | 4                          |  | 5                        
|Lithuania                                           |  | 4                          |  | 4                        
|Malaysia                                            |  | 26                         |  | 25                       
|Mexico                                              |  | 5                          |  | 5                        
|Netherlands                                         |  | 15                         |  | 17                       
|Norway                                              |  | 15                         |  | 15                       
|New Zeeland                                         |  | 5                          |  | 4                        
|Peru                                                |  | 7                          |  | 6                        
|Poland                                              |  | 23                         |  | 24                       
|Portugal                                            |  | 4                          |  | 3                        
|Romania                                             |  | 4                          |  | 5                        
|Russia                                              |  | 97                         |  | 98                       
|Switzerland                                         |  | 3                          |  | 2                        
|Singapore                                           |  | 21                         |  | 21                       
|Slovakia                                            |  | 1                          |  | 1                        
|Spain                                               |  | 36                         |  | 31                       
|UK*                                                 |  | 55                         |  | 53                       
|Sweden                                              |  | 353                        |  | 392                      
|South Africa                                        |  | 8                          |  | 9                        
|Taiwan                                              |  | 12                         |  | 12                       
|Thailand                                            |  | 12                         |  | 13                       
|Czech Republic                                      |  | 13                         |  | 14                       
|Turkey                                              |  | 8                          |  | 8                        
|Germany                                             |  | 66                         |  | 51                       
|Hungary                                             |  | 5                          |  | 5                        
|USA                                                 |  | 180                        |  | 154                      
|Venezuela                                           |  | 4                          |  | 4                        
|Austria                                             |  | 6                          |  | 6                        
|                                                    |  |                            |  |                          
|Total for the group                                 |  | 1,852                      |  | 1,826                    
|                                                    |  |                            |  |                          
|*of which employed by the joint venture Rolls Laval |  |                           |  |                         

III-33

---



Note 2. Continued. Sick leave among Swedish employees

Sick leave in percent of total normal working hours for each category

Consolidated

2004

2003Sick leave for:all employees

4.5
%
4.5
%all employees during 60 consecutive days or more

2.8
%
2.8
%female employees

5.8
%
6.0
%male employees

4.2
%
4.2
%employees at the age of 29 or younger

3.4
%
2.3
%employees between 30 and 49 years of age

3.6
%
4.1
%employees at the age of 50 or more

6.3
%
6.0
%


Note 2. Continued. Distribution of men/women among managers

|Consolidated                           |  | Number |  | 2004
Male |   | Female |   | Number |  | 2003
Male |   | Female |  
|-------------------------------------- |  | ------ |  | --------- | - | ------ | - | ------ |  | --------- | - | ------ | -
|Board members (excluding deputies)     |  | 3      |  | 100.0     | % | 0.0    | % | 3      |  | 100.0     | % | 0.0    | %
|President and other executive officers |  | 11     |  | 100.0     | % | 0.0    | % | 10     |  | 100.0     | % | 0.0    | %
|Managers in Sweden                     |  | 241    |  | 85.0      | % | 15.0   | % | 226    |  | 85.8      | % | 14.2   | %
|Managers outside Sweden                |  | 731    |  | 87.3      | % | 12.7   | % | 724    |  | 86.9      | % | 13.1   | %
|Managers total                         |  | 972    |  | 86.7      | % | 13.3   | % | 950    |  | 86.6      | % | 13.4   | %
|                                       |  |        |  |           |   |        |   |        |  |           |   |        |  
|Employees in Sweden                    |  | 1,899  |  | 81.4      | % | 18.6   | % | 1,941  |  | 79.8      | % | 20.2   | %
|Employees outside Sweden               |  | 7,501  |  | 80.0      | % | 20.0   | % | 7,253  |  | 80.2      | % | 19.8   | %
|Employees total                        |  | 9,400  |  | 80.3      | % | 19.7   | % | 9,194  |  | 80.1      | % | 19.9   | %
|                                       |  |        |  |           |   |        |   |        |  |           |   |        |  

Note 3. Salaries and remunerationstotal

Consolidated

2004

2003

2002SEK in millionsBoard of Directors, Presidents and Vice Presidents

123.3

120.8

133.8of which, bonus

18.1

20.7

18.3Other

2,995.9

2,887.3

2,815.9Total salaries and remunerations

3,119.2

3,008.1

2,949.7Social security costs

559.0

609.6

548.5Pension costs, defined benefit plans

145.1

157.9

161.9Pension costs, defined premium plans

237.6

206.1

222.8Total costs of personnel

4,060.9

3,981.7

3,883.0


The
Group's pension costs and pension liabilities relating to the Board of Directors, presidents and vice presidents amounts to SEK 43.3 (33.8) (46.8) million and SEK 300.9 (339.0)
(346.9) million
respectively. SEK 186.2 (201.3) (223.0) million of the pension liabilities is covered by the Alfa Laval Pension Fund.

Chief Executive Officer/Managing Director

The Chief Executive Officer and Managing Director Lars Renström receives a remuneration of SEK 1,624,501, of which bonus was -. The former Chief
Executive Officer and Managing Director Sigge Haraldsson received a remuneration of SEK 7,189,029 (5,076,417) (5,098,854), of which bonus was SEK 2,500,000 (-) (-). The bonus refers to bonus
paid during the year.

III-34

---



Lars
Renström currently has a base salary of SEK 4,000,000 per annum. He has a bonus opportunity with an un-guaranteed target bonus of 25 percent of the
base salary and with a maximum opportunity of 50 percent. He does not have an agreement on early retirement. The ordinary ITP up to a salary of 30 base amounts is funded in order to achieve
full ITP benefits at the age of 60. If Lars Renström continues his work in Alfa Laval after the age of 60 he will not receive any pension during the time he receives salary. On top of
the ordinary ITP he has a defined contribution benefit comprising 50 percent of the base salary. If he dies during the first two years of service these contributions to the defined contribution
pension scheme will total at least SEK 4,000,000. If Alfa Laval terminates his employment before the age of 59 he will receive two years' remuneration, between 59 and 60 he will receive one year's
remuneration and from 60 he will receive 6 months' remuneration. During the year, Alfa Laval has recorded costs for pension premiums of SEK 1.2 million.

Sigge
Haraldsson had an agreement on early retirement that gave him the option to enter into early retirement at his request from the age of 60. In a press release on January 27,
2004 Sigge Haraldsson communicated his intention to retire in accordance with the agreement in connection with his sixtieth birthday in October 2004. He retired on September 30, 2004.
The agreement provided a pension level of 70 percent of the salary at the time of retirement after the age of 58. At early retirement, the company maintains the payments of pension premiums as
if the employment had lasted until the age of 65. In connection with the early retirement Alfa Laval has paid premiums related to the period up to age 65 of SEK 12.9 million. Out of this SEK
12.6 million had been provided for in prior years, which means that the cost in 2004 was SEK 0.3 million. For the part of the salary that is above the ITP plan's 30 base amounts, the old
age pension after 65 is paid with 52.5 percent of the salary up to 80 base amounts and above that with 32.5 percent and family pension with 16.25 percent of the salary. He had a
special family pension that represents a life long supplement between the old age pension and the family pension according to ITP. During the year, Alfa Laval has recorded costs for ordinary pension
premiums of SEK 4.1 (4.9) (7.2) million, of which SEK 1.4 (1.7) (3.4) million relates to premiums for early retirement that are paid during a short period of time. There was no separate
agreement on severance pay.

Other executive officers

Other executive officers are the ten members of Group Management in addition to the Chief Executive Officer. Their remunerations amount to SEK 19.1 (20.8) (21.3)
million, of which bonuses were SEK 2.2 (4.5) (4.1) million. The bonus refers to bonus paid during the year.

For
these executive officers, early retirement can be offered from the age of 60. The agreement normally gives a pension level of 75 percent of the salary at the time of
retirement up to 30 base amounts and above that 50 percent of the salary. Old age pension after 65 and family pension according to ITP do also include the part of the salary above the ITP
plan's 30 base amounts. They have a special family pension that represents a supplement between the old age pension and the family pension according to ITP. In addition to that they may exchange
salary and bonus for a temporary old age and family pension.

Alfa
Laval has made commitments for severance pay to a limited group of senior executives. The commitments are restricted to a maximum amount of two annual salaries. The commitments
define the conditions that must be fulfilled in order for them to become valid.

DECISION PROCEDURES FOR REMUNERATIONS TO GROUP MANAGEMENT

The remunerations to the Chief Executive Officer/Managing Director and other members of Group Management are decided in the remunerations' committee within the
Board. The principle used when deciding the remunerations to executive officers is that the remuneration is mainly based on a fixed monthly salary, with an option for a company car and in addition to
that a floating remuneration in the form of a yearly bonus up to 30 percent of the salary. The size of the resulting bonus depends on the outcome of a number of financial measurements and the
result of special projects, all compared with the objectives that have been established for the year.

III-35

---



Note 3 Continued. Salaries and remunerationsby country

|                     |  | Board of Directors, Presidents and Vice Presidents |  |      |  |      |  |      
|-------------------- |  | -------------------------------------------------- |  | ---- |  | ---- |  | -----
|
|
|
|
|Argentina            |  | 0.6                                                |  | 0.6  |  | 0.5  |  | 3.1  
|Australia            |  | 2.9                                                |  | 2.7  |  | 2.6  |  | 20.6 
|Belgium              |  | 3.5                                                |  | 3.1  |  | 3.3  |  | 55.1 
|Brazil               |  | 1.3                                                |  | 1.3  |  | 1.1  |  | 13.1 
|Bulgaria             |  | 0.3                                                |  | 0.3  |  | 0.2  |  | 1.2  
|Canada               |  | 2.0                                                |  | 3.5  |  | 3.3  |  | 71.9 
|Chile                |  | 0.0                                                |  | 0.0  |  | 0.0  |  | 3.6  
|Colombia             |  | 0.6                                                |  | 0.5  |  | 0.4  |  | 1.6  
|Denmark              |  | 9.1                                                |  | 11.9 |  | 9.1  |  | 566.2
|Estonia              |  | 0.1                                                |  | 0.0  |  | 0.0  |  | 0.3  
|Philippines          |  | 0.3                                                |  | 0.4  |  | 0.4  |  | 1.3  
|Finland              |  | 2.4                                                |  | 2.5  |  | 2.6  |  | 41.3 
|France               |  | 1.9                                                |  | 2.8  |  | 3.4  |  | 181.1
|United Arab Emirates |  | 1.5                                                |  | 1.2  |  | 1.7  |  | 10.6 
|Greece               |  | 0.0                                                |  | 0.0  |  | 0.0  |  | 0.6  
|Hong Kong            |  | 2.1                                                |  | 2.8  |  | 3.4  |  | 14.8 
|India                |  | 1.7                                                |  | 1.5  |  | 1.2  |  | 38.4 
|Indonesia            |  | 1.0                                                |  | 0.6  |  | 0.5  |  | 4.1  
|Iran                 |  | 0.0                                                |  | 0.0  |  | 0.0  |  | 1.3  
|Italy                |  | 2.5                                                |  | 3.1  |  | 4.5  |  | 149.2
|Japan                |  | 10.5                                               |  | 6.9  |  | 8.8  |  | 80.4 
|China                |  | 0.2                                                |  | 0.0  |  | 0.0  |  | 37.2 
|Korea                |  | 1.3                                                |  | 1.3  |  | 1.0  |  | 20.3 
|Latvia               |  | 0.5                                                |  | 0.5  |  | 0.4  |  | 1.3  
|Lithuania            |  | 0.0                                                |  | 0.0  |  | 0.0  |  | 0.8  
|Malaysia             |  | 1.0                                                |  | 1.4  |  | 1.5  |  | 9.4  
|Mexico               |  | 1.5                                                |  | 1.5  |  | 1.7  |  | 7.6  
|Netherlands          |  | 3.1                                                |  | 2.6  |  | 2.3  |  | 48.7 
|Norway               |  | 1.3                                                |  | 1.6  |  | 1.3  |  | 30.6 
|New Zeeland          |  | 0.9                                                |  | 0.6  |  | 0.4  |  | 6.7  
|Peru                 |  | 0.0                                                |  | 0.6  |  | 1.1  |  | 3.0  
|Poland               |  | 1.7                                                |  | 2.4  |  | 4.0  |  | 12.6 
|Portugal             |  | 0.0                                                |  | 0.4  |  | 1.8  |  | 4.2  
|Romania              |  | 0.4                                                |  | 0.0  |  | 0.0  |  | 1.5  
|Russia               |  | 0.0                                                |  | 0.0  |  | 1.4  |  | 29.1 
|Switzerland          |  | 1.5                                                |  | 1.5  |  | 1.9  |  | 10.9 
|Singapore            |  | 1.3                                                |  | 1.4  |  | 1.4  |  | 10.1 
|Slovakia             |  | 0.0                                                |  | 0.0  |  | 0.1  |  | 1.1  
|Spain                |  | 1.8                                                |  | 1.8  |  | 1.8  |  | 68.8 
|UK                   |  | 2.3                                                |  | 0.0  |  | 4.8  |  | 124.0
|Sweden               |  | 20.7                                               |  | 22.5 |  | 21.6 |  | 732.5
|South Africa         |  | 1.6                                                |  | 1.6  |  | 0.6  |  | 6.8  
|Taiwan               |  | 0.8                                                |  | 0.7  |  | 0.9  |  | 6.5  

III-36

---





|                    |  | Board of Directors, Presidents and Vice Presidents |  |       |  |       |  |        
|------------------- |  | -------------------------------------------------- |  | ----- |  | ----- |  | -------
|
|
|
|
|Thailand            |  | 1.1                                                |  | 1.1   |  | 1.3   |  | 3.8    
|Czech Republic      |  | 2.2                                                |  | 0.7   |  | 0.8   |  | 7.5    
|Turkey              |  | 1.4                                                |  | 1.4   |  | 1.1   |  | 6.9    
|Germany             |  | 5.9                                                |  | 7.3   |  | 13.9  |  | 105.9  
|Hungary             |  | 0.9                                                |  | 0.8   |  | 0.7   |  | 3.9    
|USA                 |  | 24.2                                               |  | 20.4  |  | 17.0  |  | 423.4  
|Venezuela           |  | 0.4                                                |  | 0.0   |  | 0.0   |  | 1.8    
|Austria             |  | 1.0                                                |  | 1.0   |  | 1.7   |  | 9.2    
|                    |  |                                                    |  |       |  |       |  |        
|Total for the group |  | 123.3                                              |  | 120.8 |  | 133.8 |  | 2,995.9
|                    |  |                                                    |  |       |  |       |  |        

Note 4. Information on auditors and auditors' fee

Anders Scherman has resigned from his assignment as auditor of the Alfa Laval Group and has been replaced by Kerstin Mouchard in connection with the Annual
General Meeting of shareholder in April 2004.

During
2004 quotations were taken in from four of the large international audit firms. After a selection process, Ernst & Young were re-assigned to be the Group's
auditors as of year 2004 and four years ahead.

Fees
and expense compensation

Consolidated



2004

2003

2002SEK in millionsAuditErnst & Young

10.9

10.9

12.7Other audit firms

1.0

1.1

1.1Total

11.9

12.0

13.8Other projectsErnst & Young

6.3

2.7

2.8Other audit firms

5.8

4.8

6.6Total

12.1

7.5

9.4


An
audit includes examining the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. It also includes an examination in order to give an opinion on the Board's discharge from liability. All other assignments are defined as other projects.

Note 5. Advertising costs

Advertising costs have amounted to SEK 49.0 (47.3) (40.0) million. These refer to costs for advertisements in newspapers and technical press, participation in
trade fairs and brochures.

III-37

---



Note 6. Comparison distortion items

Consolidated

2004

2003

2002SEK in millionsOperationalOther operating income

271.3

242.4

268.7Comparison distortion income

53.9

5.6

14.0Total other operating income

325.2

248.0

282.7Other operating costs

(451.8
)
(366.4
)
(663.6
)Comparison distortion costs

(17.2
)


(43.2
)Total other operating costs

(469.0
)
(366.4
)
(706.8
)FinancialInterest expense

(349.1
)
(601.3
)
(803.5
)Comparison distortion costs





(290.7
)Total interest expense

(349.1
)
(601.3
)
(1,094.2
)


Specification of operational gains and losses

Consolidated

2004

2003

2002SEK in millionsGain on:Sale of real estate

53.9

5.6

Sale of Industrial Flow





14.0Subtotal gains

53.9

5.6

14.0Loss on:Sale of real estate

(2.2
)


(43.2
)Sale of Tri-Lad

(15.0
)


Subtotal losses

(17.2
)


(43.2
)Net total

36.7

5.6

(29.2
)


During
September 2004 the property in Kenosha, USA, has been divested for SEK 45.3 million with a realised loss of SEK -1.7 million. On July 7,
2004, the property in Madrid, Spain, was divested for SEK 265.1 million with a realised gain of SEK 47.5 million. The divestment of the Tri-Lad operations in Canada has
generated a loss of SEK -15.0 million. The sale of some minor properties in Brazil and India has resulted in a realised gain of SEK 6.4 million whereas the sale of a minor
property in Denmark has resulted in a realised loss of SEK -0.5 million.

On
February 26, 2003 the property in Newmarket in Canada was sold for SEK 20.0 million, with a realised gain of SEK 3.6 million. In connection with the
construction of a new headquarter building in Lund a piece of land was sold to the new landlord for SEK 3.8 million with a realised gain of SEK 2.0 million.

The
sale of the property in Warminster, the United States was completed in March 2002 at a price of SEK 62.1 million and with a realised loss of SEK
-43.2 million. The divestment of the operation called Industrial Flow was made on April 2, 2001. A few activities remained before the divestment could be completed. During
September 2002 a final settlement was made with the buyer, resulting in an increase of the realised gain by SEK 14.0 million.

III-38

---



In
connection with the dissolution of the pre-IPO capital structure in 2002, the income statement was charged with non-recurring financial costs of SEK
-304.8 million. These consisted of the reversal of capitalised financing costs of totally SEK -219.6 million in connection with the repayment of the loan from
Tetra Laval Finance Ltd, the replacement of the previous syndicated loans and the amortisation of the bond loan as well as the premium of SEK -85.2 million at the repayment
of 35 percent of the bond loan of EUR 220 million.

Note 7. Depreciation by function

Consolidated

2004

2003

2002SEK in millionsCost of goods sold

(423.5
)
(455.9
)
(478.0
)Sales

(51.8
)
(50.8
)
(60.1
)Administration

(67.8
)
(72.8
)
(97.9
)Research and development

(6.1
)
(7.2
)
(7.5
)Other income and costs

(5.1
)
(9.2
)
(6.8
)Goodwill

(191.5
)
(191.3
)
(187.7
)Total

(745.8
)
(787.2
)
(838.0
)


Note 8. Depreciation by type of assets

Consolidated

2004

2003

2002SEK in millionsGoodwill

(191.5
)
(191.3
)
(187.7
)Patents, trademarks, etc.

(194.9
)
(204.7
)
(208.3
)Machinery and equipment

(287.4
)
(316.1
)
(351.4
)Financial leasing machinery and equipment

(3.3
)
(4.7
)
(7.8
)Buildings and ground installations

(68.7
)
(70.4
)
(82.8
)Total

(745.8
)
(787.2
)
(838.0
)


Note 9. Result from other securities and receivables accounted for as fixed assets

Consolidated

2004

2003

2002SEK in millionsDividends from other

3.1

6.9

7.8Total

3.1

6.9

7.8


III-39

---



Note 10. Interest income/costs and similar result items

Consolidated

2004

2003

2002SEK in millionsInterest incomeFinancial leasing

0.3

0.8

0.2Other interest

91.1

132.9

139.5Exchange gainsUnrealised

45.1

42.6

46.3Realised

29.9

91.2

136.7Total

166.4

267.5

322.7Interest costsFinancial leasing

(0.8
)
(1.4
)
(2.7
)Other interest

(283.9
)
(404.8
)
(644.2
)Comparison distortion items





(290.7
)Exchange lossesUnrealised

(11.4
)
(101.7
)
(26.0
)Realised

(53.0
)
(93.4
)
(130.6
)Total

(349.1
)
(601.3
)
(1,094.2
)


In
the Group, reported net exchange differences of SEK -19.2 (194.8) (164.9) million relating to debts in foreign currencies have been charged to unrestricted equity. These
debts finance the acquisition of shares in foreign subsidiaries and act as a hedge to the acquired net assets. Since 2003 the amount is charged with tax, due to the estimated absorption of tax losses
in Sweden, resulting in a net after tax equity impact of SEK -13.8 (140.3) million.

Note 11. Minority interest

The minority share in subsidiaries' result and minority interests in the balance sheet relate to four subsidiaries in India and Russia where minority owners
exist.

Note 12. Taxes on this year's result and other taxes for the Group

Consolidated

2004

2003

2002SEK in millionsThe major components of the Group's tax costsCurrent tax cost

(294.9
)
(341.6
)
(336.0
)Adjustment for current taxes on prior periods

(8.2
)
38.1

72.1Deferred tax costs/income on changes in temporary differences

(1.3
)
153.3

95.0Deferred tax costs/income on changes in tax rates or new taxes



(14.0
)
3.4Tax income from previously unrecognised tax losses or tax credits on temporary differences of prior periods

10.2

40.4

6.0Deferred tax income from previously unrecognised tax losses or tax credits on temporary differences of prior periods



26.1

0.3Deferred tax cost from the write down or reversal of a previous write down of a deferred tax asset

(3.0
)
(17.0
)
(26.5
)Other taxes

(29.6
)
(19.8
)
(32.6
)Total tax cost

(326.8
)
(134.5
)
(218.3
)


III-40

---



The
difference between the tax costs of the group and the tax cost based upon applicable tax rates, can be explained as follows:

Consolidated

2004

2003

2002SEK in millionsResult before minority interests and tax

1,072.6

816.7

460.1Tax according to applicable tax rates

(253.3
)
(194.7
)
(133.6
)Tax effect of:Non-deductible effect of depreciation of goodwill

(63.2
)
(63.1
)
(61.9
)Equity hedge (tax effect not booked prior to 2003)





(46.2
)Non-deductible costs

(161.5
)
(26.8
)
(127.1
)Non-taxable income

86.1

44.0

131.4Differences between reported official depreciation and depreciation according to tax rules

1.1

(16.0
)
(7.2
)Differences between reported other official appropriations and other appropriations according to tax rules

(12.3
)
(50.8
)
(40.7
)Tax losses and tax credits

114.1

154.6

2.8Other

(29.6
)
(19.8
)
(7.9
)Adjustment for current tax on prior periods

(8.2
)
38.1

72.1Total tax costs

(326.8
)
(134.5
)
(218.3
)


Since
2003 the equity hedge is charged with tax, due to the estimated absorption of tax losses in Sweden. For 2002 and earlier this means that the tax effect calculated on result before
minority interests and tax has been adjusted. Tax losses and tax credits for 2003 are referring to used tax losses in Sweden.

Temporary
differences exist when there is a difference between the book value and the tax base of assets and liabilities. The Group's temporary differences have resulted in a deferred
tax asset or a deferred tax liability relating to the following assets and liabilities:

2004

2003Consolidated

Deferred tax

Deferred taxasset

liability

asset

liabilitySEK in millionsIntangible assets

34.5

272.1

51.3

338.3Tangible assets

19.4

337.6

45.8

404.9Inventory

70.5

15.9

79.5

18.0Other current assets

2.9

14.8

3.7

1.2Financial assets



7.6



Short term liabilities

373.7

60.6

332.8

65.4Tax losses and tax credits*

8.7



8.0

Other

1.4

86.9

2.9

40.8Subtotal

511.1

795.5

524.0

868.6Possible to net

(57.7
)
(57.7
)
(51.6
)
(51.6
)Total deferred taxes

453.4

737.8

472.4

817.0


---

III-41

---



In
the Group there are temporary differences and unused tax losses and tax credits of SEK 1,491.4 (1,317.4) million that have not resulted in corresponding deferred tax assets, since
these are not likely to be used.

The
nominal tax rate has changed in the following countries during 2004 to 2002.

Tax rates in percentageConsolidated2004

2003

2002Iran

25

40

40Singapore

20

22

22China

13

11

11United Arab Emirates

10

0

7Switzerland

20

24

24Turkey

30

30

28Latvia

15

22

22Canada

37

37

39Peru

30

27

25Belgium

34

34

40Bulgaria

20

24

20Slovakia

19

25

29Czech Republic

28

28

31Poland

19

19

28Hong Kong

18

16

16Austria

25

34

34Hungary

16

18

18Portugal

35

32

32


The
Group's normal effective tax rate is approximately 33 (33) (33) percent based on taxable result, and it is calculated as a weighted average based on each subsidiary's part of
the result before tax. Due to non-deductible depreciation of goodwill the actual tax rate was 36.6 (13.5) percent during 2004.

Note 13. Goodwill and step-up values related to the acquisition on August 24, 2000

When Industri Kapital acquired the Alfa Laval Group from Tetra Laval on August 24, 2000, the acquisition value for the shares was SEK
8,213.8 million. Below is shown a summary of the goodwill and the group step-up or step down values that the acquisition resulted in per type of asset at

III-42

---



August 24,
2000 and at December 31, 2004. The goodwill is amortised over 20 years. The corresponding presentation by asset type is found in Notes 14 and 15.

|                               |  |         |   | Alfa Laval 2004 |  
|------------------------------ |  | ------- | - | --------------- | -
|
|
|Buildings                      |  | 1,058.5 |   | 553.8           |  
|Land and land improvements     |  | (228.4  | ) | (110.2          | )
|Machinery                      |  | 548.3   |   | 369.8           |  
|Equipment                      |  | 452.1   |   | 310.9           |  
|Construction in progress       |  | 15.9    |   |                |  
|Inventory                      |  | 340.2   |   |                |  
|Patent and trademarks          |  | 461.3   |   | 378.2           |  
|Technology                     |  | 1,279.8 |   | 683.1           |  
|Research and development       |  | 53.6    |   |                |  
|Capital gain (Industrial Flow) |  | 41.8    |   |                |  
|                               |  |         |   |                 |  
|Subtotal step-up values        |  | 4,023.1 |   | 2,185.6         |  
|Goodwill                       |  | 3,276.6 |   | 3,098.5         |  
|Total                          |  | 7,299.7 |   | 5,284.1         |  
|                               |  |         |   |                 |  

For assets sold, net gains or losses are recognised on the costs basis including any related step-up value. Construction in process
was transferred to machinery in 2001.

The
difference between the purchase price paid and the net assets acquired in bioKinetics has due to the settlement decreased. SEK 23.8 million of the remaining amount has been
allocated to patents and un-patented know-how, while the residual SEK 84.3 million has been allocated to goodwill. The goodwill is amortised over 10 years.

The
off-setting increase of SEK 9.4 million in goodwill is related to purchase price adjustments during 2004 concerning the acquisitions of Danish Separation Systems
A/S in 2002 and Toftejorg in 2003.

There
is no deferred tax liability calculated on the goodwill. The deferred tax liability on the other step-up values is SEK 554.7 (686.3) million.

III-43

---



Note 14. Intangible fixed assets

Consolidated

2004

2003SEK in millionsConcessions, patents, licenses, trademarks and similar rightsOpening balance, accumulated acquisition values

2,076.7

2,132.8Purchases

48.1

5.0Acquisition of businesses

4.6

22.3Sales/disposals

(0.2
)
Reclassifications

(12.7
)
Step-up values, patents and trademarks



21.0Translation difference for the year

(49.5
)
(104.4
)Closing balance, accumulated acquisition values

2,067.0

2,076.7Opening balance, accumulated depreciation

(975.9
)
(799.2
)Reclassifications

0.1

Depreciation of step-up value, patent & trademarks

(20.7
)
(22.3
)Depreciation of step-up value, technology

(164.9
)
(168.5
)Depreciation for the year

(9.2
)
(13.8
)Translation difference for the year

26.7

27.9Closing balance, accumulated depreciation

(1,143.9
)
(975.9
)Closing balance, net book value

923.1

1,100.8GoodwillOpening balance, accumulated acquisition values

3,653.8

3,768.6Goodwill in connection with acquisition of businesses



161.9Additional purchase price

9.4

Reduction of purchase price

(37.0
)
Translation difference for the year

(113.2
)
(276.7
)Closing balance, accumulated acquisition values

3,513.0

3,653.8Opening balance, accumulated depreciation

(555.3
)
(399.6
)Depreciation for the year

(191.5
)
(191.3
)Translation difference for the year

28.4

35.6Closing balance, accumulated depreciation

(718.4
)
(555.3
)Closing balance, net book value

2,794.6

3,098.5Renting rights and similar rightsOpening balance, accumulated acquisition values

1.2

1.1Purchases

0.2

0.1Closing balance, accumulated acquisition values

1.4

1.2Opening balance, accumulated depreciation

(0.5
)
(0.4
)Depreciation for the year

(0.1
)
(0.1
)Closing balance, accumulated depreciation

(0.6
)
(0.5
)Closing balance, net book value

0.8

0.7


III-44

---



Note 15. Property, plant and equipment

Consolidated

2004

2003SEK in millionsReal estateOpening balance, accumulated acquisition values

1,828.6

1,971.2Purchases

26.9

13.6Acquisition of businesses



9.0Sales/disposal

(92.1
)
(46.3
)Reclassifications

1.9

29.8Realisation of step-up values due to sale

(84.0
)
(0.8
)Translation difference for the year

(53.8
)
(147.9
)Closing balance, accumulated acquisition values

1,627.5

1,828.6Opening balance, accumulated depreciation

(745.4
)
(750.7
)Sales/disposals

35.1

6.6Acquisition of businesses



(2.3
)Reclassifications

(1.3
)
(3.9
)Realisation of step-up values due to sale

16.0

Depreciation of step-up value

(23.8
)
(26.0
)Depreciation for the year

(44.1
)
(43.6
)Translation difference for the year

22.0

74.5Closing balance, accumulated depreciation

(741.5
)
(745.4
)Opening balance, accumulated revaluations, net

88.0

89.4Sales/disposals

(28.5
)
Reclassifications



(0.6
)Revaluation for the year

0.7

Depreciation for the year on revaluations

(0.8
)
(0.8
)Closing balance, accumulated revaluations, net

59.4

88.0Closing balance, net book value

945.4

1,171.2Machinery and other technical installationsOpening balance, accumulated acquisition values

2,500.8

2,611.6Purchases

88.4

85.1Acquisition of businesses



14.1Sales/disposal

(103.0
)
(40.4
)Reclassifications

7.9

(10.4
)Realisation of step-up values due to sale

(3.2
)
Translation difference for the year

(66.4
)
(159.2
)Closing balance, accumulated acquisition values

2,424.5

2,500.8Opening balance, accumulated depreciation

(1,645.3
)
(1,628.5
)Sales/disposals

81.7

37.4Reclassifications

(6.4
)
8.2Realisation of step-up values due to sale

1.1

Depreciation of step-up value

(55.4
)
(56.7
)Depreciation for the year

(97.7
)
(116.1
)Translation difference for the year

49.2

110.4Closing balance, accumulated depreciation

(1,672.8
)
(1,645.3
)Closing balance, net book value

751.7

855.5


III-45

---



Note 15 Continued. Property, plant and equipment

Consolidated

2004

2003SEK in millionsEquipment, tools and installationsOpening balance, accumulated acquisition values

1,969.1

2,024.6Purchases

86.7

71.9Acquisition of businesses



25.2Sales/disposal

(93.6
)
(71.6
)Reclassifications



26.2Translation difference for the year

(65.0
)
(107.2
)Closing balance, accumulated acquisition values

1,897.2

1,969.1Opening balance, accumulated depreciation

(1,325.0
)
(1,317.3
)Sales/disposals

97.8

67.2Acquisition of businesses



(11.7
)Reclassifications

7.8

5.8Depreciation of step-up value

(28.6
)
(29.3
)Depreciation for the year

(105.7
)
(113.7
)Translation difference for the year

49.8

74.0Closing balance, accumulated depreciation

(1,303.9
)
(1,325.0
)Opening balance, accumulated revaluations, net

14.2

15.9Sales/disposals



(1.3
)Reclassifications



(0.2
)Revaluation for the year

0.1

0.1Depreciation for the year on revaluations



(0.3
)Closing balance, accumulated revaluations, net

14.3

14.2Closing balance, net book value

607.6

658.3Construction in progress and advances to suppliers concerning property, plant and equipmentOpening balance, accumulated acquisition values

58.2

40.8Purchases

137.2

76.1Sales/disposal



(0.2
)Reclassifications

(19.6
)
(52.5
)Translation difference for the year

(3.9
)
(6.0
)Closing balance, accumulated acquisition values

171.9

58.2Closing balance, net book value

171.9

58.2


III-46

---



Note 15 Continued. Property, plant and equipment

Consolidated

2004

2003SEK in millionsLeased machineryOpening balance, accumulated acquisition values

8.3

14.1Sales/disposal



(5.6
)Translation difference for the year

(0.1
)
(0.2
)Closing balance, accumulated acquisition values

8.2

8.3Opening balance, accumulated depreciation

(5.3
)
(7.1
)Sales/disposals



3.1Depreciation for the year

(0.7
)
(1.4
)Translation difference for the year



0.1Closing balance, accumulated depreciation

(6.0
)
(5.3
)Closing balance, net book value

2.2

3.0Leased equipment, tools and installationsOpening balance, accumulated acquisition values

22.6

44.7Purchases

1.2

6.7Acquisition of businesses



0.6Sales/disposal

(13.1
)
(10.5
)Reclassifications

1.8

(15.3
)Translation difference for the year

0.1

(3.6
)Closing balance, accumulated acquisition values

12.6

22.6Opening balance, accumulated depreciation

(12.3
)
(25.9
)Sales/disposals

6.1

9.1Acquisition of businesses



(0.2
)Reclassifications

(2.5
)
6.5Depreciation for the year

(2.6
)
(3.3
)Translation difference for the year

0.2

1.5Closing balance, accumulated depreciation

(11.1
)
(12.3
)Closing balance, net book value

1.5

10.3


Leased machinery and equipment relate to fixed assets which are leased and where the leasing agreement has been considered to be a financial
lease. These financial leases are capitalised in the balance sheet.

The
tax assessment value of the Swedish real estate at December 31, 2004 amounted to SEK 126.8 (124.5) million, out of which SEK 49.1 (47.2) million referred to land and land
improvements and SEK 77.7 (77.3) million buildings. The book values of the Swedish real estate amounted to SEK 72.0 (72.6) million, out of which land and land improvements were SEK 21.7 (18.7)
million and buildings SEK 50.3 (53.9) million.

III-47

---



Note 16. Financial long-term assets

Consolidated

2004

2003SEK in millionsShares in subsidiaries



Shares in other companies

2.9

22.5Total

2.9

22.5


Specification of shares in subsidiaries

|Company name                  |                                            | Registration
number                        |             | Domicile |                   | Number
of
shares |            | Share
of
capital
% |     | Book
value
SEK in
millions
|----------------------------- | ------------------------------------------ | ------------------------------------------ | ----------- | -------- | ----------------- | ---------------- | ---------- | ------------------ | --- | --------------------------
|Alfa Laval Special Finance AB |                                            | 556587-8062                                |             | Lund     |                   |                  |            | 100                |     | 4,460.9                   
|                              | Alfa Laval Holding AB                      |                                            | 556025-2792 |          | Lund              |                  |            |                    | 100 |                           
|Alfa Laval Holding AB         |                                            | 556025-2792                                |             | Lund     |                   | 12,500,000       |            | 100                |     | 0,0                       
|Alfa Laval NV                 |                                            |                                            |             | Maarssen |                   | 227,754          |            | 100                |     | 0.0                       
|                              | Alfa Laval Inc                             |                                            |             |          | Newmarket         |                  | 1,000,000  |                    | 67  |                           
|                              |                                            | Tri-Lad Inc                                |             |          |                   | Brantford        |            | 4,000              |     | 100                       
|                              |                                            | Alfa Laval BioKinetics Inc                 |             |          |                   | Toronto          |            | 1,800              |     | 100                       
|                              | Alfa Laval S.A. DE C.V.                    |                                            |             |          | Tlalnepantla      |                  | 45,057,057 |                    | 100 |                           
|                              | Alfa Laval S.A.                            |                                            |             |          | San Isidro        |                  | 699        |                    | 100 |                           
|                              | Alfa Laval Ltda                            |                                            |             |          | Sao Paulo         |                  |            |                    | 100 |                           
|                              |                                            | Roston do Brasil Ltda                      |             |          |                   | Sao Paulo        |            | 5,249              |     | 100                       
|                              | Alfa Laval S.A.C.I.                        |                                            |             |          | Santiago          |                  | 2,735      |                    | 100 |                           
|                              | Alfa Laval S.A.                            |                                            |             |          | Bogota            |                  | 12,195     |                    | 100 |                           
|                              | Alfa Laval S.A.                            |                                            |             |          | Lima              |                  | 4,346,832  |                    | 100 |                           
|                              | Alfa Laval Venezolana S.A.                 |                                            |             |          | Caracas           |                  | 10,000     |                    | 100 |                           
|                              |                                            | Alfa Laval Oilfield C.A.                   |             |          |                   | Caracas          |            | 203                |     | 81                        
|                              | Alfa Laval Phe Co Ltd                      |                                            |             |          | Jiang Yin         |                  |            |                    | 100 |                           
|                              |                                            | Alfa Laval Flow Equipment (Kunshan) Co Ltd |             |          |                   | Jiangsu          |            |                    |     | 75                        
|                              | Alfa Laval Flow Equipment (Kunshan) Co Ltd |                                            |             |          | Jiangsu           |                  |            |                    | 25  |                           
|                              | Alfa Laval (Shanghai) Technologies Co Ltd  |                                            |             |          | Shanghai          |                  |            |                    | 100 |                           
|                              | Alfa Laval Taiwan Ltd                      |                                            |             |          | Taipei            |                  | 1,499,994  |                    | 100 |                           
|                              | Alfa Laval (China) Ltd                     |                                            |             |          | Hong Kong         |                  | 79,999     |                    | 100 |                           
|                              | PT Alfa Laval Separatama                   |                                            |             |          | Jakarta           |                  | 1,000      |                    | 80  |                           
|                              | Alfa Laval Iran Ltd                        |                                            |             |          | Teheran           |                  | 2,199      |                    | 100 |                           
|                              | Alfa Laval KK                              |                                            |             |          | Tokyo             |                  | 1,200,000  |                    | 100 |                           
|                              |                                            | Alfa Techno Service KK                     |             |          |                   | Kanagawa         |            | 200                |     | 100                       
|                              | Alfa Laval Industry (PVT) Ltd              |                                            |             |          | Lahore            |                  | 119,110    |                    | 100 |                           
|                              | Alfa Laval Philippines Inc                 |                                            |             |          | Makati            |                  | 72,000     |                    | 100 |                           
|                              | Alfa Laval Singapore Pte Ltd               |                                            |             |          | Singapore         |                  | 5,000,000  |                    | 100 |                           
|                              | Alfa Laval (Thailand) Ltd                  |                                            |             |          | Bangkok           |                  | 792,000    |                    | 100 |                           
|                              | Alfa Laval Middle East Ltd                 |                                            |             |          | Nicosia           |                  | 40,000     |                    | 100 |                           
|                              | Alfa Laval Benelux NV/SA                   |                                            |             |          | Brussels          |                  | 33,811     |                    | 100 |                           
|                              | Alfa Laval Ltd                             |                                            |             |          | Sofia             |                  | 100        |                    | 100 |                           
|                              | Alfa Laval Slovakia S.R.O.                 |                                            |             |          | Bratislava        |                  |            |                    | 1   |                           
|                              | Cetetherm SR spol S.R.O.                   |                                            |             |          | Liptovsky Mikulas |                  |            |                    | 15  |                           
|                              | Alfa Laval Spol S.R.O.                     |                                            |             |          | Hradec Kralove    |                  |            |                    | 20  |                           
|                              | Cetetherm S.R.O.                           |                                            |             |          | Prague            |                  |            |                    | 5   |                           

III-48

---



|Company name          |                                         | Registration
number           |                                          | Domicile    |                   | Number
of
shares |            | Share
of
capital
% |         | Book
value
SEK in
millions
|--------------------- | --------------------------------------- | ----------------------------- | ---------------------------------------- | ----------- | ----------------- | ---------------- | ---------- | ------------------ | ------- | --------------------------
|                      | Alfa Laval Denmark Holding A/S          |                               |                                          |             | Kolding           |                  |            |                    | 100     |                           
|                      |                                         | Alfa Laval Kolding A/S        |                                          |             |                   | Kolding          |            | 100,000            |         | 100                       
|                      |                                         |                               | Alfa Laval Nordic A/S                    |             |                   |                  | Rödovre    |                    | 1       |                           
|                      |                                         |                               | Alfa Laval Copenhagen A/S                |             |                   |                  | Söborg     |                    | 1       |                           
|                      |                                         |                               | Alfa Laval Nakskov A/S                   |             |                   |                  | Nakskov    |                    | 1       |                           
|                      |                                         |                               | Alfa Laval Tank Equipment A/S            |             |                   |                  | Ishoej     |                    | 1       |                           
|                      | Alfa Laval Nordic OY                    |                               |                                          |             | Espoo             |                  | 20,000     |                    | 100     |                           
|                      |                                         | Cetetherm OY                  |                                          |             |                   | Tuusula          |            | 5,000              |         | 100                       
|                      | Alfa Laval Nederland B.V.               |                               |                                          |             | Maarssen          |                  | 10,000     |                    | 100     |                           
|                      |                                         | Alfa Laval Benelux B.V.       |                                          |             |                   | Maarssen         |            | 1,475              |         | 100                       
|                      |                                         | Alfa Laval Merco B.V.         |                                          |             |                   | Hoofddorp        |            | 1,475              |         | 100                       
|                      | Alfa Laval Holding A/S                  |                               |                                          |             | Oslo              |                  | 520,000    |                    | 100     |                           
|                      | Alfa Laval ExCell AB                    |                               | 556306-2404                              |             | Skogstorp         |                  | 2,500      |                    | 100     |                           
|                      | Alfa Laval Nordic AB                    |                               | 556243-2061                              |             | Tumba             |                  | 1,000      |                    | 100     |                           
|                      | Cetetherm AB                            |                               | 556058-3162                              |             | Ronneby           |                  | 20,000     |                    | 100     |                           
|                      | Alfa Laval Corporate AB                 |                               | 556007-7785                              |             | Lund              |                  | 13,920,000 |                    | 100     |                           
|                      |                                         | Alfa Laval (India) Ltd        |                                          |             |                   | Poona            |            | 11,640,118         |         | 64                        
|                      |                                         |                               | Skansen Engineering & Consultancy Co Ltd |             |                   |                  | Poona      |                    | 50,000  |                           
|                      |                                         | Alfa Laval Korea Ltd          |                                          |             |                   | Seoul            |            | 3,640,000          |         | 100                       
|                      |                                         | Alfa Laval (Malaysia) Sdn Bhd |                                          |             |                   | Shah Alam        |            | 10,000             |         | 100                       
|                      |                                         | Alfa Laval Nordic A/S         |                                          |             |                   | Oslo             |            | 10,000             |         | 100                       
|                      |                                         | CTC Ronneby AB                |                                          | 556092-3194 |                   | Ronneby          |            | 138,000            |         | 100                       
|                      |                                         | Alfa Laval Tank Equipment AB  |                                          |             |                   | Gothenburg       |            | 100,000            |         | 100                       
|                      |                                         |                               | Gunclean Toftejorg Pte Ltd               |             |                   |                  | Singapore  |                    | 300,000 |                           
|                      |                                         | Mosgormash Alfa Laval Moloko  |                                          |             |                   | Moscow           |            |                    |         | 55                        
|                      |                                         | Alfa Laval Oilfield C.A.      |                                          |             |                   | Caracas          |            | 47                 |         | 19                        
|                      | Alfa Laval Treasury International AB    |                               | 556432-2484                              |             | Lund              |                  | 50,000     |                    | 100     |                           
|                      | Alfa Laval Europe AB                    |                               | 556128-7847                              |             | Lund              |                  | 500        |                    | 100     |                           
|                      | Alfa Laval Lund AB                      |                               | 556016-8642                              |             | Lund              |                  | 100        |                    | 100     |                           
|                      | Alfa Laval International Engineering AB |                               | 556039-8934                              |             | Lund              |                  | 4,500      |                    | 100     |                           
|                      | Alfa Laval Tumba AB                     |                               | 556021-3893                              |             | Tumba             |                  | 1,000      |                    | 100     |                           
|                      | Bitec Enterprise AG                     |                               |                                          |             | Volketswil        |                  | 97,900     |                    | 100     |                           
|                      | Alfa Laval Dis Ticaret Ltd Sti          |                               |                                          |             | Istanbul          |                  | 27,001,755 |                    | 99      |                           
|                      | OÜ Cetetherm                            |                               |                                          |             | Tallinn           |                  | 100        |                    | 100     |                           
|                      | Alfa Laval SIA                          |                               |                                          |             | Riga              |                  | 125        |                    | 100     |                           
|                      | SIA Cetetherm                           |                               |                                          |             | Riga              |                  | 200        |                    | 100     |                           
|                      | Alfa Laval UAB Ltd                      |                               |                                          |             | Vilnius           |                  | 2,009      |                    | 100     |                           
|                      | UAB Cetetherm                           |                               |                                          |             | Vilnius           |                  | 100        |                    | 100     |                           
|                      | Alfa Laval Australia Pty Ltd            |                               |                                          |             | Homebush          |                  | 2,088,076  |                    | 100     |                           
|                      | Alfa Laval New Zealand Ltd              |                               |                                          |             | Hamilton          |                  | 1,000      |                    | 100     |                           
|Alfa Laval Holding BV |                                         |                               |                                          | Maarssen    |                   | 70,000,000       |            | 100                |         | 0.0                       
|                      | Alfa Laval (Pty) Ltd                    |                               |                                          |             | Isando            |                  | 2,000      |                    | 100     |                           
|                      | Alfa Laval Slovakia S.R.O.              |                               |                                          |             | Bratislava        |                  |            |                    | 99      |                           
|                      | Cetetherm SR spol S.R.O.                |                               |                                          |             | Liptovsky Mikulas |                  |            |                    | 85      |                           
|                      | Alfa Laval Spol S.R.O.                  |                               |                                          |             | Hradec Kralove    |                  |            |                    | 80      |                           
|                      | Cetetherm S.R.O.                        |                               |                                          |             | Prague            |                  |            |                    | 95      |                           

III-49

---



|Company name   |                                      | Registration
number                 |                            | Domicile                   |                                 | Number
of
shares |            | Share
of
capital
% |                  | Book
value
SEK in
millions
|-------------- | ------------------------------------ | ----------------------------------- | -------------------------- | -------------------------- | ------------------------------- | ---------------- | ---------- | ------------------ | ---------------- | --------------------------
|               | Alfa Laval France SAS                |                                     |                            |                            | Les Clayes                      |                  | 920,000    |                    | 100              |                           
|               |                                      | Alfa Laval SAS                      |                            |                            |                                 | Les Clayes       |            | 560,000            |                  | 100                       
|               |                                      |                                     | Alfa Laval Moatti SNC      |                            |                                 |                  | Les Clayes |                    | 24,000           |                           
|               |                                      |                                     | Alfa Laval Spiral SNC      |                            |                                 |                  | Nevers     |                    | 79,999           |                           
|               |                                      | MCD SAS                             |                            |                            |                                 | Guny             |            | 71,300             |                  | 100                       
|               |                                      | Alfa Laval Vicarb SAS               |                            |                            |                                 | Grenoble         |            | 200,000            |                  | 100                       
|               |                                      |                                     | Canada Inc                 |                            |                                 |                  | Newmarket  |                    | 480,000          |                           
|               |                                      |                                     |                            | Alfa Laval Inc             |                                 |                  |            | Newmarket          |                  | 481,600                   
|               |                                      |                                     | SCI du Companil            |                            |                                 |                  | Grenoble   |                    | 32,165           |                           
|               |                                      | Cetetherm SA                        |                            |                            |                                 | Lyon             |            | 150,000            |                  | 100                       
|               | Alfa Laval Holding GmbH              |                                     |                            |                            | Glinde                          |                  |            |                    | 100              |                           
|               |                                      | Alfa Laval Mid Europe GmbH          |                            |                            |                                 | Wiener Neudorf   |            |                    |                  | 100                       
|               |                                      | Alfa Laval Mid Europe GmbH          |                            |                            |                                 | Glinde           |            | 1                  |                  | 100                       
|               |                                      | Cetetherm Wärmetauschersysteme GmbH |                            |                            |                                 | Glinde           |            | 1                  |                  | 100                       
|               |                                      | Alfa Laval Mid Europe AG            |                            |                            |                                 | Dietlikon        |            | 647                |                  | 100                       
|               | Alfa Laval AEBE                      |                                     |                            |                            | Holargos                        |                  | 10,000     |                    | 100              |                           
|               | Alfa Laval Kft                       |                                     |                            |                            | Budapest                        |                  | 1          |                    | 100              |                           
|               | CetethermVicarb Hungary Kft         |                                     |                            |                            | Budapest                        |                  |            |                    | 100              |                           
|               | Alfa Laval SpA                       |                                     |                            |                            | Monza                           |                  | 1,930,500  |                    | 99               |                           
|               | Alfa Laval Polska Sp.z.o.o.          |                                     |                            |                            | Warsaw                          |                  | 6,862      |                    | 100              |                           
|               | Cetetherm Polska Sp.z.o.o.           |                                     |                            |                            | Warsaw                          |                  |            |                    | 100              |                           
|               | Wytwornia Separator Krakow Sp.z.o.o. |                                     |                            |                            | Krakow                          |                  |            |                    | 100              |                           
|               | Alfa Laval (Portugal) Ltd            |                                     |                            |                            | Linda-A-Velha                   |                  |            |                    | 1                |                           
|               | Alfa Laval SRL                       |                                     |                            |                            | Bucharest                       |                  | 61,435     |                    | 100              |                           
|               | Alfa Laval Iberia SA                 |                                     |                            |                            | Madrid                          |                  |            |                    | 100              |                           
|               |                                      | Alfa Laval (Portugal) Ltd           |                            |                            |                                 | Linda-A-Velha    |            | 1                  |                  | 99                        
|               |                                      | Alfa Laval Holdings Ltd             |                            |                            |                                 | Camberley        |            | 28,107,000         |                  | 100                       
|               |                                      |                                     | Alfa Laval 2000            |                            |                                 |                  | Camberley  |                    | 28,106           |                           
|               |                                      |                                     |                            | Alfa Laval Ltd             |                                 |                  |            | Camberley          |                  | 12,710,000                
|               |                                      |                                     |                            |                            | Alfa Laval Finance Co Ltd       |                  |            |                    | Camberley        |                           
|               |                                      |                                     |                            |                            | Alfa Laval Oilfield Ltd         |                  |            |                    | Aberdeen         |                           
|               |                                      |                                     |                            |                            | Alfa Laval Flow Ltd             |                  |            |                    | Sutton Coldfield |                           
|               |                                      |                                     |                            |                            | Alfa Laval Pumps Ltd            |                  |            |                    | Eastbourne       |                           
|               |                                      |                                     |                            |                            | Alfa Laval Thermal Ltd          |                  |            |                    | Camberley        |                           
|               |                                      |                                     |                            |                            | Alfa Laval Separation Ltd       |                  |            |                    | Camberley        |                           
|               |                                      |                                     |                            |                            | Rolls Laval Heat Exchangers Ltd |                  |            |                    | Wolverhampton    |                           
|               |                                      |                                     |                            |                            | Toftejorg Ltd                   |                  |            |                    | Camberley        |                           
|               | Alfa Laval Dis Ticaret Ltd Sti       |                                     |                            |                            | Istanbul                        |                  | 1          |                    | 1                |                           
|               | Alfa Laval USA inc                   |                                     |                            |                            | Kenosha                         |                  |            |                    | 100              |                           
|               |                                      | Alfa Laval US Holding Inc           |                            |                            |                                 | Kenosha          |            | 180                |                  | 100                       
|               |                                      |                                     | Alfa Laval Inc             |                            |                                 |                  | Kenosha    |                    | 44,000           |                           
|               |                                      |                                     |                            | Alfa Laval BioKinetics Inc |                                 |                  |            | Philadelphia       |                  | 100                       
|               |                                      |                                     |                            |                            | Kinetics Engineering P C        |                  |            |                    | Durham           |                           
|               |                                      |                                     |                            |                            | Hynetics Inc                    |                  |            |                    | Logan            |                           
|               |                                      |                                     | Alfa Laval US Treasury Inc |                            |                                 |                  | Kenosha    |                    | 1,000            |                           
|               | AO Alfa Laval Potok                  |                                     |                            |                            | Koroljov                        |                  | 31,057,529 |                    | 100              |                           
|               | OÜ Alfa Laval                        |                                     |                            |                            | Tallinn                         |                  | 1          |                    | 100              |                           
|Alfdex AB      |                                      | 556647-7278                         |                            |                            |                                 |                  |            | 50                 |                  | 0.0                       
|Alfa Laval SpA |                                      |                                     |                            | Monza                      |                                 |                  |            | 1                  |                  | 0.0                       
|               |                                      |                                     |                            |                            |                                 |                  |            |                    |                  |                           
|Total          |                                      |                                     |                            |                            |                                 |                  |            |                    |                  | 4,460.9                   
|               |                                      |                                     |                            |                            |                                 |                  |            |                    |                  |                           

III-50

---



Specification of shares in other companies

|Company name               |                                       | Domicile |             | Number
of
shares |         | Share
of
capital
% |       | Book
value
SEK in
thousands
|-------------------------- | ------------------------------------- | -------- | ----------- | ---------------- | ------- | ------------------ | ----- | ---------------------------
|Alfa Laval KK              |                                       |          |             |                  |         |                    |       |                            
|                           | Chugairo                              |          | Japan       |                  | 5,250   |                    |       |                            
|                           | Orugano                               |          | Japan       |                  | 769     |                    |       |                            
|                           | Asahi Denka                           |          | Japan       |                  | 11,267  |                    |       |                            
|Alfa Laval Philippines Inc |                                       |          |             |                  |         |                    |       |                            
|                           | Philippine Long Distance Telephone    |          | Philippines |                  | 820     |                    |       |                            
|Alfa Laval Copenhagen A/S  |                                       |          |             |                  |         |                    |       |                            
|                           | Green City Denmark A/S                |          | Denmark     |                  | 1       |                    |       |                            
|Alfa Laval France SAS      |                                       |          |             |                  |         |                    |       |                            
|                           | SEMACLA                               |          | France      |                  | 10      |                    |       |                            
|Alfa Laval Vicarb SAS      |                                       |          |             |                  |         |                    |       |                            
|                           | SAEM SMD                              |          | France      |                  | 17      |                    | 0.85  |                            
|Alfa Laval Moatti SNC      |                                       |          |             |                  |         |                    |       |                            
|                           | FELTON                                |          | France      |                  | 100     |                    |       |                            
|Cetetherm SA               |                                       |          |             |                  |         |                    |       |                            
|                           | Thermothec                            |          | France      |                  | 9,130   |                    |       |                            
|                           | Point Piscine                         |          | France      |                  | 210     |                    |       |                            
|Alfa Laval Benelux BV      |                                       |          |             |                  |         |                    |       |                            
|                           | Bordewes                              |          | Netherlands |                  | 1       |                    |       |                            
|Alfa Laval NV              |                                       |          |             |                  |         |                    |       |                            
|                           | Dalian Haven Automation Co Ltd        |          | Hong Kong   |                  | 102     |                    | 42.5  |                            
|Alfa Laval Nordic A/S      |                                       |          |             |                  |         |                    |       |                            
|                           | Storebrand                            |          | Norway      |                  | 7,629   |                    |       |                            
|AO Alfa Laval Potok        |                                       |          |             |                  |         |                    |       |                            
|                           | Unicombank                            |          | Russia      |                  | 800     |                    | 1.6   |                            
|                           | MAX                                   |          | Russia      |                  | 100     |                    | 0.25  |                            
|Alfa Laval Corporate AB    |                                       |          |             |                  |         |                    |       |                            
|                           | European Development Capital          |          |             |                  |         |                    |       |                            
|                           | Corporation (EDCC) N.V.               |          | Curacao     |                  | 36,129  |                    |       |                            
|                           | Multiprogress                         |          | Hungary     |                  | 100     |                    | 3.18  |                            
|                           | Kurose Chemical Equipment Ltd         |          | Japan       |                  | 180,000 |                    | 11.25 |                            
|                           | Poljopriveda                          |          | Yugoslavia  |                  |         |                    |       |                            
|                           | Tecnica Argo-Industrial S.A.          |          | Mexico      |                  | 490     |                    | 49.00 |                            
|                           | Adela Investment Co S.A. (preference) |          | Luxembourg  |                  | 1,911   |                    | 0.30  |                            
|                           | Adela Investment Co S.A.              |          | Luxembourg  |                  | 1,911   |                    | 0.30  |                            
|                           | Mas Dairies Ltd                       |          | Pakistan    |                  | 125,000 |                    | 5.00  |                            
|                           |                                       |          |             |                  |         |                    |       |                            
|Total                      |                                       |          |             |                  |         |                    |       | 2,893.5                    
|                           |                                       |          |             |                  |         |                    |       |                            

III-51

---



Note 17. Inventories

Consolidated

2004

2003SEK in millionsRaw materials and consumables

798.2

654.5Work in progress

677.2

592.3Finished goods & goods for resale, new sales

617.5

622.7Finished goods & goods for resale, spare parts

323.0

307.5Advance payments to suppliers

36.6

40.8Total

2,452.5

2,217.8


The
provision for obsolescence amounts to and has changed as follows:

Obsolescence

|Consolidated |  |       |  |       |   |       |  |       |   |       |   |  
|------------ |  | ----- |  | ----- | - | ----- |  | ----- | - | ----- | - | -
|
|
|2003         |  | 499.0 |  | (36.4 | ) | 104.3 |  | (87.9 | ) | (10.1 | ) | 
|2004         |  | 468.9 |  | (14.2 | ) | 93.8  |  | (64.1 | ) | (49.4 | ) | 
|             |  |       |  |       |   |       |  |       |   |       |   |  

The Group's inventories have been accounted for after deduction for inter-company gains in inventory due to internal sales within the Group. The
inter-company profit reserve at the end of 2004 amounts to SEK 129.4 (135.8) million.

Note 18. Accounts receivable

Accounts receivable with a maturity exceeding one year of SEK 153.5 (120.9) million have not been accounted for as fixed assets as they are not intended for
permanent use.

Accounts
receivable are reported net of provisions for bad debts. The provision for bad debts amounts to and has changed as follows:

Bad
Debts

|Consolidated |  |       |  |       |   |       |  |       |   |       |   |  
|------------ |  | ----- |  | ----- | - | ----- |  | ----- | - | ----- | - | -
|
|
|2003         |  | 242.3 |  | (15.6 | ) | 72.3  |  | (72.5 | ) | (30.1 | ) | 
|2004         |  | 196.4 |  | (4.5  | ) | 101.2 |  | (35.9 | ) | (25.8 | ) | 
|             |  |       |  |       |   |       |  |       |   |       |   |  

III-52

---



Note 19. Other short-term receivables

Consolidated

2004

2003SEK in millionsNotes receivable

371.1

263.2Tax receivable

385.4

336.8Financial leasing receivables

8.6

Other receivables

475.1

470.4Total

1,240.2

1,070.4Of which, receivables not due within one yearNotes receivable

48.1

44.3Other receivables

18.7

18.8Total

66.8

63.1


Note 20. Other current deposits

Consolidated

2004

2003SEK in millionsLoan receivables

171.7

573.9Bonds and other securities

78.8

78.0Other deposits

6.7

6.7257.2

658.6Of which, deposits not due within one yearLoans receivable

67.2

35.9Other deposits

5.2

5.2


Note 21. Cash and bank

The item cash and bank in the balance sheet and in the cash-flow statement is mainly relating to bank deposits. Cash and bank includes a bank deposit
in the publicly listed subsidiary Alfa
Laval (India) Ltd of about SEK 33.2 (30.8) million. The company is not a wholly owned subsidiary of the Alfa Laval Group. It is owned to 64.1 percent.

Note 22. Impact on cash flow due to acquisition and sale of business

Additional purchase price

In 2004 an additional purchase price of SEK 7.9 (7.6) million has been paid for Danish Separation Systems and SEK 1.5 (-) million for Toftejorg, see more under
the section "Acquisitions" below.

In
connection with the IPO in 2002 an additional purchase price of EUR 40.0 million, corresponding to SEK 367.5 million, was paid to Tetra Laval BV for the original
acquisition on August 24, 2000 of the Alfa Laval Holding AB Group. This has entirely been reported as goodwill in the Group and is amortised over the same period as the original acquisition.

Acquisitions

On October 2, 2003, Alfa Laval acquired the Life Science division, bioKinetics, from Kinetics Group Inc. in the US for SEK 215 million. Alfa
Laval made public in December 2003 that the company had decided to initiate new negotiations with the former owner of bioKinetics Inc. This

III-53

---



decision
was based on the fact that Alfa Laval suspected irregularities in the accounting of certain customer projects in the acquired US-company. The parties were originally unable to
resolve the matter, leading Alfa Laval to file a lawsuit against the former owner Kinetics Group Inc and certain individuals. On July 2, 2004 Alfa Laval announced that a settlement
agreement had been reached between the parties. The terms of the agreement are confidential. Out of the difference between the purchase price paid and the net assets acquired SEK 23.8 million
has been allocated to patents and un-patented know-how, while the residual SEK 84.3 million has been allocated to goodwill. The goodwill is amortised over
10 years. bioKinetics had approx 400 employees and net sales of approximately SEK 550 million.

On
January 31, 2003, the Danish Toftejorg A/S Group was acquired, with effect from January 1, 2003. The operations cover R&D, assembly and sales of advanced tank cleaning
equipment, targeting the Food and Marine industries. In addition to the operations in Denmark, the Toftejorg Group had sales companies in Sweden, Norway, Germany, the UK, France, Singapore, the United
States and its own representation in South Korea. The operations are integrated into the Equipment Division. During 2004 an additional purchase price of SEK 1.5 million has been paid. The
difference between the purchase price paid and the net assets acquired has thereby increased to SEK 34.7 million. SEK 0.9 million of this has been allocated to a property in the US,
while the residual SEK 33.8 million has been allocated to goodwill. The goodwill is amortised over 10 years. Toftejorg had annual sales of about SEK 210 million and approximately
100 employees.

On
September 4, 2002, Alfa Laval acquired Danish Separation Systems A/S, specialists within membrane filtration in the biotechnology, pharmaceutical and food industries. During
2004 an additional purchase price of SEK 7.9 (7.6) million has been paid. The difference between the purchase price paid and the net assets acquired has thus increased to
SEK 115.1 million. This has entirely been allocated to goodwill. This goodwill is amortised over 20 years. The company had annual sales of about SEK 90 million and 65
employees within R&D, manufacturing and sales.

The
total value of the acquired assets and liabilities is presented in the table below, which also shows the cash flow impact of the acquisitions.

Consolidated

2004

2003

2002SEK in millionsProperty, plant and equipment



51.4

22.6Inventory



49.9

21.6Accounts receivable



175.3

11.9Other receivables



73.2

30.2Liquid assets



5.9

7.4Long-term liabilities



(23.3
)
(8.5
)Accounts payable



(107.9
)
(6.2
)Other liabilities

(43.9
)
(130.7
)
(38.3
)Goodwill

(27.6
)
161.9

102.4Other surplus values

5.1

23.2

Deferred tax

14.6

16.5

Purchase price

51.8

(295.4
)
(143.1
)Liquid assets in the acquired business



5.9

7.4Effect on the Group's liquid assets

51.8

(289.5
)
(135.7
)


Purchase price reimbursement

In 2004 Alfa Laval has received a purchase price reimbursement of SEK 61.2 million related to the acquisition of bioKinetics in 2003, see comments under
the section "Acquisitions" above.

III-54

---



In
2002 the Alfa Laval Group received SEK 81.6 million from Tetra Laval BV as a reduction of the purchase price for the acquisition of the Alfa Laval Holding AB Group. The
reduction was related to the guarantees issued by the vendor in relation to taxes. The amount did not have an impact on the goodwill for the acquisition but was instead reported against the increased
tax cost that the Group experienced after the acquisition. The amount received during 2002 constituted a final settlement with Tetra Laval concerning these guarantees.

Divestments

On December 5, 2003 an asset purchase agreement was signed between the subsidiary Tri-Lad Inc in Canada and local management of the company
whereby all non-financial assets were sold to local management. The closing date was January 30, 2004. Tri-Lad Inc is selling equipment to the oil & gas industry
and was a non-core activity within Alfa Laval. It had been up for sale since several years. The Tri-Lad property was sold effective on May 12, 2004. The divestment of
the Tri-Lad operations has generated a loss of SEK -15.0 million.

Industrial
Flow was divested on April 2, 2001 to Crane Co in the US. A few activities have remained before the divestment could be completed. During September 2002 a final
settlement was made with the buyer, resulting in an increase of the realised gain by SEK 14.0 million. This result item had however no cash flow impact during 2002.

The
total value of the divested assets and liabilities is presented in the table below, which also shows the cash flow impact of the divestments.

Consolidated

2004

2003

2002SEK in millionsProperty, plant and equipment

12.1



Inventory

21.4



Accounts receivable

5.0



Other receivables

0.3



Long-term liabilities

(14.5
)


Accounts payable

(15.4
)


Other liabilities

(3.9
)


Realised result

(15.0
)


Purchase price

10.0



Liquid assets in the sold business





Effect on the Group's liquid assets

10.0






III-55

---



Note 23. Defined benefit obligations

The Group has defined benefit commitments to employees and former employees and their survivors. The benefits are referring to old age pension, survivor's
pension, disability pension, health care and severance pay.

|Consolidated                                                |  |                         |  | 2004     |   | 2003     |   | 2002     |  
|----------------------------------------------------------- |  | ----------------------- |  | -------- | - | -------- | - | -------- | -
|
|Present value of the defined benefit obligation, unfunded   |  |                         |  | (935.2   | ) | (808.3   | ) | (833.2   | )
|Present value of the defined benefit obligation, funded     |  |                         |  | (2,609.7 | ) | (2,552.7 | ) | (2,196.1 | )
|                                                            |  |                         |  |          |   |          |   |          |  
|Present value of the defined benefit obligation at year end |  |                         |  | (3,544.9 | ) | (3,361.0 | ) | (3,029.3 | )
|Unrecognised actuarial losses                               |  |                         |  | 1,045.9  |   | 971.5    |   | 567.6    |  
|Unrecognised past service cost                              |  |                         |  | 2.7      |   | 5.1      |   | 0.9      |  
|Fair value of plan assets                                   |  |                         |  | 1,830.9  |   | 1,761.5  |   | 1,853.1  |  
|                                                            |  |                         |  |          |   |          |   |          |  
|Defined benefit liability                                   |  |                         |  | (665.4   | ) | (622.9   | ) | (607.7   | )
|less amount disallowed                                      |  |                         |  |         |   | (5.2     | ) | (6.1     | )
|                                                            |  |                         |  |          |   |          |   |          |  
|Net defined benefit liability                               |  | (-) liability/(+) asset |  | (665.4   | ) | (628.1   | ) | (613.8   | )
|                                                            |  |                         |  |          |   |          |   |          |  
|Current service cost                                        |  |                         |  | (49.0    | ) | (31.0    | ) | (49.0    | )
|Interest cost                                               |  |                         |  | (174.7   | ) | (145.8   | ) | (171.0   | )
|Expected return on plan assets                              |  |                         |  | 121.0    |   | 144.2    |   | 90.3     |  
|Recognised actuarial losses                                 |  |                         |  | (63.1    | ) | (80.6    | ) | (82.4    | )
|Recognised past service cost                                |  |                         |  | (14.8    | ) | (52.0    | ) | (8.2     | )
|Effect of any curtailments or settlements                   |  |                         |  | 18.5     |   | (1.3     | ) | 67.7     |  
|                                                            |  |                         |  |          |   |          |   |          |  
|Net plan cost                                               |  | (-) cost/(+) income     |  | (162.1   | ) | (166.5   | ) | (152.6   | )
|                                                            |  |                         |  |          |   |          |   |          |  
|Change in present value of the defined benefit liability:   |  |                         |  |          |   |          |   |          |  
|Present value of defined benefit liability at January 1     |  |                         |  | (3,361.0 | ) | (3,029.3 | ) | (3,183.5 | )
|Reclassification                                            |  |                         |  | (187.7   | ) |         |   |         |  
|Translation difference                                      |  |                         |  | 185.3    |   | 410.3    |   | 226.3    |  
|Current service cost                                        |  |                         |  | (49.0    | ) | (31.0    | ) | (49.0    | )
|Interest cost                                               |  |                         |  | (174.7   | ) | (145.8   | ) | (171.0   | )
|Employee contributions                                      |  |                         |  | (5.2     | ) | (8.0     | ) | (5.9     | )
|Current year change in actuarial losses                     |  |                         |  | (142.9   | ) | (677.8   | ) | (82.4    | )
|Recognised past service cost                                |  |                         |  | (14.8    | ) | (52.0    | ) | (8.2     | )
|Effect of any curtailments or settlements                   |  |                         |  | 18.5     |   | (1.3     | ) | 67.7     |  
|Benefit payments                                            |  |                         |  | 186.6    |   | 173.9    |   | 176.7    |  
|                                                            |  |                         |  |          |   |          |   |          |  
|Present value of defined benefit liability at December 31   |  | (-) liability/(+) asset |  | (3,544.9 | ) | (3,361.0 | ) | (3,029.3 | )
|                                                            |  |                         |  |          |   |          |   |          |  
|Change in plan assets:                                      |  |                         |  |          |   |          |   |          |  
|Fair value of plan assets at January 1                      |  |                         |  | 1,761.5  |   | 1,853.1  |   | 2,338.2  |  
|Reclassification                                            |  |                         |  | 100.4    |   |         |   |         |  
|Translation difference                                      |  |                         |  | (97.8    | ) | (229.3   | ) | (222.6   | )
|Employer contributions                                      |  |                         |  | 149.0    |   | 67.6     |   | 71.4     |  
|Employee contributions                                      |  |                         |  | 5.2      |   | 8.0      |   | 5.9      |  
|Actual return on plan assets                                |  |                         |  | 99.2     |   | 236.0    |   | (163.1   | )
|Benefit payments                                            |  |                         |  | (186.6   | ) | (173.9   | ) | (176.7   | )
|                                                            |  |                         |  |          |   |          |   |          |  
|Fair value at December 31                                   |  | (-) liability/(+) asset |  | 1,830.9  |   | 1,761.5  |   | 1,853.1  |  
|                                                            |  |                         |  |          |   |          |   |          |  
|Change in defined benefit liability/asset                   |  |                         |  |          |   |          |   |          |  
|Defined benefit liability/asset at January 1                |  |                         |  | (628.1   | ) | (613.8   | ) | (599.5   | )
|Reclassification                                            |  |                         |  | (82.1    | ) |         |   |         |  
|Translation difference                                      |  |                         |  | 41.9     |   | 104.5    |   | 71.9     |  
|Net plan cost                                               |  |                         |  | (162.1   | ) | (166.5   | ) | (152.6   | )
|Employer contributions                                      |  |                         |  | 149.0    |   | 67.6     |   | 71.4     |  
|Change in unrecognised actuarial gains/losses               |  |                         |  | 17.8     |   | (18.5    | ) | (7.3     | )
|Change in unrecognised past service cost                    |  |                         |  |         |   |         |   | 0.6      |  
|Change in disallowed asset amount                           |  |                         |  | (1.8     | ) | (1.4     | ) | 1.7      |  
|                                                            |  |                         |  |          |   |          |   |          |  
|Defined benefit liability/asset at December 31              |  | (-) liability/(+) asset |  | (665.4   | ) | (628.1   | ) | (613.8   | )
|                                                            |  |                         |  |          |   |          |   |          |  

III-56

---



These defined benefit plans are in place in Austria, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Norway, South Africa,
Sweden, Taiwan, the United Kingdom and the United States. Some plans have been closed for new participants and replaced by defined contribution plans for new employees. The amounts reported as
reclassified are referring to two plans that have been reclassified as defined benefit plans under IAS 19. They were previously reported as part of other liabilities.

Note 23 Continued. Defined benefit obligations

Consolidated

2004

2003

2002SEK in millions(-) liability/(+) assetAssetsFair value of plan assets

1,830.9

1,761.5

1,853.1Less amount disallowed



(5.2
)
(6.1
)1,830.9

1,756.3

1,847.0Netting

(1,707.4
)
(1,629.6
)
(1,740.2
)Assets in balance sheet

123.5

126.7

106.8LiabilitiesPresent value of the defined benefit obligation at year end

(3,544.9
)
(3,361.0
)
(3,029.3
)Unrecognised actuarial gains (less losses)

1,045.9

971.5

567.6Unrecognised past service costs

2.7

5.1

0.9(2,496.3
)
(2,384.4
)
(2,460.8
)Netting

1,707.4

1,629.6

1,740.2Provision in balance sheet

(788.9
)
(754.8
)
(720.6
)


The
more significant actuarial assumptions that have been used at the year-end are:

Consolidated

2004

2003

2002Discount rate

5
%
6
%
7
%Expected return on investment

7
%
8
%
8
%Expected wage increase

4
%
4
%
4
%Change in health care costs

10
%
9
%
9
%Change of index for future increase of remunerations

4
%
4
%
4
%


Changes
in the health care costs have a significant impact on the costs and the level of the obligations for defined benefit obligations. If the health care costs change by one percent,
it gives the following profit and loss effect calculated on the conditions as of the end of 2004:

2004

2003Consolidated

1% increase

1% decrease

1% increase

1% decreaseSEK in millionsEffect on:Current service costs and interest costs

(7.8
)
6.2

(8.4
)
6.9Present value of the defined benefit obligation

(91.3
)
74.0

(86.1
)
69.4


III-57

---



Note 24. Other provisions

|Consolidated      |  | January 1 |  | Translation
difference |   | New
provisions
and increase
of existing
provisions |  | Amounts
used |   | Unused
amounts
reversed |   | Change due
to
discounting |  | December 31
|----------------- |  | --------- |  | ---------------------- | - | -------------------------------------------------- |  | ------------ | - | ----------------------- | - | ------------------------- |  | -----------
|
|2003              |  |           |  |                        |   |                                                    |  |              |   |                         |   |                           |  |            
|Claims & warranty |  | 413.7     |  | (19.8                  | ) | 181.1                                              |  | (149.1       | ) | (29.6                   | ) |                          |  | 396.3      
|Deferred costs    |  | 104.0     |  | (1.3                   | ) | 22.2                                               |  | (18.2        | ) | (15.3                   | ) |                          |  | 91.4       
|Restructuring     |  | 207.1     |  | (5.5                   | ) | 61.1                                               |  | (100.8       | ) | (6.2                    | ) |                          |  | 155.7      
|Onerous contracts |  | 9.5       |  |                       |   | 4.0                                                |  | (3.5         | ) |                        |   |                          |  | 10.0       
|Environmental     |  | 3.2       |  | (0.6                   | ) |                                                   |  | (1.3         | ) |                        |   |                          |  | 1.3        
|Litigations       |  | 116.0     |  | (0.4                   | ) | 17.8                                               |  | (17.2        | ) | (1.3                    | ) |                          |  | 114.9      
|Other             |  | 135.8     |  | (9.5                   | ) | 63.9                                               |  | (61.1        | ) | (7.5                    | ) |                          |  | 121.6      
|                  |  |           |  |                        |   |                                                    |  |              |   |                         |   |                           |  |            
|                  |  | 989.3     |  | (37.1                  | ) | 350.1                                              |  | (351.2       | ) | (59.9                   | ) |                          |  | 891.2      
|                  |  |           |  |                        |   |                                                    |  |              |   |                         |   |                           |  |            
|2004              |  |           |  |                        |   |                                                    |  |              |   |                         |   |                           |  |            
|Claims & warranty |  | 396.3     |  | (8.7                   | ) | 214.7                                              |  | (201.2       | ) | (54.2                   | ) |                          |  | 346.9      
|Deferred costs    |  | 91.4      |  | (0.8                   | ) | 30.7                                               |  | (12.2        | ) | (19.9                   | ) |                          |  | 89.2       
|Restructuring     |  | 155.7     |  | (2.3                   | ) | 141.8                                              |  | (99.5        | ) | (4.9                    | ) |                          |  | 190.8      
|Onerous contracts |  | 10.0      |  |                       |   | 27.7                                               |  | (6.0         | ) |                        |   |                          |  | 31.7       
|Environmental     |  | 1.3       |  | (0.1                   | ) |                                                   |  | (0.4         | ) |                        |   |                          |  | 0.8        
|Litigations       |  | 114.9     |  | (0.3                   | ) | 4.2                                                |  | (5.6         | ) | (0.3                    | ) |                          |  | 112.9      
|Other             |  | 121.6     |  | (3.4                   | ) | 110.9                                              |  | (44.0        | ) | (9.2                    | ) |                          |  | 175.9      
|                  |  |           |  |                        |   |                                                    |  |              |   |                         |   |                           |  |            
|                  |  | 891.2     |  | (15.6                  | ) | 530.0                                              |  | (368.9       | ) | (88.5                   | ) |                          |  | 948.2      
|                  |  |           |  |                        |   |                                                    |  |              |   |                         |   |                           |  |            

Unused
amounts reversed refer to, among other items, sold companies, changed classifications and reversals of provisions made on an estimated basis.

The
provisions for restructuring are affecting approximately 175 (160) employees.

Note 25. Loans

Consolidated

2004

2003SEK in millionsCredit institutions

1,502.1

2,530.7Bond loan

1,044.4

1,064.8Capitalised financial leases

4.2

13.6Interest-bearing pension liabilities

4.8

5.2Total debt

2,555.5

3,614.3Cash, bank and current deposits

672.0

1,213.2Net debt

1,883.5

2,401.1


As
a consequence of the IPO of Alfa Laval in 2002, the structure of the financial debt changed considerably with the repayment of the loan from Tetra Laval Finance Ltd, the
replacement of the previous syndicated loans and the amortisation of the bond loan. In connection with the dissolution of this pre-IPO capital structure, the income statement in 2002 was
charged with non-recurring financial costs of SEK -304.8 million. These consisted of the reversal of capitalised financing costs of totally

III-58

---



SEK -219.6 million
in connection with the repayment of the loan from Tetra Laval Finance Ltd, the replacement of the previous syndicated loans and the amortisation of
the bond loan as well as the premium of SEK -85.2 million at the repayment of 35 percent of the bond loan of EUR 220 million. These costs were reported as a comparison
distortion financial item in 2002.

Cash,
bank and current deposits include bank and other deposits in the publicly listed subsidiary Alfa Laval (India) Ltd of SEK 112.0 (108.8) million. The company is not a wholly
owned subsidiary of the Alfa Laval Group. It is owned to 64.1 percent.

Loan from credit institutions

Since April 15, 2004 Alfa Laval has a new senior credit facility with a banking syndicate. The new multi currency revolving credit facility is USD
325 million and EUR 150 million, corresponding to SEK 3,492.2 million. At December 31, 2004, SEK 1,286.1 million of the facility are utilised. During the fourth
quarter SEK 87.5 million were amortised. The new facility provides increased flexibility, improved terms and extended security of funding. The maturity of this facility is five years.

The
average interest and currency duration including derivatives is 7.2 (3.5) months at the end of 2004. The interest is based on applicable IBOR plus a mark up based on the relation
between net debt and EBITDA as described below.

Net debt/EBITDA

Mark-up2.50-2.75

0.70
%2.00-2.50

0.525
%1.50-2.00

0.475
%1.00-1.50

0.45
%<1.00

0.40
%


At
year end the mark up is 45 (65) (80) interest points. At the end of 2004 the loans are accruing interest in the range of 0.49%-2.79% (0.72%-4.60%) (0.86%-4.82%). The average
interest rate at the end of 2004 was 2.26 (1.96) (5.58) percent. The decrease in average interest rates between 2003 and 2002 is due to the cancellation in September 2003 of the previous
interest rate swaps that were requested by the first banking syndicate.

At
the end of December 2004, 26 (22) percent of the syndicated loans are hedged to a fixed interest rate.

Transaction
costs totalling SEK 28.1 (27.3) million have been capitalised and are being amortised over the maturity of the loan. The current year's cost for the fee amortisation is SEK
-6.5 (-7.8) (-16.8) million.

The
syndicated loan is linked to three financial covenants that must be fulfilled throughout the life of the loan. These covenants refer to the relationship between net debt and EBITDA,
the interest coverage ratio and the debt ratio. If the covenants are not fulfilled, the banking syndicate is entitled to demand immediate repayment of the loans, provided that the breach is not
temporary. Alfa Laval has fulfilled the covenants with a good margin ever since the loans were raised in April 2004.

Bond loan

On August 24, 2000, Alfa Laval Special Finance AB borrowed EUR 220 million from Donaldsson, Lufkin & Jenrette and UBS Warburg. On
November 9, 2000, this loan was replaced by a bond loan placed with institutional investors of EUR 220 million. It was registered with the Stock Exchange in Luxembourg in
December 2000. In July 2001, the loan was registered with the SEC (Securities and Exchange Commission) in the US. The loan accrues interest at 12.125 percent and falls due 2010.
Interest payments are due May 15 and November 15 each year. Since the bond is denominated in EUR

III-59

---



all
payments are made in EUR. Transaction costs totalling SEK 24.6 (29.2) million have been capitalised and are being amortised over the maturity of the loan. The current year's cost for the fee
amortisation is SEK -4.6 (-5.9) (-12.3) million.

During
2004, Alfa Laval has re-purchased bonds at the prevailing market rate for a total face value of SEK 11.4 (50.6) (181.5) million. The difference between the higher
market value and the face value was SEK 1.8 (9.7) (23.3) million, which has been reported as an interest cost. The bond loan accrues interest at 12.125 percent, which is considerably more than
the Group's current cost for other external financing.

Before
November 15, 2003 up to 35 percent of the principal amount could be redeemed with the proceeds of a public equity offering. Such a post IPO-redemption
was made on June 24, 2002, where 35 percent of the bond loan of EUR 220 million was amortised. This corresponded to EUR 77.0 million or SEK 703.6 million.

Prior
to November 15, 2005 all, but not part of, the notes may be redeemed at a premium plus accrued and unpaid interest. At any time on or after November 15, 2005 all or
part of the notes are redeemable at the following redemption prices plus accrued and unpaid interest:

Year starting

Percentage (%)November 15, 2005

106.063November 15, 2006

104.042November 15, 2007

102.021November 15, 2008 and thereafter

100.000


Alfa
Laval intends to redeem the outstanding bonds on November 15, 2005. This will incur an additional interest cost during the fourth quarter 2005 of approximately SEK
63.3 million for the premium and SEK 20.6 million for the outstanding capitalised transaction costs, totalling SEK 83.9 million.

The loans are distributed among currencies as follows:

Consolidated

Short-term

Long-termCurrency2004

2003

2004

2003SEK in millionsCAD

1.4

3.7



DKK

6.0

2.1

7.7

13.7EUR

115.9

55.3

1,054.0

1,074.1GBP

0.6

1.8



216.3INR

0.9



8.8

10.5JPY



1.0

233.8

248.6PLN

2.2

17.1



SEK

100.8

5.4



USD

9.4

12.2

1,002.8

1,925.3Other

2.2

5.1



3.3Total

239.4

103.7

2,307.1

3,491.8Of which, not due within five years:





1,044.4

1,064.8


III-60

---



Note 26. Other liabilities

Consolidated

2004

2003SEK in millionsFinancial lessee payable

4.2

13.6Other non-interest bearing liabilities

475.1

635.1Total

479.3

648.7


Note 27. Accrued costs and prepaid income

Consolidated

2004

2003SEK in millionsAccruals for social security

151.3

146.9Reserve for severance pay

164.4

212.2Accrued interest expenses

20.8

27.7Other accrued expenses and prepaid income

464.5

429.1Total

801.0

815.9Of which, accrued costs and prepaid income not due within one yearAccruals for social security

22.5

21.0Reserve for severance pay

72.0

119.8Other accrued expenses and prepaid income

6.7

7.7Total

101.2

148.5


Note 28. Pledged assets and contingent liabilities

Consolidated

2004

2003SEK in millionsPledged assetsOther pledges and similar commitments

50.6

45.4Total

50.6

45.4Contingent LiabilitiesDiscounted bills

96.5

113.7Performance guarantees

688.1

688.4Other contingent liabilities

618.2

669.0Total

1,402.8

1,471.1


In
the new syndicate loan there are no pledges or restrictions. Other contingent liabilities are among other items referring to leased assets.

III-61

---



Note 29. Transactions with related party

Tetra Pak within the Tetra Laval Group is Alfa Laval's single largest customer with 5.4 (5.7) (5.7) percent of net sales. In June 1999, Tetra Pak entered
into a purchasing agreement with Alfa Laval that governs the distribution, research and development, market sales and information, use of trademarks and intellectual property. The following areas
shall be agreed upon from time to time between representatives of the parties: products that are subject to the agreement, prices and discounts of such products, geographical markets and product areas
where Tetra Pak is Alfa Laval's preferred distributor, the right of Tetra Pak to affix its trademarks to Alfa Laval products, sales goals for Tetra Pak in defined geographical markets, products and
technologies that are the focus of joint research and development and the ownership rights of the research and development result and use of market and sales information. The agreement aims at the
applications within liquid food where Tetra Pak has a natural market presence through the deliveries of packaging equipment and packaging material.

The
agreement was prolonged by two years from December 31, 2003. It has a 12-month period of notice. The prices that Tetra Pak receives are not lower than the prices
that Alfa Laval would obtain from a comparable third party. The prices are fixed on a calendar year basis.

Until
March 31, 2003 Alfa Laval has purchased services from Tetra Laval Group Transport & Travel for SEK-(0.3) (2.2) million to optimise forwarding, freight and
delivery terms and purchase forwarding, freight and person transportation. In addition, Alfa Laval purchases facilities management services relating to the real estate in Lund in Sweden from Tetra Pak
Business Support AB for SEK 3.3 (3.3) (3.3) million. Alfa Laval rents premises to Tetra Pak and DeLaval in Russia and in Germany for SEK 12.5 (13.6) (13.8) million. Tetra Pak has moved to other
premises and seized to be a tenant in Germany during 2004.

The
Board of Directors for Alfa Laval AB has two representatives from Tetra LavalJörn Rausing and Finn Rausing.

At
year-end, Alfa Laval has the following balance items against companies within the Tetra Laval group (Tetra Pak and DeLaval).

Consolidated

2004

2003SEK in millionsAssets:Accounts receivable

19.5

47.3Other receivables

102.3

78.9Liabilities:Accounts payable

13.8

11.3Other liabilities

1.2

2.5


III-62

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Alfa
Laval has had the following transactions with companies within the Tetra Laval group (Tetra Pak and DeLaval).

Consolidated

2004

2003

2002SEK in millionsIncome statement:Net sales

805.8

789.8

830.0Other operating income

12.5

13.6

13.8Other operating costs

(3.3
)
(3.6
)
(5.5
)Additional purchase price, increasing goodwill





367.5Purchase price reimbursement leading to reduced tax costs/increased tax liabilities





81.6


Note 30. Work in progress

Consolidated

2004

2003

2002SEK in millionsGross amount of project sales revenue recognised in the period

636.8

467.6

357.4Aggregated amount of costs incurred and recognised profits (including deduction for reported losses)

769.2

599.0

390.5Advances received

288.1

219.9

179.4Retentions

34.4

42.4

11.4Gross amount due from customers for plant projects

112.1

175.2

80.8Gross amount due to customers for plant projects



0.7

0.7


Note 31. Leasing

Alfa
Laval has entered into non-cancellable operating leases mainly relating to premises and finance lease agreements regarding machinery and equipment with leasing periods
of 1-20 years. The leasing fees for non-cancellable operating leases for premises were SEK 232.4 (207.4) (232.9) million. During the year, the Group has entered into
finance leases with a capitalised value of SEK 1.2 (6.7) million. See Note 15 for information on the capitalised value of finance leases.

III-63

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The
future minimum leasing fees concerning non-cancellable operating leases, distributed on maturity dates, amount to:

Consolidated

Operating leasesYear2004

2003

2002SEK in millions2003

N/A

N/A

96.02004

N/A

77.3

75.52005

65.5

64.7

58.42006

51.5

47.0

31.12007

37.0

29.2

18.72008

25.6

20.2

N/A2009

7.7

N/A

N/ALater

26.5

35.8

48.5Total

213.8

274.2

328.2


The
future minimum leasing fees concerning financial leasing agreements and their net present value, distributed on maturity dates, amount to:

|      |  |     |  |      |  |      |  | Present value of financial leases
|----- |  | --- |  | ---- |  | ---- |  | ---------------------------------
|
|
|
|
|2003  |  | N/A |  | N/A  |  | 11.3 |  | N/A                              
|2004  |  | N/A |  | 7.1  |  | 6.0  |  | N/A                              
|2005  |  | 1.2 |  | 3.2  |  | 4.0  |  | 1.2                              
|2006  |  | 0.9 |  | 2.0  |  | 2.5  |  | 0.8                              
|2007  |  | 0.9 |  | 0.9  |  | 0.9  |  | 0.8                              
|2008  |  | 0.8 |  | 0.4  |  | N/A  |  | 0.7                              
|2009  |  | 0.4 |  | N/A  |  | N/A  |  | 0.3                              
|Later |  |    |  |     |  |     |  |                                 
|      |  |     |  |      |  |      |  |                                  
|Total |  | 4.2 |  | 13.6 |  | 24.7 |  | 3.8                              
|      |  |     |  |      |  |      |  |                                  

Note 32. Fair value of financial instruments

For certain instruments, including cash and bank, other current deposits, accounts receivable, trade accounts payable and short-term debt, the
carrying values approximate fair values as the majority of these instruments have short maturity periods. Obligations under capital leases are carried at amounts approximating their fair values since
the discount rate applicable to lease contracts in deriving the net present value of lease payments approximates market rates.

The
average interest and currency duration including derivatives is 7.2 (3.5) months for the syndicated loans at the end of 2004. The majority of the syndicated loans were rolled with
new interest rates during December. In total, this means that the carrying value approximates the fair value. The fair value of the bond loan is arrived at by applying the market rate at the last
trading date in December.

III-64

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The
estimated fair values of the Group's long-term debt as of December 31 are shown below:

2004

2003Consolidated

Carrying
value

Fair
value

Carrying
value

Fair
valueSEK in millionsSyndicated bank loans

1,286.1

1,286.1

2,390.2

2,390.2Bond loan

1,044.4

1,237.8

1,064.8

1,283.2


The
fair values of the Group's foreign currency contracts and interest-rate swaps are estimated based on dealer quotes, quoted market prices of comparable contracts, adjusted
through interpolation where necessary for maturity differences, or if there are no relevant comparable contracts, on pricing models or formulas using current assumptions.

The
fair values of the Group's derivative financial instruments as of December 31 were:

2004

2003Consolidated

Nominal
amount

Fair
value

Nominal
amount

Fair
valueSEK in millionsForward exchange contracts

8,987.1

211.4

8,286.0

157.6Currency options





90.7

0.2


III-65

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Note 33. Reconciliation to US GAAP

Consolidated income statement

Note

2004

2003

2002SEK in millionsNet income/(loss) under Swedish GAAP



700.4

640.6

208.2US GAAP adjustments:Goodwill and other intangibles with indefinite useful lives

a

191.5

191.3

187.7Leveraged buy-out accounting

b

15.9

7.1

2.1Derivative instruments and hedge accounting

c

37.4

266.7

271.2Tooling costs

d

(18.1
)
(4.4
)
11.0Capitalised software

e

(5.8
)
(16.7
)
(20.2
)Other

f

(0.3
)
(0.3
)
(0.3
)Deferred taxes:Tax effect of US GAAP adjustments

g

(2.8
)
(67.6
)
(26.7
)Sum of adjustments



217.8

376.1

424.8Net income under US GAAP



918.2

1,016.7

633.0Earnings per share (SEK)



112.10

124.12

121.05Average number of shares



8,191,000

8,191,000

5,229,137




Consolidated equity capital

Note

2004

2003SEK in millionsEquity capital under Swedish GAAP



4,676.0

4,402.5US GAAP adjustments:Goodwill and other intangibles with indefinite useful lives

a

540.6

365.3Leveraged buy-out accounting

b

397.3

403.8Derivative instruments and hedge accounting

c

154.6

98.1Tooling costs

d

73.9

91.4Capitalised software

e



5.8Other

f

4.5

4.8Deferred taxes:Tax effect of US GAAP adjustments

g

(2.8
)
(67.6
)Sum of adjustments



1,168.1

901.6Shareholder's equity under US GAAP



5,844.1

5,304.1


III-66

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Note 33 cont. Reconciliation to US GAAP

CHANGE
IN CONSOLIDATED EQUITY CAPITAL ACCORDING TO US GAAP

ConsolidatedSEK in millionsAs per balance sheet on December 31, 2001

4,098.82002New issue of shares

819.0Equity part of group contribution

(38.4
)Deferred tax on group contribution

(15.0
)Translation difference

(329.6
)Net income for 2002 according to US GAAP

633.0As per balance sheet on December 31, 2002

5,167.82003Equity part of group contribution

(441.6
)Deferred tax on group contribution

(171.8
)Translation difference

(267.0
)Net income for 2003 according to US GAAP

1,016.7As per balance sheet on December 31, 2003

5,304.12004Equity part of group contribution

(245.0
)Deferred tax on group contribution

(95.3
)Translation difference

(37.9
)Net income for 2004 according to US GAAP

918.2As per balance sheet on December 31, 2004

5,844.1


Comments to the US GAAP reconciliation

a) Goodwill and other intangibles

Goodwill and other intangibles with indefinite useful lives

The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (FAS 142)
in July 2001. The Statement is effective for fiscal years beginning after December 15, 2001. FAS 142 requires that goodwill, including previously existing goodwill, and intangible
assets with indefinite useful lives not be amortised; these assets should be tested for impairment annually. Goodwill and intangible assets with indefinite useful lives are no longer tested for
impairment under FAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The Company has adopted the provisions of FAS 142 as of January 1 2002.

Upon
adoption of the new standard, goodwill of SEK 3,217.4 million (calculated in accordance with US GAAP as of December 31, 2001) ceased to be amortised, but is instead
tested for impairment. In addition, intangible assets totalling approximately SEK 594 million relating to in-place workforce calculated for US GAAP purposes, as well as
approximately SEK 208 million of related deferred tax liabilities, have been reclassified as goodwill. An impairment test has been performed at the end of 2004 indicating that there is not any
need to write down the goodwill.

III-67

---



b) Leveraged buy-out accounting

In August 2000 Alfa Laval Holding AB and its subsidiaries (the predecessor) was acquired by a newly formed entity, resulting in a change in control. Prior
to the transaction, the predecessor was owned 100 percent by Tetra Laval BV, part of the Tetra Laval Group. Subsequent to the transaction, the predecessor ceased to exist and the newly formed
company, Alfa Laval AB, was owned 36.8 percent by Tetra Laval BV, 62.5 percent by Industri Kapital and 0.7 percent by management. For US GAAP purposes, this transaction as
described in the Board of Directors' report must be accounted for as a leveraged buy-out transaction in accordance with Emerging Issues Task Force (EITF) Abstract 88-16 because
the transaction was carried out via a series of highly leveraged transactions through the creation of a newly formed entity that acquired 100 percent of the predecessor and resulting in the
former shareholder maintaining a minority interest in the newly formed entity.

For
US GAAP purposes, Alfa Laval AB's basis in the net assets of Alfa Laval Holding AB consists of 83.6 percent fair value and 16.4 percent predecessor basis calculated as
shown below:

ConsolidatedSEK in millionsFair value of Alfa Laval Holding on August 23, 2000

10,087.0Predecessor basis of Alfa Laval Holding on August 23, 2000

5,592.063.2% interest in fair value of Alfa Laval Holding of new investors in Alfa Laval AB

6,374.036.8% interest in predecessor basis of Alfa Laval Holding of old investors in Alfa Laval AB

2,058.08,432.0Percentage

83.6
%


For
US GAAP purposes, the assets acquired in the transaction were stepped up by 83.6 percent of the difference between book value and fair value. The difference between the fair
value adjustments recorded and the purchase price was recorded as a debit directly to equity.

In
its Swedish GAAP financial statements, Alfa Laval recorded the acquisition of Alfa Laval Holding as a purchase for cash consideration of SEK 8,214 million plus other
consideration and transaction costs for an aggregate purchase price of SEK 8,286 million in exchange for 100 percent of Alfa Laval Holding. This purchase price excludes the value of the
Alfa Laval AB shares issued to Tetra Laval BV because this was considered to be a transaction between shareholders which should not be reflected in the issuer's consolidated financial statements in
accordance with Swedish GAAP. For US GAAP purposes, Tetra Laval BV's carryover basis in Alfa Laval Holding through its 36.8 percent interest in Alfa Laval AB must be considered in purchase
accounting. Accordingly, the purchase price for US GAAP purposes includes the SEK 1,800 million value of the Alfa Laval AB shares issued to Tetra Laval BV as part of the overall consideration
paid in exchange for 100 percent of Alfa Laval Holding.

The
result of applying leveraged buy-out accounting to the transaction in accordance with US GAAP is that the step-up in the value the net assets acquired to fair
value has been limited to the extent of the new owners' interest in Alfa Laval AB. In addition to the differences related to leveraged buy-out accounting, the values of the net assets
acquired differ for US GAAP purposes because certain intangible assets including workforce and customer relationships must be valued separately in accordance with US GAAP, but such items do not meet
the definition of intangible assets in accordance with Swedish GAAP and such value is thus recorded as goodwill under Swedish GAAP.

III-68

---



The
combined effect of the SEK 1,800 million higher purchase price for US GAAP purposes and the limitation of the fair value step-up in accordance with EITF
88-16 results in a net increase to equity on the acquisition date for US GAAP as compared to Swedish GAAP because the credit to equity related to the higher purchase price more than
offsets the debit to equity related to the EITF 88-16 limitations of the fair value step-up.

c) Derivative instruments and hedge accounting

Under Swedish GAAP, unrealised gains and losses on forward exchange and other derivative contracts undertaken to hedge current and anticipated transactions are
generally deferred and reported when they mature along with the underlying transactions or anticipated future cash flows to which they relate.

In
January 2001 Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133") as amended by FAS 137 and
FAS 138, became effective for the Group. FAS 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of previous standards.
Upon initial application, all derivatives must be recognised in the balance sheet as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed
and documented pursuant to the provisions of FAS 133.

Prior
to the effective date of FAS 133, US GAAP accounting for foreign exchange contracts was governed by Financial Accounting Standards No. 52, "Foreign Currency
Translation" (FAS 52), which allows for foreign exchange contracts to be reported as hedges only to the extent that they are specifically matched to underlying firm commitments. Otherwise, such
contracts are marked to market and recorded on the balance sheet, with unrealised gains and losses included in the reported results of each year.

Under
FAS 133, the accounting for changes in the fair value (i.e. gains and losses) of a derivative financial instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and further on the type of hedging relationship. Changes in fair value of derivatives not qualifying as hedges are reported in income.

As
a result of adoption of Statement 133, the Group recognises all derivative financial instruments, such as interest-rate swap contracts and foreign exchange contracts, in
the consolidated financial statements at fair values regardless of the purpose or intent for holding the instrument. Upon initial adoption of FAS 133 the Group recognised a cumulative effect of
accounting change of SEK 61.9 million (net of tax benefit of SEK 33.0 million) in the income statement related to the fair value of interest-rate swap contracts in existence
as of January 1, 2001. Gains and losses recognised on derivative financial instruments subsequent to initial adoption of FAS 133 are recognised in financial income or expense for
purposes of presentation under US GAAP.

For
periods prior to adoption of FAS 133, the Group was not able under FAS 52 to account for any of its derivative foreign exchange contracts as hedges as these contracts did not
relate to underlying firm commitments and therefore the adoption of FAS 133 did not result in a translation adjustment related to these instruments.

The
Group has issued long-term debt in various currencies that for Swedish GAAP purposes are considered to be hedges of its net investment in certain foreign subsidiaries.
Accordingly, the change in value of the long-term debt related to currency fluctuations has been reported directly in equity as a foreign currency translation adjustment as an offset to
the translation adjustments resulting from the consolidation of its foreign subsidiaries. During 2000 and earlier, this treatment was consistent with US GAAP under FAS 52. Upon adoption of
FAS 133 for US GAAP purposes in 2001, the long-term debt used to hedge the net investment in foreign subsidiaries must meet strict documentation and effectiveness criteria in order
to be accounted for as part of the foreign currency translation

III-69

---



adjustment.
Because such criteria have not been met, the change in value of the long-term debt because of currency fluctuations is reported in earnings for US GAAP purposes.

The
US GAAP reconciliation items can be summarized as follows.

Consolidated

2004

2003

2002SEK in millionsHedges of net investments in foreign subsidiaries under Swedish GAAP not qualifying for hedging under FAS 133

(19.1
)
194.8

164.9Change in fair market value of interest-rate swaps not recognized under Swedish GAAP



61.1

50.0Change in fair market value of foreign exchange derivatives not recognized under Swedish GAAP

56.5

10.8

56.3Total

37.4

266.7

271.2


d) Tooling costs

Under Swedish GAAP, the Group generally expenses the cost of replacement tools acquired. Under US GAAP, significant tooling costs are capitalised as incurred and
amortised on the straight-line basis over their estimated economic lives of 3 years.

e) Capitalised software

Under prior Swedish GAAP, the cost to develop computer software for internal use is expensed as incurred. The Accounting Standards Executive Committee issued
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998; however, early adoption is encouraged. For US GAAP
purposes, the Group has adopted SOP 98-1 with effect from January 1, 1995 and has capitalised direct costs of developing software for internal use. Amortisation of these assets is
calculated on the straight-line method over their estimated economic lives of 3 years.

f) Other

Under Swedish GAAP, certain real estate assets are stated at estimated fair value. The revalued amounts of depreciable assets are depreciated over their estimated
useful lives. The revaluation of assets is not permitted under US GAAP. Upon the transaction described in b, the fixed assets were adjusted to their fair values, eliminating the effect of past
revaluations. For US GAAP purposes, fixed asset values that have been revalued after the transaction have been restated at historical cost based on the purchase accounting adjustments, net of
corresponding adjustments for accumulated depreciation. Adjustments to periodic depreciation charges have also been reflected.

Under
Swedish GAAP, research and development expenses related to projects that are funded by a government affiliated body are deferred and recorded as an intangible asset. Under US GAAP,
research and development costs are expensed as and when incurred.

Under
prior Swedish GAAP interest related to long-term construction projects was not required to be capitalised. US GAAP requires that interest incurred during
long-term construction projects must be capitalised and included as part of the cost of the asset.

Under
Swedish GAAP, short-term loans for which management has the ability to refinance are classified as non-current liabilities. For US GAAP, such liabilities
are classified as current.

III-70

---



Under
Swedish GAAP, the proportionate consolidation method is an acceptable method of accounting for joint ventures. Under US GAAP, joint ventures must be accounted for using the equity
method. This difference in accounting does not result in any adjustment to net shareholder's equity or net income. The effect of using the proportionate consolidation method does not have a material
impact on any individual income statement or balance sheet item.

As
of December 31, 2004 the Group had sold receivables with recourse totalling SEK 96.5 (113.7) million. These are disclosed as discounted bills in the footnote describing
contingent liabilities. Under US GAAP, the recourse provisions prevent the transaction from being reported as a sale. Accordingly, the receivables would be kept on the balance sheet, and a loan would
be reported for the amount of cash received. The loss on the sale was not material, and this transaction results in no significant impact on US GAAP equity.

In
2000 Alfa Laval AB issued warrants to management to purchase common stock of Alfa Laval AB. Management paid fair market value in cash for the warrants based on an fair value
calculation using the Black-Scholes option pricing model. The Group has elected to use the fair value method in accordance with Statement of Financial Accounting Standards No. 123 Accounting
for Stock-Based Compensation (FAS 123) which requires the fair value of stock compensation grants to be recognized over the vesting period of the grants. Under the terms of the warrant
agreement, management was required to pay the fair value determined for the warrants and accordingly there would be no compensation expense associated with the warrants for either Swedish GAAP or US
GAAP.

In
August 2001 the US Financial Accounting Standards Board issued FAS 144, Accounting for the Impairment or Disposal of Long Lived Assets. The standard supersedes
FAS 121 and parts of Accounting Principles Board Opinion 30 regarding accounting for the impairment or disposal of long-lived assets. FAS 144 requires long-lived
assets held for disposal to be measured at the lower of carrying amount or fair values less costs to sell and provides new guidance regarding presentation of assets to be disposed. Within Alfa Laval
these assets are mainly relating to real estate and more precisely to properties in Belgium, Brazil, France, Wales and Peru. Accounting under FAS 144 does not mean any difference compared to
Swedish GAAP. US GAAP is however requiring a reporting of assets for sale according to the below:

2004

2003Consolidated

Carrying
value

Fair
value

Carrying
value

Fair
valueSEK in millionsReal estate for sale

39.4

127.1

169.1

403.2


g) Deferred taxes

As of January 1, 2000 the Group adopted IAS 12 with a view toward meeting both IAS and US GAAP requirements. Accordingly, the Group has applied the
liability method and has recorded deferred taxes in accordance with both IAS 12 and FAS 109.

III-71

---



The
components of income (loss) before taxes under US GAAP are as follows:

Consolidated

2004

2003

2002SEK in millionsSwedish

596.0

743.3

316.7Foreign

653.7

474.8

564.6Total

1,249.7

1,218.1

881.3


The
tax cost under US GAAP is composed of the following:

Consolidated

2004

2003

2002SEK in millionsCurrent:Swedish

(82.4
)
(7.0
)
(4.2
)Foreign

(335.0
)
(276.0
)
(282.3
)Deferred:Swedish

10.4

0.8

(20.4
)Foreign

75.5

80.8

58.6Total

(331.5
)
(201.4
)
(248.3
)


Cash Flow Information

The definitions of "cash flows" differ between Swedish GAAP and US GAAP. Cash flow under Swedish GAAP represents increases or decreases in "cash," which is
comprised of cash on hand and in banks. Under US GAAP, cash flow represents increases or decreases in "cash and cash equivalents," which include short-term, highly liquid investments with
remaining maturities of less than 90 days when acquired, and exclude overdrafts.

There
are also certain differences in the classification of items within the cash flow statement between Swedish GAAP and US GAAP. Both Swedish GAAP and US GAAP segregate cash flows
between operating activities, investing activities and financing activities, however, certain items are included in different categories for Swedish GAAP compared to US GAAP.

Cash
flows from servicing of finance, and returns on investments would be, with the exception of any interest paid but capitalized, included as cash flows from operating activities under
US GAAP. In addition, changes in provisions and changes in assets and liabilities because of foreign currency transaction gains or losses would be included as cash flows from operating activities
under US GAAP.

Other comprehensive income (loss)

FAS No. 130, "Reporting Comprehensive Income" establishes standards for reporting comprehensive loss and its components in financial statements.
Comprehensive income and loss as defined, includes all changes in equity (net assets) during each financial period from non-owner sources. On a US GAAP basis, the only item included in
other comprehensive income and loss that is excluded from net income is currency translation adjustment. There are no tax effects relating to this item. Comprehensive income is not a required
disclosure under Swedish GAAP.

III-72

---



Comprehensive
income under US GAAP is presented as follows:

Consolidated

2004

2003

2002SEK in millionsAccording to US GAAP:Net income

918.2

1,016.7

633.0Foreign currency translation

(37.9
)
(267.0
)
(329.6
)Comprehensive income

880.3

749.7

303.4


Accumulated
comprehensive income under US GAAP is presented as follows:

Consolidated

2004

2003

2002SEK in millionsAccording to US GAAP:Accumulated net income

2,418.6

1,500.4

483.7Foreign currency translation

(621.5
)
(583.6
)
(316.6
)Accumulated comprehensive income

1,797.1

916.8

167.1


III-73

---





ITEM 18: FINANCIAL STATEMENTS

Not applicable.

ITEM 19: EXHIBITS

|*1.1   |  | Certificate of Registration and Articles of Association of Alfa Laval Special Finance AB.                                                                                                                                                                                                                                                                           
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*2.1   |  | Indenture, dated November 9, 2000 by and among Alfa Laval Special Finance AB, as issuer, Alfa Laval Holding AB (renamed from Alfa Laval Credit Finance AB), as guarantor, and The Bank of New York, as trustee.                                                                                                                                                     
|*4.1   |  | Purchasing Contract, dated June 24, 1999, between Alfa Laval AB and Tetra Pak International SA.                                                                                                                                                                                                                                                                     
|*4.2   |  | Purchase Agreement, dated November 2, 2000, among Alfa Laval Special Finance AB, as issuer, Alfa Laval Holding AB (renamed from Alfa Laval Credit Finance AB), as guarantor, Donaldson, Lufkin and Jenrette International and
UBS AG, acting through its business group UBS Warburg, as underwriters.                                                               
|*4.3   |  | Intercompany Note, dated August 22, 2000, between Alfa Laval Holding AB (renamed from Alfa Laval Credit Finance AB), as borrower, and Alfa Laval Special Finance, as lender.                                                                                                                                                                                        
|*4.4   |  | Amendment Agreement to Intercompany Note, dated November 9, 2000, between Alfa Laval Holding AB (renamed from Alfa Laval Credit Finance AB), as borrower, and Alfa Laval Special Finance, as lender.                                                                                                                                                                
|**4.5  |  | Multicurrency Credit Facility, dated April 15, 2004, among Alfa Laval Treasury International AB, Alfa Laval U.S. Treasury Inc., as borrowers, and Alfa Laval AB (publ) and certain subsidiaries, as guarantor, SEB Merchant
Banking, Skandinaviska Enskilda Banken AB (publ) as lead arranger and facility agent, and the financial lenders named as lender therein.
|**4.6  |  | Intercreditor Agreement, dated April 15, 2004, among Alfa Laval Special Finance AB and Alfa Laval Holding AB, each as intra-group debtors, SEB Merchant Banking, Skandinaviska Enskilda Banken AB (publ), as facility agent,
and the lenders listed in Schedule 1 thereto.                                                                                          
|7.1    |  | Statements re: computation of earnings to fixed charges.                                                                                                                                                                                                                                                                                                            
|8.1    |  | List of subsidiaries. Please see note 16 to the consolidated financial statements.                                                                                                                                                                                                                                                                                  
|**11.1 |  | Code of Ethics                                                                                                                                                                                                                                                                                                                                                      
|**11.2 |  | Audit and Non-Audit Services Pre-Approval Policy                                                                                                                                                                                                                                                                                                                    
|12.1   |  | Certification of Lars Renström, Chief Executive Officer of Alfa Laval Special Finance AB, pursuant to section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                
|12.2   |  | Certification of Thomas Thuresson, Chief Financial Officer of Alfa Laval Special Finance AB, pursuant to section 302 of the Sarbanes- Oxley Act of 2002.                                                                                                                                                                                                            
|13.1   |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                             

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III-74

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SIGNATURES

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised this
Annual Report to be signed on its behalf by the undersigned.

|Date: April 8, 2005 |  | Alfa Laval Special Finance AB
|------------------- |  | -----------------------------
|                    |  | By:                          
|                    |  | By:                          

III-75

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