As filed with the Securities and Exchange Commission on April 17, 2003

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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2002
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 3
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, 2002: 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-26 
|ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                      |  | I-47 
|ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                        |  | I-75 
|ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                 |  | I-80 
|ITEM 8: FINANCIAL INFORMATION                                                             |  | I-84 
|ITEM 9: THE OFFER AND LISTING                                                             |  | I-86 
|ITEM 10: ADDITIONAL INFORMATION                                                           |  | I-87 
|ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                       |  | I-92 
|ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                           |  | I-96 
|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 16: [RESERVED.]                                                                      |  | II-4 
|PART III                                                                                 
|ITEM 17: FINANCIAL STATEMENTS                                                             |  | III-1
|ITEM 18: FINANCIAL STATEMENTS                                                             |  | III-2
|ITEM 19: EXHIBITS AND CERTIFICATIONS                                                      |  | III-2

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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 9.2415, 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:



Year Ended December 31,Unaudited
Pro Forma Combined
2000

2001

2002(SEK millions)Operating Income

810

1,233

1,224Amortisation of goodwill

164

178

188Step-Up Depreciation

316

334

319EBITA

1,290

1,745

1,731Comparison distortion items

(130
)
(5
)
29Adjusted EBITA

1,160

1,740

1,760




ii

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Year Ended December 31,Unaudited
Pro Forma Combined
2000

2001

2002(SEK millions)Operating Income

810

1,233

1,224Depreciation

466

400

331Amortisation of goodwill

164

178

188Step-Up Depreciation

316

334

319EBITDA

1,756

2,145

2,062Comparison distortion items

(130
)
(5
)
29Adjusted EBITDA

1,626

2,140

2,091




iii

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iv

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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".

v

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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 audited consolidated financial data of Alfa Laval Holding and its subsidiaries, Alfa Laval's predecessor, for the
years ended December 31, 1998 and 1999, (b) selected unaudited pro forma combined financial data for Alfa Laval Special Finance AB for the year ended December 31, 2000, and
(c) selected audited consolidated financial data for Alfa Laval Special Finance AB for the years ended December 31, 2001 and 2002. We acquired 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, 1998, 1999, 2000, 2001 and 2002 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 34 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                                                                                           |  | 14,734      |   | 14,405    |  
|Cost of goods sold                                                                                  |  | (9,297      | ) | (9,355    | )
|                                                                                                    |  |             |   |           |  
|Gross profit                                                                                        |  | 5,437       |   | 5,051     |  
|Other operating expenses:                                                                           |  |             |   |           |  
|Sales costs                                                                                         |  | (2,803      | ) | (2,695    | )
|Administrative costs                                                                                |  | (995        | ) | (976      | )
|Research and development costs                                                                      |  | (514        | ) | (435      | )
|Other operating income/(costs)                                                                      |  | (160        | ) | (11       | )
|Goodwill amortisation                                                                               |  | (690        | ) | (715      | )
|Comparison distortion items                                                                         |  | 497         |   | 30        |  
|                                                                                                    |  |             |   |           |  
|Operating income/(loss)                                                                             |  | 772         |   | 249       |  
|Interest and other financial income/(costs)                                                         |  | (204        | ) | (133      | )
|                                                                                                    |  |             |   |           |  
|Income/(loss) before taxes and minority interests                                                   |  | 568         |   | 116       |  
|Income tax benefit/(expense)                                                                        |  | 40          |   | (333      | )
|Minority interests                                                                                  |  | (16         | ) | (27       | )
|                                                                                                    |  |             |   |           |  
|Net income/(loss)                                                                                   |  | 592         |   | (244      | )
|                                                                                                    |  |             |   |           |  
|US GAAP:                                                                                            |  |             |   |           |  
|Net income/(loss)                                                                                   |  | 294         |   | 223       |  
|Income/(loss) from continuing operations before cumulative effect of change in accounting principle |  | 371         |   | 201       |  
|Depreciation and Amortisation                                                                       |  | 928         |   | 757       |  
|Ratio of earnings to fixed charges, times(3)                                                        |  | 2.4         | x | 2.9       | x
|Operating Data and Key Ratios(2):                                                                   |  |             |   |           |  
|Swedish GAAP:                                                                                       |  |             |   |           |  
|Orders received                                                                                     |  | 13,866      |   | 13,897    |  
|Order backlog                                                                                       |  | 3,907       |   | 3,532     |  
|Gross margin, %                                                                                     |  | 36.9        | % | 35.1      | %
|Operating income                                                                                    |  | 772         |   | 249       |  
|Operating margin %                                                                                  |  | 5.2         | % | 1.7       | %
|EBITDA                                                                                              |  | 1,958       |   | 1,440     |  
|Adjusted EBITDA                                                                                     |  | 1,461       |   | 1,410     |  
|EBITA                                                                                               |  | 1,462       |   | 964       |  
|Adjusted EBITA                                                                                      |  | 965         |   | 934       |  
|EBITDA margin, %                                                                                    |  | 13.3        | % | 10.0      | %
|Adjusted EBITDA margin, %                                                                           |  | 9.9         | % | 9.8       | %
|EBITA margin, %                                                                                     |  | 9.9         | % | 6.7       | %
|Adjusted EBITA margin, %                                                                            |  | 6.5         | % | 6.5       | %

I-4

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|Depreciation and amortisation                  |  | 1,185  |   | 1,191  |   | 796  |   | 315    |   | 946    |   | 912    |   | 838    |  
|---------------------------------------------- |  | ------ | - | ------ | - | ---- | - | ------ | - | ------ | - | ------ | - | ------ | -
|Investment in fixed assets                     |  | 438    |   | 431    |   | 133  |   | 179    |   | 312    |   | 275    |   | 277    |  
|Return on capital employed, %                  |  | 21.6   | % | 15.2   | % | N/A  |   | N/A    |   | 16.1   | % | 18.5   | % | 20.3   | %
|Capital employed                               |  | 6,781  |   | 6,357  |   | N/A  |   | N/A    |   | 8,013  |   | 9,415  |   | 8,527  |  
|Capital turnover rate, times                   |  | 2.2    | x | 2.3    | x | N/A  |   | N/A    |   | 1.9    | x | 1.7    | x | 1.7    | x
|Return on equity, %                            |  | 16.2   | % | N/M    |   | N/A  |   | N/M    |   | N/M    |   | 10.1   | % | 4.7    | %
|Equity/assets ratio, %                         |  | 26.8   | % | 26.3   | % | N/A  |   | 16.8   | % | 16.8   | % | 20.6   | % | 28.6   | %
|Net debt/equity ratio, times                   |  | 0.8    | x | 0.9    | x | N/A  |   | N/A    |   | 2.1    | x | 1.6    | x | 0.8    | x
|Average number of employees                    |  | 12,613 |   | 11,696 |   | N/A  |   | N/A    |   | 11,001 |   | 9,693  |   | 9,292  |  
|Interest coverage ratio, times                 |  | 6.2    | x | 5.9    | x | 5.4  | x | 0.75   | x | 2.0    | x | 2.5    | x | 3.4    | x
|Ratio of earnings to fixed charges, times(3)   |  | 2.4    | x | 1.3    | x | 3.2  | x |       |   | N/A    |   | 1.4    | x | 1.6    | x
|Consolidated Cash Flow Statement Data:         |  |        |   |        |   |      |   |        |   |        |   |        |   |        |  
|Swedish GAAP:                                  |  |        |   |        |   |      |   |        |   |        |   |        |   |        |  
|Cash flows from operating activities           |  | 559    |   | 1,324  |   | 587  |   | 583    |   | 1,630  |   | 1,977  |   | 2,047  |  
|Cash flows from investing activities           |  | (189   | ) | (600   | ) | 278  |   | (8,563 | ) | (8,284 | ) | 112    |   | (548   | )
|Cash flows from financing activities           |  | (325   | ) | (586   | ) | (997 | ) | 8,381  |   | 6,618  |   | (2,069 | ) | (1,443 | )
|Consolidated Balance Sheet Data:               |  |        |   |        |   |      |   |        |   |        |   |        |   |        |  
|Swedish GAAP:                                  |  |        |   |        |   |      |   |        |   |        |   |        |   |        |  
|Cash and bank and other current deposits       |  | 646    |   | 960    |   | N/A  |   | 1,230  |   | 1,230  |   | 960    |   | 1,020  |  
|Net working capital, excluding financial items |  | 2,105  |   | 3,346  |   | N/A  |   | 3,458  |   | 3,458  |   | 3,323  |   | 2,151  |  
|Total assets                                   |  | 13,647 |   | 12,704 |   | N/A  |   | 18,791 |   | 18,791 |   | 17,637 |   | 15,427 |  
|Total interest bearing debt                    |  | 3,383  |   | 3,750  |   | N/A  |   | 7,880  |   | 7,880  |   | 6,652  |   | 4,519  |  
|Total shareholders' equity                     |  | 3,652  |   | 3,343  |   | N/A  |   | 3,165  |   | 3,165  |   | 3,629  |   | 4,413  |  
|US GAAP:                                       |  |        |   |        |   |      |   |        |   |        |   |        |   |        |  
|Total assets                                   |  | 13,833 |   | 13,544 |   | N/A  |   | 19,530 |   | 19,530 |   | 18,731 |   | 16,477 |  
|Total interest bearing debt                    |  | 3,383  |   | 3,750  |   | N/A  |   | 7,880  |   | 7,880  |   | 6,847  |   | 4,519  |  
|Total shareholders' equity                     |  | 4,823  |   | 4,963  |   | N/A  |   | 3,537  |   | 3,537  |   | 4,099  |   | 5,168  |  

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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 a 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 a 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 a operating income, net income, cash flow from operating activities or other statement of
operations data as determined in accordance with Swedish 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.                                                                                                                                                                                                                                                                                                                                                                                    
|Adjusted EBITDA  |  |  |  | Adjusted EBITDA is not a measure of operating performance calculated in accordance with Swedish GAAP or US GAAP. Adjusted 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 as a measure of profitability or liquidity. Adjusted EBITDA does not necessarily indicate whether cash flow will be sufficient or available for cash requirements. Adjusted
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. We calculate Adjusted EBITDA by excluding from EBITDA the effect of certain comparison distortion items (or non-recurring items), as disclosed in our financial statements. Adjusted
EBITDA for 1999, 2000 pro forma, 2001 and 2002 has been calculated by excluding from EBITDA such comparison distortion items reported in the accompanying statements of operations, which aggregate to a net of SEK 30 million,
SEK 130 million, SEK 5 million and SEK (29) million in 1999, 2000, 2001 and 2002, respectively. Adjusted EBITDA may not be indicative of our historical operating results, nor is it indicative of potential future results.
Since all companies do not calculate Adjusted EBITDA identically, the presentation of Adjusted 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 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.
|----- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

I-7

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|Adjusted EBITA               |  |  |  | Adjusted EBITA is not a measure of operating performance calculated in accordance with Swedish GAAP or US GAAP. Adjusted 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. Adjusted EBITA does not necessarily indicate whether cash flow will be sufficient or available for cash
requirements. Adjusted 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. We calculate Adjusted EBITA by excluding from EBITA the effect of certain comparison distortion items (or non-recurring items), as disclosed in our financial
statements. Adjusted EBITA for 1999, 2000 pro forma, 2001 and 2002 has been calculated by excluding from EBITA such comparison distortion items reported in the accompanying statements of operations which aggregate to a net of SEK 30 million,
 SEK 130 million, SEK 5 million and SEK (29) million in 1999, 2000, 2001 and 2002, respectively. Adjusted 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 Adjusted EBITA identically, the presentation of Adjusted 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Adjusted EBITDA margin (%)   |  |  |  | The ratio of Adjusted EBITDA to net sales expressed as a percentage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|EBITA margin (%)             |  |  |  | The ratio of EBITA to net sales expressed as a percentage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Adjusted EBITA margin (%)    |  |  |  | The ratio of Adjusted 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                             |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

I-8

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|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 items |  |  |  | Current assets, excluding cash and bank and other current deposits, less current liabilities 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-9

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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 Alfa Laval Holding, our predecessor, for 2000 included elsewhere in this annual report, which has been prepared in
accordance with Swedish GAAP. Swedish GAAP differs in certain significant respects from US GAAP. See note 34 to our consolidated financial statements for the year ended December 31,
2000, included elsewhere in this annual report 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. The unaudited pro forma
consolidated financial information should be read in conjunction with "Item 5: Operating and Financial Review and Prospects" and our consolidated financial statements included elsewhere in this
annual report.

I-10

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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   |  
|Cost of goods sold                                                      |  | (5,963       | ) | (3,951  | )
|                                                                        |  |              |   |         |  
|Gross profit                                                            |  | 3,332        |   | 1,766   |  
|Other operating expenses:                                               |  |              |   |         |  
|Sales costs                                                             |  | (1,749       | ) | (835    | )
|Administration costs                                                    |  | (643         | ) | (218    | )
|Research and development costs                                          |  | (279         | ) | (162    | )
|Other operating income                                                  |  | 258          |   | 268     |  
|Other operating costs                                                   |  | (327         | ) | (356    | )
|Goodwill amortisation                                                   |  | (485         | ) | (55     | )
|Comparison distortion items                                             |  | 524          |   | (394    | )
|                                                                        |  |              |   |         |  
|Operating income/(loss)                                                 |  | 631          |   | 14      |  
|Interest and other financial income                                     |  | 139          |   | 111     |  
|Interest and other financial costs                                      |  | (264         | ) | (440    | )
|                                                                        |  |              |   |         |  
|Income/(loss) after financial items before taxes and minority interests |  | 506          |   | (315    | )
|Income tax benefit/(expense)                                            |  | (245         | ) | (56     | )
|Minority interests                                                      |  | (36          | ) | (12     | )
|                                                                        |  |              |   |         |  
|Net income/(loss)                                                       |  | 225          |   | (383    | )
|                                                                        |  |              |   |         |  

I-11

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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.



Interest Rate

Amount

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





(84
)Previous 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

202324Previous 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


---



I-12

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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 34 of our December 31, 2000 consolidated financial statements included
elsewhere in this annual report. 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.

I-13

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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 10, 2003, the rate was $1.00 = SEK 8.49.

Swedish kronor per one US dollarYear ended December 31,

Period
End(1)

Average
Rate(2)

High

Low1997

7.87

7.67

8.09

6.861998

8.07

7.96

8.35

7.591999

8.53

8.27

8.66

7.712000

9.54

9.17

10.33

8.342001

10.67

10.33

11.00

9.272002 October

9.20

N/A

9.39

9.202002 November

9.13

N/A

9.16

8.962002 December

8.83

N/A

9.08

8.812003 January

8.50

N/A

8.80

8.502003 February

8.48

N/A

8.64

8.422003 March

8.51

N/A

8.68

8.382003 April (through April 10, 2003)

8.49

N/A

8.67

8.48


---

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.

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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 and Adjusted EBITA margin targets, as well as
expected cost savings and operating efficiencies in connection with our cost reduction programme, known as "Beyond Expectations". These forward-looking statements are subject to risks and
uncertainties that could cause actual revenue targets, Adjusted EBITA targets, cost savings and operating efficiencies to be substantially lower than those expressed or implied by such statements.

We have set as a target for our revenue growth that we should outperform the markets in which we operate over the course of the business cycle. In addition, we
have set an Adjusted EBITA margin target of greater than 12%. This financial target requires that we obtain certain cost savings and operating efficiencies we expect to achieve from our Beyond
Expectations restructuring programme. Our cost reduction programme, the implementation of which commenced in late 1999 and which is expected to be completed by the end of 2003, is estimated to
generate cost savings and other operating efficiencies of approximately SEK 800 million to SEK 1,000 million by the end of 2003 on an annualised basis. While some of these
cost savings and operating efficiencies, and the costs incurred in achieving them, have been recorded to date and are reflected in our results for the years ended December 31, 2001 and 2000,
respectively, a significant portion of such cost savings and operating efficiencies, and the costs incurred in achieving them, have not yet been recorded. The discussion under "Item 5.A: Operating and
Financial Review and ProspectsOperating ResultsOur Restructuring and Cost Reduction ProgrammeBeyond Expectations" describes generally our revenue and Adjusted
EBITA margins targets, together with the cost savings and operating efficiencies attributable to the Beyond Expectations programme, as well as the expected costs incurred in achieving such savings and
efficiencies, to the
extent not already recorded in our financial results. There can be no assurances, however, that such revenue targets, Adjusted EBITA margin targets, cost savings and operating efficiencies actually
will be realised.

Our operating results, including our revenues, operating income, EBITA, Adjusted 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, Adjusted 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, Adjusted 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:

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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 "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

I-16

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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.

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. Shortages of supply have occurred in the
past and may occur in the future. 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.

I-17

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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 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:



I-18

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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".

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, 2002, we had approximately 9,125 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

I-19

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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 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, 2002, we had total consolidated debt of SEK 4,519 million. If we had drawn down all
amounts available under our revolving credit facility, the maximum amount of debt that would have been outstanding at December 31, 2002 would have increased by SEK 1,374 million
to SEK 5,893 million.

Our
annual debt service based on the outstanding debt at December 31, 2002 is SEK 538 million in interest expense and interest payments. The Existing Senior Credit
Facility is amortisation free. The committed principal amount for 2002 under the Previous Senior Credit Facility was SEK 89 million. Actual repayments for 2002 totalled
SEK 1,760 million. Through April 10, 2003, actual repayments totalled SEK 228 million.

Our
Senior Notes have a fixed charge of 12.125%. We are not required to maintain hedging under the terms of the Existing 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 16 million.

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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 Existing Senior Credit Facility will be 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 of, to pay interest on or to refinance our debt, including the Senior Notes, and to make payments on our other obligations depends
on our future performance. Furthermore, we expect that we will need to refinance all or a part of the Senior Notes at final maturity. 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 refinancings, sell any of our assets or obtain additional financing, particularly as our Existing 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.

I-21

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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 Existing 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 3,391 million.

In
addition, the terms of the Existing 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 Intercreditor Agreement for the Existing 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
Intercreditor Agreement permits us, subject to certain restrictions, to make payments of principal on the Senior Notes.

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
Existing 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 Existing 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 Existing 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.

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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 Existing 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.

The
Existing 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, 2002, goodwill totaled SEK 3,369 million,
compared to total assets of SEK 15,427 million and shareholders' equity of SEK 4,413 million. We have estimated the useful life associated with goodwill 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.

Industri Kapital 2000 controls us, and its interests may conflict with yours. Industri Kapital 2000 may take actions that prevent or hinder us from
making payments on the Senior Notes.

Industri Kapital 2000 is the beneficial owner of approximately 26.9% of the shares of Alfa Laval AB, our parent holding company, which owns 100% of our
outstanding share capital. Consequently Industri Kapital 2000 can affect our strategic decisions, our legal and capital structure and our day-to-day operations.

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If
circumstances arise where Industri Kapital 2000'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 Industri Kapital 2000's ability to take actions contrary to your interests. In addition, Industri Kapital 2000 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, 2002, approximately 5.7% 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.

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

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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 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 Credit Finance AB, and Alfa Laval Holding AB, which
holds several subsidiaries, including intermediate holding and operating companies.

4.A.    History and Development of 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 Bostadsförvaltning AB, was incorporated on October 11, 1926 and re-named Alfa Laval Credit Finance AB as part of the
Acquisition of Alfa Laval Holding AB.

Our
registered and principal executive offices are located at Rudeboksvägan 3, Lund, Sweden, and the telephone number at that address is +46 46 36 7000. 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 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 for in cash by Industri Kapital 2000 and
management, and by Tetra Laval retaining ownership in Alfa Laval AB.

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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 2000, 2001 and 2002 we made investments in fixed assets of SEK 312 million, SEK 275 million and SEK 277 million respectively, in each case
principally to maintain and upgrade our machinery and equipment. We also invested to increase our capacity for the production of brazed heat exchangers. An investment in additional plate pressing
capacity and brazing furnaces at our Ronneby facility in Sweden and our Jiang Yin City facility in China commenced in late 2000 and was completed in 2002. Our investments in fixed assets for 2000
declined as we made the decision that we had sufficient production capacity to meet demand. Our investments in fixed assets in 2001 declined principally due to our divestment of a substantial number
of properties, together with a reduction in the number of our production sites. In addition, we consolidated much of our I.T. infrastructure, which contributed to a reduction in expenditure on
hardware. Among the larger investments during 2002 was an expansion of the production facility in Richmond, Virginia in the United States and capacity investments for manufacturing of brazed heat
exchangers.

For
a discussion of our divestitures, see "Item 5.A: Operating and Financial Review and ProspectsOperating ResultsAcquisitions and Divestitures."

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, 2002, we had net sales of SEK 14,595 million, operating
income of SEK 1,224 million, EBITA (as defined herein) of SEK 1,730 million and Adjusted EBITA (as defined herein) of SEK 1,760 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; Water Technology; and Life Science Technology. 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.

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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
illustrate our sales by customer segment and by geographic region for the year ended December 31, 2002:

|2 PIE CHARTS
|------------

---

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



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Continuous improvement



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
2002
Sales
|----------------------- |  | ------------------------------------------------------------------------------------------------- |  | ---------------------------------------------- |  | ---------------
|Sanitary                |  | Dairy, food products and beverages, pharmaceutical and healthcare industries                      |  | Nestlé, Coca Cola, Procter & Gamble, Tetra Pak |  | 26%            
|Comfort & Refrigeration |  | Heating, cooling, air conditioning and refrigeration industry                                     |  | Uppsala Energi, Climespace, York, Mycom        |  | 23%            
|Marine & Diesel         |  | Shipping, ship building and power generation industries                                           |  | Hyundai, Finncantieri, Wärtsila                |  | 17%            
|OEM Equipment           |  | Manufacturing (diesel engines, boilers, air conditioning, air dryer and condensing unit) industry |  | Vaillant, Caterpillar, Carrier                 |  | 7%             
|Fluids & Utility        |  | Manufacturing (automotive, metal working and electronic) industry                                 |  | GM, Scania, Daimler Chrysler, Samsonite        |  | 3%             
|                        |  |                                                                                                   |  |                                                |  |                
|Total Capital Sales     |  | 76%                                                                                              
|Parts and Services      |  | 24%                                                                                              
|                        |  |                                                                                                   |  |                                                |  |                
|Total                   |  | 100%                                                                                             
|                        |  |                                                                                                   |  |                                                |  |                

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Our
Equipment division, employing 2,058 personnel as of December 31, 2002 and accounting for SEK 8,130 million, or 55%, of our total net sales in the year ended
December 31, 2002, 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 2002, approximately 41% of net sales in our Equipment division were related to our heat transfer
technology, approximately 28% to our sanitary flow equipment, and approximately 22% to our centrifugal separation technology and approximately 9% 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.

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.

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.

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. The former
Water Technology segment has been dissolved

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and its sales activities have been assumed by mainly the Energy and Environment customer segment, and, to a lesser extent, by the Process Industry customer segment.

|Customer Segment        |  | End-User Markets                                                                     |  | Representative Customers                                                              |  | % of
2002
Sales
|----------------------- |  | ------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------- |  | ---------------
|Food Technology         |  | Food products, protein and beverage industries                                       |  | Anheuser-Busch, ADM, Heineken                                                         |  | 22%            
|Process Industry        |  | Chemical, petrochemical and natural resources (sugar, starch and yeast) industries   |  | BASF, Bayer, Cargill,                                                                 |  | 21%            
|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 |  | 22%            
|Life Science Technology |  | Biotech and pharmaceutical industry                                                  |  | Eli Lilly, GlaxoSmithKline, Genentech                                                 |  | 4%             
|                        |  |                                                                                      |  |                                                                                       |  |                
|Total Capital Sales     |  | 69%                                                                                 
|Parts and Services      |  | 31%                                                                                 
|                        |  |                                                                                      |  |                                                                                       |  |                
|Total                   |  | 100%                                                                                
|                        |  |                                                                                      |  |                                                                                       |  |                

Our
Process Technology division, employing 2,691 personnel as of December 31, 2002 and accounting for SEK 6,377 million, or 44%, of our total net sales in the year ended
December 31, 2002, 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 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 2002, approximately 52% of net sales in our Process Technology division were related
to our centrifugal separation technology, approximately 37% to our heat transfer technology, approximately 8% 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.

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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.

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 2002, 27%
of group sales were derived from this business, as compared to 25% in 2001.

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 3,892 personnel, as of December 31, 2002. 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,

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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. No single supplier accounted for more than 3% of our purchasing volume in
2002. 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. Supply contracts 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.

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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 5 million, for brazed heat exchangers, approximately SEK 100-SEK 20,000 and for welded heat exchangers approximately
SEK 5,000-SEK 1.5 million.



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 5,000-SEK 2 million.



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 120,000.

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:



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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 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.



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.



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.

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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 300-SEK 35,000.



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 2,300 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 newly created Equipment and Process Technology divisions, therefore, continue to operate and compete in our
traditional markets for heat transfer, centrifugal separation and sanitary flow products.

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



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 combined European and US heat
exchanger market is approximately US$6.0 billion, of which we estimate US$ 900 million, or 15%, represents the combined European and US market for plate heat exchangers. Plate heat
exchangers represent the fastest growing segment of the European and US heat exchanger markets. Plate heat exchangers represent the fastest growing segment of the European and US 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 higher temperature/higher pressure environments than 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 sedimentation and centrifugal separation equipment is worth
US$4.5 billion. Of this, US$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 70% of this market. The centrifugal separation market is served
primarily by a small number of global players.

In
recent years, there has been a move away from conventional methods of separation, such as gravitational (or sedimentation) separation techniques 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
becoming more confident in the application of centrifugal technology, particularly in relation to the clarification process within the brewing industry. However, we expect the highest growth to come
from the biotechnology, pharmaceutical and environmental industries.

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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 few competitors possess the technological know-how. This compares to the service environment for other less sophisticated centrifugal separators where the
competition is based on customer proximity and response time.

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 $2.2 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 Credit Finance AB, together with our predecessor Alfa Laval Holding AB and its subsidiaries, for any environmental liabilities existing
at the time of the Acquisition and, with respect to Alfa Laval Credit Finance AB and 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,

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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.

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".

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:

FLOW CHART

For
a description of Industri Kapital 2000 and 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, 2002:

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 Credit Finance AB               |                          | Lund                  |                           | Sweden         |               |            |                   
|                              |                                            | 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  |                   
|                              | Alfa Laval S.A. DE C.V.                    |                          | Tlalnepantla          |                           | Mexico         |               | 45,057,057 |                   
|                              | Alfa Laval S.A.                            |                          | San Isidro            |                           | South Africa   |               | 699        |                   
|                              | Alfa Laval Bolivia S.R.L.                  |                          | Santa Cruz            |                           | Bolivia        |               | 69         |                   
|                              | 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 (Shanghai) Technologies Co Ltd  |                          | Shanghai              |                           | China          |               |            |                   
|                              | Alfa Laval Taiwan Ltd                      |                          | Taipei                |                           | Taiwan         |               | 1,499,994  |                   
|                              | Alfa Laval (Hongkong) Ltd                  |                          | Hongkong              |                           | Hongkong       |               | 79,999     |                   
|                              | Alfa Laval (China) Ltd                     |                          | Hongkong              |                           | Hongkong       |               | 9,999      |                   
|                              | PT Alfa Laval Separatama                   |                          | Jakarta               |                           | Indonesia      |               | 1,000      |                   
|                              | Alfa Laval Iran P.J.S. Co                  |                          | Teheran               |                           | Iran           |               | 2,199      |                   
|                              | Alfa Laval KK                              |                          | Tokyo                 |                           | Japan          |               | 1,200,000  |                   
|                              | 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 NV SA                           |                          | Brussels              |                           | Belgium        |               | 33,811     |                   
|                              | 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        |               |            |                   
|                              |                                            | Alfa Laval LKM 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 Ltd                             |                          | Sofia                 |                           | Bulgaria       |               | 100        |                   

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|                      | Alfa Laval Nordic OY                    |                               | Espoo                                    |             | Finland        |             | 20,000     |           | 100   
|--------------------- | --------------------------------------- | ----------------------------- | ---------------------------------------- | ----------- | -------------- | ----------- | ---------- | --------- | ------
|                      |                                         | Cetetherm OY                  |                                          | Tuusula     |                | Finland     |            | 5,000     |       
|                      | Alfa Laval Nederland B.V.               |                               | Maarssen                                 |             | Netherlands    |             | 10,000     |           | 100   
|                      |                                         | Alfa Laval B.V.               |                                          | Maarssen    |                | Netherlands |            | 1,475     |       
|                      |                                         | Alfa Laval Merco B.V.         |                                          | Hoofddorp   |                | Netherlands |            | 1,475     |       
|                      | Alfa Laval Holding A/S                  |                               | Oslo                                     |             | Norway         |             | 520,000    |           | 100   
|                      |                                         | Alfa Laval Nordic A/S         |                                          | Oslo        |                | Norway      |            | 10,000    |       
|                      | CTC Ronneby AB                          |                               | Ronneby                                  |             | Sweden         |             | 138,000    |           | 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 Real Estate AB     |                                          | Lund        |                | Sweden      |            | 680,000   |       
|                      |                                         | Alfa Laval (India) Ltd        |                                          | Poona       |                | India       |            | 9,261,889 |       
|                      |                                         |                               | 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    |       
|                      |                                         | 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                    |                               | Tumba                                    |             | Sweden         |             | 500        |           | 100   
|                      | Alfa Laval Lund AB                      |                               | Lund                                     |             | Sweden         |             | 100        |           | 100   
|                      | Alfa Laval International Engineering AB |                               | Tumba                                    |             | Sweden         |             | 4,500      |           | 100   
|                      | Alfa Laval Tumba AB                     |                               | Lund                                     |             | Sweden         |             | 1,000      |           | 100   
|                      | Bitec Enterprise AG                     |                               | Volketswil                               |             | Schweiz        |             | 86,935     |           | 88.8  
|                      | Alfa Laval Dis Ticaret Ltd Sti          |                               | Istanbul                                 |             | Turkey         |             | 27,001,755 |           | 99    
|                      | OÜ Cetetherm                            |                               | Tallinn                                  |             | Estonia        |             | 100        |           | 100   
|                      | Alfa Laval SIA                          |                               | Tallinn                                  |             | Estonia        |             | 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 Pty Ltd            |                                          | Homebush    |                | Australia   |            | 3,500,000 |       
|                      |                                         | Alfa Laval Hamilton Pty Ltd   |                                          | Homebush    |                | Australia   |            | 10,000    |       
|                      |                                         | Heat Transfer Pty Ltd         |                                          | Homebush    |                | Australia   |            | 15,000    |       
|                      |                                         | Alfa Laval Flow Pty Ltd       |                                          | Mentone     |                | Australia   |            | 3,500,000 |       
|                      | 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

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| |                                      |                                             | Alfa Laval Spiral SNC           |                | Nevers           |                | France         |         | 79,999     |         | 100
| | ------------------------------------ | ------------------------------------------- | ------------------------------- | -------------- | ---------------- | -------------- | -------------- | ------- | ---------- | ------- | ---
| |                                      | MCD SAS                                     |                                 | Guny           |                  | France         |                | 71,300  |            | 100    
| |                                      | Alfa Laval Vicarb SA                        |                                 | Grenoble       |                  | France         |                | 200,000 |            | 100    
| |                                      |                                             | Canada Inc                      |                | Newmarket        |                | Canada         |         | 480,000    |         | 100
| |                                      |                                             |                                 | Alfa Laval Inc |                  | Newmarket      |                | Canada  |            | 481,600 |    
| |                                      |                                             | SCI du Companil                 |                | Grenoble         |                | France         |         | 32,165     |         | 100
| |                                      | Cetetherm SA                                |                                 | Lyon           |                  | France         |                | 150,000 |            | 100    
| | Cetetherm Wärrmetauschersysteme GmbH |                                             | Glinde                          |                | Germany          |                |                |         | 6         
| | Alfa Laval Holding GmbH              |                                             | Glinde                          |                | Germany          |                |                |         | 100       
| |                                      | Alfa Laval GmbH                             |                                 | Wiener Neudorf |                  | Austria        |                |         |            | 100    
| |                                      | Alfa Laval GmbH                             |                                 | Glinde         |                  | Germany        |                | 1       |            | 100    
| |                                      | Cetetherm Wärrmetauschersysteme GmbH        |                                 | Glinde         |                  | Germany        |                | 3       |            | 94     
| |                                      | Cetetherm Wärrmetauschersysteme Glinde GmbH |                                 | Glinde         |                  | Germany        |                | 1       |            | 100    
| |                                      | Alfa Laval AG                               |                                 | Dietlikon      |                  | Schweiz        |                | 647     |            | 100    
| | Alfa Laval AEBE                      |                                             | Holargos                        |                | Greece           |                | 10,000         |         | 100       
| | Alfa Laval Kft                       |                                             | Budapest                        |                | Hungary          |                | 1              |         | 100       
| | Cetetherm Vicarb Hungary Kft         |                                             | Budapest                        |                | Hungary          |                |                |         | 100       
| | Alfa Laval SpA                       |                                             | Monza                           |                | Italy            |                | 1,930,500      |         | 100       
| | 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       |            | 99     
| | Alfa Laval Dis Ticaret Ltd Sti       |                                             | Istanbul                        |                | Turkey           |                | 1              |         | 99        
| | Alfa Laval Holdings Ltd              |                                             | Camberley                       |                | United Kingdom   |                | 28,107,000     |         | 100       
| |                                      | Alfa Laval 2000                             |                                 | Camberley      |                  | United Kingdom |                | 28,106  |            | 100    
| |                                      |                                             | Alfa Laval Ltd                  |                | Camberley        |                | United Kingdom |         | 12,710,000 |         | 100
| |                                      |                                             | Alfa Laval Finance Co Ltd       |                | Camberley        |                | United Kingdom |         | 856,000    |         | 100
| |                                      |                                             | Alfa Laval Oilfield Ltd         |                | Aberdeen         |                | United Kingdom |         | 500,000    |         | 100
| |                                      |                                             | Alfa Laval Flow Ltd             |                | Sutton Coldfield |                | United Kingdom |         | 100        |         | 100
| |                                      |                                             | Alfa Laval Pumps Ltd            |                | Eastbourne       |                | United Kingdom |         | 100        |         | 100
| |                                      |                                             | Alfa Laval Thermal Ltd          |                | Camberley        |                | United Kingdom |         | 1,000      |         | 100
| |                                      |                                             | Alfa Laval Separation Ltd       |                | Camberley        |                | United Kingdom |         | 375,000    |         | 100
| |                                      |                                             | Rolls Laval Heat Exchangers Ltd |                | Wolverhampton    |                | United Kingdom |         | 5,000      |         | 50 
| | Alfa Laval USA inc                   |                                             | Kenosha                         |                | United States    |                |                |         | 100       
| |                                      | Alfa Laval US Holding Inc                   |                                 | Kenosha        |                  | United States  |                | 180     |            | 100    
| |                                      |                                             | Alfa Laval Inc                  |                | Kenosha          |                | United States  |         | 44,000     |         | 100
| |                                      |                                             |                                 | Tri-Lad Inc    |                  | Brantford      |                | Canada  |            | 4,000   |    
| |                                      |                                             | Alfa Laval US Treasury Inc      |                | Kenosha          |                | United States  |         | 1,000      |         | 100
| | AO Alfa Laval Potok                  |                                             | Koroljov                        |                | Russia           |                | 31,057,529     |         | 100       
| | OÜ Alfa Laval                        |                                             | Tallinn                         |                | Estonia          |                | 1              |         | 100       

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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 2002:

|Manufacturing Unit    |  | Employees(1) |  | Products                                                                      |  | Capacity
Utilisation(2) |  | Size(m2) |  | Use of Unit                    |  | Production
Capacity
in Delivery
Value
|--------------------- |  | ------------ |  | ----------------------------------------------------------------------------- |  | ----------------------- |  | -------- |  | ------------------------------ |  | -------------------------------------
|
|Europe:               |  |              |  |                                                                               |  |                         |  |          |  |                                |  |                                      
|Alonte, Italy         |  | 216          |  | Air conditioners, brazed plate heat exchangers                                |  | 90                      |  | 19,562   |  | Offices, Factory and Warehouse |  | 405                                  
|Eastbourne, UK        |  | 112          |  | Pumps                                                                         |  | 70                      |  | 7,726    |  | Offices, Factory and Warehouse |  | 144                                  
|Eskilstuna, Sweden*   |  | 196          |  | Separators                                                                    |  | 90                      |  | 17,682   |  | Factory                        |  | 330                                  
|Grenoble, France      |  | 171          |  | Welded plate heat exchangers                                                  |  | 80                      |  | 10,710   |  | Offices and Factory            |  | 240                                  
|Guny, France          |  | 60           |  | Gaskets                                                                       |  | 80                      |  | 3,203    |  | Factory                        |  | 52                                   
|Kolding, Denmark      |  | 302          |  | Fittings, valves and pumps                                                    |  | 85                      |  | 17,176   |  | Offices, Factory and Warehouse |  | 520                                  
|Krakow, Poland        |  | 61           |  | Separators                                                                    |  | 85                      |  | 5,558    |  | Factory                        |  | 36                                   
|Les Clayes, France*   |  | 24           |  | Filters                                                                       |  | 75                      |  | 26,632   |  | Offices and Factory            |  | 46                                   
|Lund, Sweden          |  | 502          |  | Gasketed and welded plate heat exchangers                                     |  | 90                      |  | 21,329   |  | Offices, Factory and Warehouse |  | 751                                  
|Lyon, France          |  | 31           |  | Heat exchanger modules                                                        |  | 85                      |  | 3,100    |  | Offices and Factory            |  | 88                                   
|Madrid, Spain         |  | 115          |  | Separators                                                                    |  | 90                      |  | 13,124   |  | Offices and Factory            |  | 163                                  
|Monza, Italy          |  | 45           |  | Separator modules                                                             |  | 60                      |  | 22,149   |  | Offices, Factory and Warehouse |  | 85                                   
|Nevers, France        |  | 96           |  | Spiral heat exchangers                                                        |  | 80                      |  | 16,137   |  | Offices and Factory            |  | 78                                   
|Potok, Russia         |  | 112          |  | Plate heat exchangers, gaskets                                                |  | 70                      |  | 27,382   |  | Offices and Factory            |  | 67                                   
|Ronneby, Sweden       |  | 214          |  | Brazed plate heat exchanges, modules                                          |  | 85                      |  | 15,000   |  | Offices, Factory and Warehouse |  | 437                                  
|Söborg, Denmark       |  | 150          |  | Decanters and modules                                                         |  | 80                      |  | 21,775   |  | Offices and Factory            |  | 394                                  
|North America:        |  |              |  |                                                                               |  |                         |  |          |  |                                |  |                                      
|Lykens, USA           |  | 44           |  | Spiral heat exchangers                                                        |  | 65                      |  | 5,388    |  | Factory                        |  | 85                                   
|Richmond, USA         |  | 176          |  | Scrape, brazed and gasketed plate heat exchangers, fittings, valves and pumps |  | 70                      |  | 19,817   |  | Offices, Factory and Warehouse |  | 715                                  
|Asia:                 |  |              |  |                                                                               |  |                         |  |          |  |                                |  |                                      
|Jiang Yin City, China |  | 161          |  | Brazed and gasketed plate heat exchangers, gaskets                            |  | 80                      |  | 6,294    |  | Factory                        |  | 138                                  
|Kunshan, China*       |  | 118          |  | Fittings, pumps and valves                                                    |  | 90                      |  | 6,988    |  | Factory                        |  | 71                                   
|Pune, India           |  | 387          |  | Decanters and separators                                                      |  | 90                      |  | 22,586   |  | Offices, Factory and Warehouse |  | 185                                  
|Sarola, India         |  | 118          |  | Fittings and valves                                                           |  | 85                      |  | 5,750    |  | Offices, Factory and Warehouse |  | 45                                   
|Satara, India         |  | 91           |  | Plate and spiral heat exchangers                                              |  | 30                      |  | 8,550    |  | Factory                        |  | 59                                   
|Shonan, Japan         |  | 46           |  | Gasketed plate heat exchangers                                                |  | 75                      |  | 7,549    |  | Offices and Factory            |  | 308                                  

---

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".

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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 period from
August 24, 2000 to December 31, 2000 and for the years ended December 31, 2001 and 2002. We acquired the Predecessor on August 24, 2000. See "Item 4.A: Information about
the CompanyHistory and Development of Alfa Laval Holding AB, the Company and the Guarantor". For convenience, the results of the periods from January 1, 2000 to August 23,
2000 and from August 24, 2000 to December 31, 2000 have been presented on a pro forma combined basis as if the Acquisition and related financing had been consummated on January 1,
2000. See"Item 3.A: Key InformationUnaudited Pro Forma Consolidated Financial Information" included elsewhere in this annual report. 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 34 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

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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 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 MSEK 989.3 (1,063.2) is reported as other
provisions. This constitutes 6.4 (6.0) 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.

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.

Our Restructuring and Cost Reduction Programme"Beyond Expectations"

In late 1999, we began to implement a restructuring Programme, which we call "Beyond Expectations", in order to reduce costs and increase our operating efficiency
and productivity. This restructuring, which we intend to fully complete by the end of 2003, consists of measures aimed at

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redesigning our organisational structure, consolidating human resource management, information and systems technology and communications functions into one headquartered group operation,
rationalising and consolidating our manufacturing operations, centralising our purchasing, logistics and manufacturing functions, restructuring our sales and marketing network and divesting
non-core businesses and properties. Due to this restructuring programme, we have successfully reduced our headcount from 11,330 in 1999 to 9,125 in 2002, a reduction of 19.5%, and
increased net sales per employee by 33.3% from SEK 1.2 million per employee in 1999 to SEK 1.6 million per employee in 2002. Until the end of 2003, we expect to continue to reduce
operating costs and enhance efficiency by the following actions:



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As
a result of our restructuring and cost reduction programme, we expect to increase our sales and reduce our existing operating costs, as well as to generate additional quantifiable and
unquantifiable operating efficiencies. We started to incur restructuring costs in connection with our restructuring programme in late 1999. In 2000, we recorded restructuring provisions of SEK
408 million. This provision principally related to restructuring measures that management committed to take at the time of the Acquisition. Such measures included redundancies in connection
with the closure of manufacturing sites, the rationalisation of our logistics function and the introduction of our customer segment based organisation. As of December 31, 2002, SEK
51 million of this provision remained outstanding. In addition to this provision, expenses of SEK 105 million, SEK 181 million and SEK 72 million have been recorded in our
profit and loss account in 2000, 2001 and 2002, respectively. Some of the benefits associated with these expenses may accrue in subsequent years. We estimate that our Beyond Expectations programme
generated cost savings of approximately SEK 450 million in 2001, as a result of headcount reductions, improved manufacturing and sales productivity, reduced operating costs and purchasing
initiatives that resulted in lower supply costs.

In
order to achieve our strategic objectives, we have set as a target for our revenue growth that we should outperform the markets in which we operate over the course of the business
cycle. In addition,

I-50

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we have set an Adjusted EBITA margin target of greater than 12%. This financial target requires that we obtain the cost savings and operating efficiencies we expect to achieve from our Beyond
Expectations restructuring programme. We believe that a significant portion of the cost savings and operating efficiencies we expect to achieve by the end of 2003, and the costs incurred in achieving
them, have not yet been recorded in our financial results. Management expects that our restructuring programme, when fully implemented, will generate cost savings of approximately SEK
800-1,000 million by the end of 2003 on an annualised basis. Over this period, however, we expect our operating costs to increase as a result of the execution of our strategy and
our expected sales growth. In order to achieve such cost savings, we will incur additional expenses through the end of 2003. There can be no assurance that we will be able to achieve our expected cost
savings or generate additional sales. Any such failure may make it more difficult to attain our Adjusted EBITA margin financial target of greater than 12%. 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 2002. 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.

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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 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 9.2415, 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 27% of our net sales in 2002, 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.

During
1998, there was a downturn in the ship building industry that adversely affected our business. 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 and divested operations. 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.

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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 2000, 2001 and 2002:

Year Ended December 31,Unaudited
Pro Forma
Combined
2000

2001

2002(% of total sales)European Union

42

39

40Other Europe

8

9

10North America(1)

22

21

21South America

4

4

4Asia

21

24

23Africa

1

1

0Oceania(2)

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, Russian and Denmark are our main markets in
Europe. In 2002, the sales increased in Russia, Sweden and France, whereas there was a decrease in the United Kingdom, Italy, Germany and Denmark. After considering acquisitions and disposals and the
effect of exchange rate variations, the invoicing increased strongly in Central and Eastern Europe and increased in the Nordic countries, whereas Western Europe is below the level of last year.

North America.The United States has reported a decrease in net sales that is entirely related to the effect of exchange rate
variations. This has been partly offset by an increase in invoicing in Canada. After considering the effect of exchange rate variations, the invoicing increased in North America.

South America.Our main markets in South America are Brazil and Chile. Almost all countries in the region have reported lower
sales during 2002. This is entirely due to the effect of exchange rate variations. After considering the effect of exchange rate variations, the invoicing increased in Latin America.

Asia.China, India and Japan are our largest markets in Asia. Our sales in Asia, particularly into China and India were
strong from 1999 through 2001, following improvements in Asian economies. In 2002, however, this trend ceased and sales in the region decreased compared to 2001 due to weak economic conditions. Also
after considering the effect of exchange rate variations, the invoicing in Asia was below the level of 2001.

Oceania and Africa.We experienced a decrease in sales in these regions in 2002.

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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:

Unaudited pro forma Combined
Year Ended
December 31,

Year Ended December 31,2000(1)

2001(2)

2002(SEK millions)

(SEK millions)

(SEK millions)

(%)Orders ReceivedFirst quarter

3,923

4,118

3,682

25
%Second quarter

3,893

4,087

3,964

27
%Third quarter

3,882

3,983

3,528

24
%Fourth quarter

3,676

3,706

3,501

24
%Total

15,374

15,894

14,675

100
%Net salesFirst quarter

3,059

3,452

3,262

22
%Second quarter

3,607

3,807

3,654

25
%Third quarter

3,714

3,832

3,504

24
%Fourth quarter

4,632

4,739

4,175

29
%Total

15,012

15,830

14,595

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 Alfa Laval Holding over the last three
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

90


Businesses Divested

Date

Sales(1)(SEK in millions)Automation

July 1998

1,115Celleco

September 1998

654Thermotechnik

January 1999

49Cardinal

November 1999

39Tetra Pak division of Indian subsidiary

May 2000

47Aircoil

December 2000

51Rema Control

January 2001

68Industrial Flow

April 2001

656




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 2003


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 Alfa Laval Holding. The purchase price for the shares
of 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 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.

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Depreciation
on the Step-Up (the "Step-Up Depreciation") amounted to SEK 319 million in 2002, SEK 334 million for 2001, and SEK 316 million
for 2000 on a pro forma annual basis. 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,Unaudited
Pro Forma
Combined
2000

2001

2002(SEK million)Depreciation on pre-Step-Up asset values

466

400

331Step-Up Depreciation

316

334

319Total Depreciation

782

734

650


Goodwill
amortisation amounted to SEK 188 million, SEK 178 million and SEK 164 million for the years ended December 31, 2002, 2001 and 2000, respectively. The
increase in goodwill amortisation in 2001 was due primarily to the effects of currency exchange rate fluctuations and additional goodwill relating to the acquisition of shares in Alfa Laval
India Ltd., our publicly traded Indian subsidiary. The increase in goodwill amortisation in 2002 was due to the additional goodwill relating to the additional purchase price paid for Alfa Laval
Credit Finance AB and the acquisition of shares in Danish Separation Systems A/S. In the near future, management expects that incremental depreciation related to the step-up asset values
to be in line with the Step-Up Depreciation for 2002.

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 Sweden and the United
States. In Sweden, operating losses can be offset against taxable income in perpetuity, until exhausted. 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, 2002, Alfa Laval had tax-loss carry forwards
amounting to SEK 627 million in Sweden and SEK 268 million in the United States. Utilisation of these tax-loss carry forwards may be limited by tax restrictions. As at
December 31, 2002, Alfa Laval had SEK 61million 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.

Change in Financial Reporting

As a result of our organisational redesign discussed above under "Item 5.A: Operating and Financial Review and ProspectsOperating
ResultsOur Restructuring and Cost Reduction ProgrammeBeyond Expectations", we now report our financial results by our two reorganised divisionsthe Equipment
division and the Process Technology division. In addition, certain project sales, engineering, ancillary products and installation services, our common procurement, production and logistics function,
certain corporate overhead costs, the financial results of Tri-Lad Inc., our Canadian-based manufacturer of industrial flanges, and certain projects sales in India are incorporated
under the heading "Operations and other" as a third financial reporting division. This change has been effective since the beginning of 2001.

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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, 2000, 2001 and 2002:

|                                                  |  | Year ended December 31, |  
|------------------------------------------------- |  | ----------------------- | -
|
|
|
|Net sales                                         |  | 15,012                  |  
|Cost of goods sold                                |  | (10,124                 | )
|                                                  |  |                         |  
|Gross profit                                      |  | 4,888                   |  
|Other operating expenses:                         |  |                         |  
|Sales costs                                       |  | (2,584                  | )
|Administrative costs                              |  | (862                    | )
|Research and development costs                    |  | (441                    | )
|Other operating income/(costs)                    |  | (157                    | )
|Goodwill Amortisation                             |  | (164                    | )
|Comparison distortion items                       |  | 130                     |  
|                                                  |  |                         |  
|Operating income/(loss)                           |  | 810                     |  
|Interest and other financial income/(costs)       |  | (802                    | )
|                                                  |  |                         |  
|Income/(loss) before taxes and minority interests |  | 8                       |  
|Income tax benefit/(expense)                      |  | (105                    | )
|Minority interests                                |  | (48                     | )
|                                                  |  |                         |  
|Net income/(loss)                                 |  | (145                    | )
|                                                  |  |                         |  
|Orders received                                   |  | 15,374                  |  
|Order backlog                                     |  | 4,063                   |  

Years ended December 31, 2001 and 2002

Net Sales

Consolidated.Net sales decreased by SEK 1,235 million, or 7.8%, to SEK 14,595 million in 2002 from SEK
15,830 million in 2001. Our net sales were significantly affected by currency exchange rate fluctuations. On a constant exchange rate basis and excluding divested activities, our consolidated
net sales decreased SEK 364 million, or 2.3%. This decrease in net sales was due primarily to weaker sales in both the Process Technology division and in the Equipment division.

Orders
received decreased by SEK 1,219 million, or 7.7%, to SEK 14,675 million in the year ended December 31, 2002 from SEK 15,894 million in the year ended
December 31, 2001. Orders received for divested operations were SEK 213 million and SEK nil million in 2001 and 2002, respectively. Order backlog increased by
SEK 26 million, or 0.6%, to SEK 4,340 million at December 31, 2002 from SEK 4,314 million at December 31, 2001. Order backlog for divested
operations was SEK 11 million and SEK nil million in 2001 and 2002, respectively.

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Net
sales by division for the year ended December 31, 2001 and 2002 were as follows:

Year ended December 31,2001

2002(SEK in millions)Net sales by divisionEquipment

8,576

8,130Process Technology

6,872

6,377Operations and other

169

8815,617

14,595Divested businesses/businesses for disposal(1)

212

Net sales

15,830

14,595




Equipment.Net sales decreased by SEK 446 million, or 5.2%, to SEK 8,130 million in 2002 compared with SEK
8,576 million in 2001. This decrease was due primarily to the effect of currency exchange rate fluctuations, as well as to a decrease in sales volumes. On a constant exchange rate basis, net
sales in our Equipment division decreased by SEK 153 million, or 1.8%. This decrease in net sales was due to decreased sales in the Marine & Diesel customer segment, principally due to
fewer contracts for new-buildings at the shipyards. The decrease in net sales in our Equipment division was partially offset
by an upturn in sales for both the Parts & Services and OEM customer segments. The increase in net sales in OEM is explained among other factors by an inventory reduction at certain customers
that has been completed and the orders have returned to a more normal level.

Orders
received decreased by SEK 465 million, or 5.4%, to SEK 8,093 million in the year ended December 31, 2002 from SEK 8,558 million in the year
ended December 31, 2001. Order backlog decreased by SEK 83 million, or 5.0%, to SEK 1,565 million at December 31, 2002 from SEK 1,648 million at
December 31, 2001.

Process Technology.Net sales decreased by SEK 495 million, or 7.2%, to SEK 6,377 million in 2002 compared with
SEK 6,872 million in 2001. This decrease was due primarily to the effects of exchange rate fluctuations. On a constant exchange rate basis, sales in our Process Technology division decreased by
SEK 157 million, or 2.3%. This decrease in sales was principally due to decreased sales in the Food Technology and Process Industry customer segments, partially offset by an increase in sales
in the Energy & Environment, Life Science and Parts & Service customer segments. Life Science has increased sales principally due to continued investments within pharmaceuticals and
biotechnology.

Orders
received decreased by SEK 539 million, or 7.7%, to SEK 6,488 million in the year ended December 31, 2002 from SEK 7,027 million in the year ended
December 31, 2001. Order backlog increased by SEK 98 million, or 3.7%, to SEK 2,753 million at December 31, 2002 from SEK 2,655 million at
December 31, 2001.

Operations and other.Net sales decreased to SEK 88 million in 2002 from SEK 169 million in 2001. This decrease
was due primarily to decreased demand.

Costs of Goods Sold

Costs of goods sold decreased by SEK 1,086 million, or 10.5% to SEK 9,262 million in 2002 compared with SEK 10,348 million in 2001. The
decrease in cost of goods sold was due primarily to the lower sales volume. In 2002, costs of goods sold also included SEK 319 million of Step-Up Depreciation in connection with the
Acquisition of Alfa Laval Holding.

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Gross Profit

Gross profit in 2002 was SEK 5,333, or 36.5% of net sales, as compared to SEK 5,482, or 34.6% of net sales, in 2001. The decrease of SEK 149 million, or
2.7%, was primarily due to the effect of currency exchange rate fluctuations. On a constant exchange rate basis and exclusive of Step-Up Depreciation in 2002 of SEK 319 million,
gross profit increased by SEK 40 million, or 0.7%. This increase is a reflection of the increased gross profit margin, which is due to reduced overheads.

Operating Expenses

Sales costs.Sales costs were SEK 2,115 million in 2002 compared with SEK 2,443 million in 2001. The decrease
of SEK 328 million, or 13.4%, was due primarily to a changed definition of sales and administration costs, offset in part by customary increases in salaries for employees within the Group.

Administration Costs.Administration costs were SEK 1,027 million in 2002 compared with
SEK 787 million in 2001. The increase of SEK 240 million, or 23.4% was due primarily to a changed definition of sales and administration costs, offset in part by cost savings
resulting from our "Beyond Expectations" restructuring programme.

Research and Development Costs.Research and development costs increased from SEK 341 million or 2.2% of net
sales in 2001 to SEK 355 million or 2.4% of net sales in 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 120 million, or 30.8%, to SEK
269 million in 2002 compared with SEK 389 million in 2001 due principally to a number of different factors affecting, among other things, lower rental income and lower reversal of
provisions in a large number of our subsidiaries.

Other Operating Costs.Other operating costs decreased by SEK 229 million, or 25.6%, to
SEK 664 million in 2002 compared with SEK 893 million in 2001 due to lower restructuring costs and bank charges.

Comparison distortion items, net.Comparison distortion items were a loss of SEK 29 million in 2002 compared to a gain
of SEK 5 million in 2001. The comparison distortion items in 2002 were primarily attributable to a loss of SEK 43 million related to the sale of real estate, offset by a further gain of
SEK
14 million on the sale of Industrial Flow. Comparison distortion items in 2001 comprised a gain of SEK 10 million realised from the sale of Industrial Flow, offset by a loss of SEK
5 million attributable to the sale of real estate.

Goodwill amortisation.Goodwill amortisation costs were SEK 188 million in 2002 compared with SEK 178 million
in 2001. The increase of SEK 10 million, or 5.6%, was due primarily to the additional goodwill relating to the additional purchase price paid for Alfa Laval Credit Finance AB and the
acquisition of shares in Danish Separation Systems A/, offset by exchange rate fluctuations.

Operating Income

Operating income decreased to SEK 1,224 million in 2002 from SEK 1,233 million in 2001. This decrease of SEK 9 million was due
primarily to exchange rate fluctuations, offset by a decrease of SEK 5 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 5 million and the negative increase in comparison distortion items of
SEK 34 million, our operating income increased by SEK 88 million or 5.1%. Included in our operating income are certain one-off costs of
SEK 181 million in 2001 and SEK 72 million in 2002, related to our restructuring programme.

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Adjusted EBITA

The following table shows the development of the Adjusted EBITA for 2001 and 2002:

Year ended
December 31,2001

2002(SEK millions)Operating Income

1,233

1,224Amortisation of goodwill

178

188Step-Up Depreciation

334

319EBITA

1,745

1,731Comparison distortion items

(5
)
29Adjusted EBITA

1,740

1,760


Adjusted
EBITA increased by SEK 20 million in 2002 to SEK 1,760 million compared to SEK 1,740 million in 2001. On a constant exchange rate basis,
excluding divested operations, the increase in Adjusted EBITA was SEK 88 million.

Net Interest and Other Financial Income/Costs

Interest and other financial income/costs decreased by SEK 97 million, or 11.3%, to SEK 764 million in 2002 compared with to
SEK 861 million in 2001. Total bank borrowings amounted to SEK 3,360.2 million at the end of 2002 compared to SEK 4,573.1 million at the end of 2001. The
total financial indebtedness including leasing and interest bearing pension liabilities amounted to SEK 4,518.7 million at the end of 2002 compared to SEK 6,651.6 million at the
end of 2001. These two circumstances have reduced the interest costs by SEK 187.2 million or 29.0%. During 2002, the net realised and unrealised exchange gains and losses improved by SEK
171.8 million compared to 2001. The financial comparison distortion cost of SEK 290.7 million offset most of these improvements. This 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 2002 and 2001. Our weighted average tax rate was 33% in 2002 and 35% in 2001. Alfa Laval's taxation charge
was SEK 218 million in 2002, compared with a taxation credit of SEK 26 million in 2001 primarily due to reimbursement of taxes in prior years.

Net Income

Principally as a result of the above factors, Alfa Laval had net income of SEK 208 million in 2002 compared with net income of SEK 367 million in
2001.

Years ended December 31, 2000 and 2001

We are the successor company of Alfa Laval Holding, the Predecessor. The information discussed for the year ended December 31, 2000 is based on the Swedish
GAAP pro forma combined results for the period ended December 31, 2000, as disclosed elsewhere in this annual report. The Acquisition, more fully described under "Item 4: Information about the
CompanyHistory and Development of

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Alfa Laval Holding AB, the Company and the Guarantor", affected our accounting for depreciation and amortisation of tangible and intangible assets (all included in the costs of goods sold), goodwill
amortisation, interest expense and deferred income taxes. The Acquisition had no impact on our accounting for net sales or on other operating expenses.

Net Sales

Consolidated.Net sales increased SEK 818 million, or 5.4%, to SEK 15,830 million in 2001 from SEK
15,012 million in 2000. The increase in our consolidated net sales was partially offset by the loss of sales volumes resulting from the sale of our Industrial Flow business in
April 2001, our Rema Control business in January 2001 and our Aircoil business in December 2000, which collectively contributed sales volumes of approximately SEK
827 million in 2000. Our net sales were also significantly affected by currency exchange rate fluctuations. Excluding divested activities and the effects of currency exchange rate fluctuations,
our consolidated net sales increased SEK 142 million, or 0.9%. This increase was due
primarily to stronger sales in our Process Technology division and, to a lesser degree, in our Equipment division.

Orders
received increased by SEK 520 million, or 3.4%, to SEK 15,894 million in 2001 from SEK 15,374 million in 2000. Orders received for divested
operations were SEK 814 million and SEK 213 million in 2000 and 2001, respectively. Order backlog increased by SEK 251 million, or 6.2%, to
SEK 4,314 million at December 31, 2001 from SEK 4,063 million at December 31, 2000. Order backlog for divested operations was SEK 138 million
and SEK 1 million in 2000 and 2001, respectively.

Net
sales by division for the years ended December 31, 2000 (on a pro forma combined basis) and December 31, 2001 were as follows:

Year ended December 31,Unaudited Pro forma Combined2000

2001(SEK in millions)Net sales by divisionEquipment

7,981

8,576Process Technology

5,776

6,872Operations and other(1)

428

16914,185

15,617Divested businesses/businesses for disposal

827

212Net sales

15,012

15,830




Equipment.Net sales increased by SEK 595 million, or 7.5%, to SEK 8,576 million in 2001 compared with SEK
7,981 million in 2000. This increase was due primarily to the effect of currency exchange rate fluctuations and an increase in sales volumes. On a constant exchange rate basis, net sales in our
Equipment division increased marginally by SEK 2 million, or 0.1%. This increase in net sales was due to an increase in net sales in the Marine & Diesel and Fluids & Utility
customer segments and an increase in net sales in the Comfort & Refrigeration customer segment, which was partly offset by a loss of sales volumes resulting from the sale of our Aircoil
business in December 2000. The increase in net sales in our Equipment division was partially offset by a decrease in sales in the Sanitary customer segment, principally due to reduced demand
from the food, dairy and

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brewing industries. Net sales in the OEM customer segment also decreased, while sales from the division's parts and services business decreased marginally.

Orders
received increased by SEK 398 million, or 4.9%, to SEK 8,558 million in the year ended December 31, 2001 from SEK 8,160 million in the year
ended December 31, 2000. Order backlog increased by SEK 175 million, or 11.9%, to SEK 1,648 million at December 31, 2001 from SEK 1,473 million at
December 31, 2000.

Process Technology.Net sales increased by SEK 1,096 million, or 19.0%, to SEK 6,872 million in 2001 compared
with SEK 5,776 million in 2000. This increase was due primarily to an increase in sales volumes and the effects of exchange rate fluctuations. On a constant exchange rate basis, sales in our
Process Technology division increased by SEK 606 million, or 9.7%. This increase was due to an increase in sales in the parts and services business and an increase in sales in the
Energy & Environment, Life Science Technology, Water Technology and Process Industry customer segments. The increase in sales in the Energy & Environment customer segment was
attributable to an increase in capital investment by oil companies in order to increase production capacity in view of higher oil prices during early 2001. The increase in this customer segment also
reflects increased demand for separation decanters and, to a lesser extent, heat exchangers in the waste-water treatment industries in view of new EU environmental legislation requiring greater
separation of effluents in the waste-water treatment industry. The increase in net sales in the Water Technology customer segment was due to a large order backlog in 2000 which was processed and
invoiced during 2001, together with our adoption of a more selective approach in favour of capital sales with higher margins to customers in the land based desalination industry. Increased sales in
the Process Industry customer segment reflected a large order backlog in 2000 which was processed and invoiced during 2001. Net sales from the Food Technology customer segment remained unchanged, as
increased sales volumes were offset by the effects of the foot and mouth and BSE crises, together with a delay in the payment of EU subsidies to producers of olive oil and a decrease in capital
investment in the eastern European brewing industry as a result of substantial prior investment in recent years.

Orders
received increased by SEK 839 million, or 13.6%, to SEK 7,027 million in the year ended December 31, 2001 from SEK 6,188 million in the year
ended December 31, 2000. Order backlog
increased by SEK 344 million, or 14.9%, to SEK 2,655 million at December 31, 2001 from SEK 2,311 million at December 31, 2000.

Operations and other.Net sales decreased to SEK 169 million in 2001 compared with SEK 428 million in
2000. This decrease was due primarily to a decrease in sales in respect of our Indian subsidiary due to the invoicing of a very large order during 2000 and the effects of currency exchange rate
fluctuations.

Cost of Goods Sold

Costs of goods sold increased by SEK 224 million, or 2.2%, to SEK 10,348 million in 2001 compared with SEK 10,124 million in 2000. This
increase in costs of goods sold was due to higher overall sales volumes, the effect of currency exchange rate fluctuations and the reallocation of approximately SEK 90 million of shipping
department costs, previously recorded as sales costs, to costs of goods sold in order to conform Alfa Laval's accounting practices among the various entities within the group. Costs of goods sold also
increased as a result of provisions in respect of bad debts and claims. The increase in cost of goods sold was partially offset by the benefits of our Beyond Expectations restructuring programme,
including a reduction in production overhead costs (primarily headcount reductions), the closure of certain manufacturing plants and procurement initiatives aimed at reducing the cost of raw
materials. In 2001, costs of goods sold also included SEK 334 million of Step-Up Depreciation in connection with the Acquisition of Alfa Laval Holding, compared with,
SEK 316 million in 2000.

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Gross Profit

Gross profit in 2001 was SEK 5,482 million, or 34.6% of net sales, as compared to SEK 4,888 million, or 32.6% of net sales, in 2000. The
increase of SEK 594 million, or 12.2%, was primarily due to the effects of currency exchange rate fluctuations. On a constant exchange rate basis, gross profit increased by SEK
214 million, or 4.1%. This increase was due to sales volume increases consequent upon higher utilisation of manufacturing facilities, a reduction in overhead costs and the positive effects of
transactional currency exchange rate fluctuations, offset by a combination of negative price developments and an adverse change in the mix of products and services sold.

Operating Expenses

Sales Costs.Sales costs decreased by SEK 141 million, or 5.5%, to SEK 2,443 million in 2001 compared with SEK
2,584 million in 2000. This decrease included currency exchange rate fluctuations which increased sales costs by SEK 201 million, or 7.8%. Part of the decrease in sales costs was due to
the effect of divestments completed in 2001, particularly the sale of Industrial Flow, which decreased sales costs by approximately SEK 100 million. In addition, there was a reallocation of
approximately SEK 90 million of shipping department costs to cost of goods sold in order to conform Alfa Laval's accounting practices among the various entities within the group, as well as the
effects of restructuring effortsprincipally headcount reductionswhich resulted in a decrease in sales costs of approximately SEK 150 million.

Administration Costs.Administration costs decreased by SEK 75 million, or 8.7%, to
SEK 787 million in 2001 compared with SEK 862 million in 2000. This decrease included currency exchange rate fluctuations, which increased our administration costs by SEK
55 million, or 6.4%. The decrease in administration costs was due in part to the impact of divestments completed in 2001, including the sale of Industrial Flow, which decreased administration
costs by approximately SEK 40 million, or 4.7%. In addition, the net of the effects of restructuring effortsprincipally headcount reductions and other
savingsand of salary increases resulted in a decrease in administration costs of approximately SEK 90 million.

Research and Development Costs.Research and development costs decreased from SEK 441 million, or 2.9% of net
sales, in 2000 to SEK 341, or 2.2% of net sales, in 2001. This decrease was due to the timing of expenditures with respect to research and development projects as no major project was concluded
in 2001. Research and development costs also decreased due to currency exchange rate fluctuations and divestments completed in 2001, including the sale of Industrial Flow.

Other Operating Income.Other operating income decreased by SEK 137 million, or 26.0%, to SEK 389 million in
2001 compared with SEK 526 million in 2000 due principally to a number of different factors affecting, among other things, commission, royalty, rental and license income in a large number of
our subsidiaries.

Other Operating Costs.Other operating costs increased by SEK 210 million, or 30.8%, to SEK 893 million in 2001
as compared with SEK 683 million in 2000, as a result of additional restructuring charges of approximately SEK 70 million in relation to our Operations division, changes in accounting
treatment in relation to commissions paid to third-party sales representatives amounting to an increase of approximately SEK 120 million, an increase in other financial costs of approximately
SEK 40 million and the effect of currency exchange rate fluctuations, which negatively impacted our other operating costs by approximately SEK 35 million, together with cash discounts
and the disposal of fixed assets and certain other items which reduced our other operating costs by approximately SEK 55 million.

Comparison Distortion Items, net.Comparison distortion items were a gain of SEK 5 million in 2001 due to a gain of
SEK 10 million realised from the sale of Industrial Flow, offset by a loss of SEK 5 million attributable to the sale of real estate. Comparison distortion items were primarily a gain of

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SEK 130 million in 2000 due primarily to gains from the sale of real estate amounting to SEK 222 million, a refund for past premiums related to a prior defined benefit plan amounting to
SEK 271 million and costs amounting to SEK 394 million related to the write off of the excess purchase price allocated to inventories and ongoing research and development at the time of
the Acquisition.

Goodwill amortisation.Goodwill amortisation costs increased to SEK 178 million in 2001 compared with SEK
164 million in 2000. The increase of goodwill amortisation costs was due primarily to the effects of currency exchange rate fluctuations and goodwill relating to the acquisition of further
shares in Alfa Laval India Ltd., our publicly traded Indian subsidiary.

Operating Income

Operating income increased by SEK 423 million, or 52.2%, to SEK 1,233 million in 2001 compared with SEK 810 million in 2000. This increase
was due primarily to an increase in gross profit, and the effect of our restructuring measures, more fully described under "Item 5.A: Operating and Financial Review and ProspectsOperating
ResultsOur Restructuring and Cost Reduction ProgrammeBeyond Expectations"
above. Currency exchange rate fluctuations also positively impacted our operating income. On a constant exchange rate basis, our operating income increased by SEK 354 million, or 40.4%.
Included in our operating income are certain one-off costs of SEK 170 million in 2000 and SEK 232 million in 2001, primarily related to our restructuring programme.

Adjusted EBITA

The following table shows the development of the Adjusted EBITA for 2000 and 2001:

Year ended December 31,Unaudited
Pro forma
Combined2000

2001(SEK millions)Operating income

810

1,233Amortisation of goodwill

164

178Step-Up Depreciation

316

334EBITA

1,290

1,745Comparison distortion items

(130
)
(5
)Adjusted EBITA

1,160

1,740


Adjusted
EBITA increased by SEK 580 million in 2001 to SEK 1,740 million compared to SEK 1,160 million in 2000. The increase was due primarily to an increase in the
gross profit and cost savings due to our restructuring efforts. On a constant exchange rate basis, excluding divested operations, the increase in Adjusted EBITA was SEK 522 million.

Net Interest and Other Financial Income/Costs

Interest and other financial income/costs increased by SEK 59 million, or 7.2%, to SEK 861 million in 2001 compared with SEK 802 million in
2000. This increase was due primarily to the weakened Swedish kronor, which increased interest costs on our non-Swedish-kronor-based debt by approximately SEK 70 million, and an
increase of approximately SEK 30 million in unrealised net currency exchange losses. This increase in net interest and other financial costs was notwithstanding our lower outstanding debt
balances, which in turn reduced interest costs payable on our debt. In 2001, our debt balances decreased by approximately SEK 1,536 million, on a constant exchange rate basis. This

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decrease was due to amortisations and pre-payments made by utilising cash from our operating activities and the proceeds of business and property disposals. Interest rates also decreased,
which resulted in reduced interest payments on our local finance facility drawings.

Income Taxes

The Swedish statutory tax rate on income was 28.0% in 2001 and 2000. Our weighted average tax rate was 35.0% in 2001 and 2000. Alfa Laval's taxation credit was
SEK 26 million in 2001 primarily due to reimbursement of taxes in prior years, compared with a taxation charge of SEK 105 million in 2000.

Net Income

Principally as a result of the above factors, Alfa Laval had net income of SEK 367 million in 2001 compared with a net loss of SEK 145 million in
2000.

5.B. Liquidity and Capital Resources

The following summary of certain provisions of our Senior Notes, the Existing Senior Credit Facility, the Subordinated Loan, the
Intercompany Note and the 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.



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
Senior Notes 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.

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 Credit Finance AB.

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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 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 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 2, 2003 our Senior Notes, which are listed on the Luxembourg Stock Exchange, traded at 118%. 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.



Following
completion of the Offering, we refinanced borrowings under our Previous Senior Credit Facility with borrowings under our Existing Senior Credit Facility. Our Existing Senior
Credit Facility comprises a senior multi-currency credit facility with SEB Merchant Banking, a unit within Skandinaviska Enskilda Banken AB (publ) and Svenska Handelsbanken AB (publ), as arrangers, of
up to €575 million and is structured in two tranchesa Tranche A €425 million 5 year multi-currency term loan facility and a Tranche B
€150 million 5 year multi-currency revolving credit facility. Following the Offering, we to applied the proceeds of Tranche A mainly to the refinancing of term loans
under our Previous Senior Credit Facility and for other purposes in connection with the Offering. We use the proceeds of Tranche B for working capital and other general corporate purposes.

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

The
Existing Senior Credit Facility may be cancelled and/or pre-paid without premium in whole or in part, in minimum amounts of €5 million, or, if
greater, in integral multiples of €1 million 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 may be required by the lenders to prepay the Existing Senior Credit Facility.

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

In
connection with the Existing Senior Credit Facility, on April 29, 2002, we entered into inter-creditor arrangements under which the Intercompany Note between us and Alfa Laval
Credit Finance AB, is subordinated to debt outstanding under the Existing Senior Credit Facility. The guarantee of the Senior Notes given by Alfa Laval Credit Finance AB is also subordinated to
outstandings under the Existing Senior Credit Facility. These subordination arrangements include restrictions on the repayment of, or payments in relation to, this intercompany loan. The additional
condition subsequent under the

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Existing Senior Credit Facility was that all the security under the Previous Senior Credit Facility be released.

The
Existing Senior Credit Facility contains financial covenants which are required ratios of consolidated net debt to consolidated EBITDA of the group, consolidated EBITDA to total
interest expense of the group and consolidated net debt to shareholders' equity of the 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 group, lending, the giving of guarantees by members of the group and the disposal of assets by members of the group.

The
Existing 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.



There
are no hedging requirements under our Existing Senior Credit Facility.



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 Existing Senior Credit Facility
to, among other things, repay the Subordinated Loan on May 23, 2003, together with accrued and unpaid interest thereon.



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 Intercreditor
Agreement for the Existing Senior Credit Facility. The Intercreditor Agreement provides for payment suspensions and limitations on enforcement in relation to the Intercompany Note.



On
April 29, 2002, we, the Guarantor, the financial institutions named as lenders in Schedule 1 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 Existing
Senior Credit Facility will rank for all purposes and at all times in priority to the Intercompany Note.

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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 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 Existing 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 Existing 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 Existing 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 Existing Senior Credit
Facility) and (1) we have notified the facility agent under the Existing 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 Existing Senior Credit Facility.



In
addition to the debt we will or may incur under the Existing 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 €119 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 €92 million.

In
addition, we are entitled by the Existing 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 Existing Senior Credit Facility.

As
at December 31, 2002 there was approximately €32.8 million outstanding of borrowings and guarantees for financial indebtedness under local facilities,
which included:



Approximately
€127 million in face amount of guarantees and performance bonds (of which €44 million refers to performance bonds) have been
issued and were outstanding as of December 31, 2002 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.

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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 €22 million as at December 31, 2002. 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.

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 29, 2002 we entered into a Existing Senior Credit Facility of up to €575 million, comprising a € 425 million
5 year term loan facility, and a €150 million 5 year revolving credit facility. We used drawings under the Existing Senior Credit Facility to refinance our
Previous Senior Credit Facility. There is no amortisation schedule in respect of the term loan facility. We expect that we will need to refinance all or part of the Existing Senior Credit Facility at
maturity, in order to make full repayment.

We
replaced our old €79 million ancillary facilities under the Previous Senior Credit Facility with new central bilateral facilities in an amount of up to
€35 million and our old syndicated guarantee facilities with new central bilateral guarantee facilities of up to €145 million. We also retain local
facilities at our operating companies within the limits to be provided under the Existing 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).

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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,Unaudited Pro forma
Combined
2000

2001

2002(SEK in millions)Operating income

810

1,233

1,224Depreciation and amortisation

946

912

838Adjustment for non cash items

141

4

351,897

2,150

2,097Taxes paid

(360
)
(463
)
(396
)Cash flow from operations before changes in working capital

1,537

1,687

1,701Changes in working capital:(Increase)/decrease of current receivables

(253
)
209

340(Increase)/decrease of inventories

48

263

140Increase/(decrease) of liabilities

298

(182
)
(134
)94

290

346Cash flow from operating activities

1,630

1,977

2,047Cash flow from investment activities

(8,284
)
112

(548
)Cash flow from financing activities

6,618

(2,069
)
(1,443
)


Cash
flows from operating activities were SEK 2,047 million in 2002 compared with SEK 1,977 million in 2001. This increase was due primarily to reduction in net working
capital. Cash flows from operating activities were SEK 1,977 million in 2001 compared with SEK 1,630 million in 2000. This increase was due primarily to an increase in operating income
and a reduction in net working capital.

Cash
flows from investing activities decreased by SEK 660 million from a positive cash flow of SEK 112 million in 2001 to a negative cash flow of SEK 548 million in
2002. This decrease in cash flow from investing activities was principally due to the additional purchase price paid for Alfa Laval Credit Finance and the acquisition of Danish Separation Systems A/S
together with the lack of proceeds from divested business compared to 2001. Cash flows from investing activities increased by SEK 8,396 million from a negative cash flow of SEK
8,284 million in 2000 to a positive cash flow of SEK 112 million in 2001. This increase in cash flow from investing activities was principally due to the Acquisition during 2000, a
decrease in investments in fixed assets, a decrease in provisions, an increase in proceeds received from the sale of certain businesses, and an increase in cash resulting from a
tax-related reduction in purchase price.

Cash
flows from financing activities increased in 2002 to a negative cash flow of SEK 1,443 million as compared to negative cash flow of SEK 2,069 million in 2001 due to
new issue of shares of SEK 819 million. Cash flows from financing activities decreased in 2001 to a negative cash flow of SEK 2,069 million as compared to the positive
cash-flow of SEK 6,618 million in 2000 due to the absence of any shareholder contribution, as compared to the shareholder contribution received in 2000 in connection with the
Acquisition, an increase in unrealised foreign exchange gains/losses and an increase

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in liabilities to credit institutions as a result of repayments we made during 2001 in relation to our Previous Senior Credit Facility.

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, as well as to increase the capacity for the production of brazed heat exchangers. An investment in additional
plate pressing capacity and brazing furnaces at our Ronneby facility in Sweden and our Jiang Yin City facility in China commenced in late 2000 and was completed in 2002.

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 Existing Senior Credit Facility, if a change of control occurs, we may be required by the lenders to prepay the Existing Senior Credit Facility. We are
also permitted to make voluntary prepayments on the loans under the Existing Senior Credit Facility. Borrowings under the Existing 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 Existing 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.

We
believe that cash flow generated from our operations, together with amounts available under the revolving credit facility under the Existing 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, anticipated capital expenditures and
other operating needs for the foreseeable future. We expect, however, that we will need to refinance all or a part of our Senior Notes at final maturity. 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".

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Contractual Obligations and Commercial Commitments

The following summaries our contractual obligations and other commercial commitments as of December 31, 2002, 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                     |  | 4,233.4               
|Capital Lease Obligations          |  | 24.7                  
|Operating Leases                   |  | 328.2                 
|Other Long Term Obligations        |  | 61.1                  
|                                   |  |                       
|Total Contractual Cash Obligations |  | 4,647.4               

Other Commercial Commitments

|                             |  | Amount of Commitment Expiration Per Period
|---------------------------- |  | ------------------------------------------
|
|
|Guarantees                   |  | 798.0                                     
|Other Commercial Commitments |  | 900.0                                     
|                             |  |                                           
|Total Commercial Commitments |  | 1,698.0                                   

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 Existing Senior Credit Facility and the 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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 Intercreditor Agreement prohibits payments under the inter-company 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 Existing 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 Intercreditor Agreement provides that, in addition to the payment blockage described above, no enforcement action can
be taken by us in relation to the Inter-company Loan prior to the date of repayment of the Existing Senior Credit

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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 Existing
Senior Credit Facility) and (1) we have notified the facility agent under the Existing 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 Existing Senior Credit Facility has been fully repaid, to the extent and subject to the restrictions described in the previous
paragraph, the Intercreditor Agreement and the Existing 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 441 million (2.9% of total sales), SEK 341 million (2.2% of total sales) and SEK 355 million
(2.4% of total sales) in the three years 2000, 2001 and 2002 respectively. Management expect 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 300 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 six centres, in Alonte (Italy), Tumba (Sweden), Lund (Sweden), Moatti (France), Richmond (USA) and Kolding (Denmark).

As
a result of our research and development efforts in heat transfer we have achieved the following results. In the Process Technology division the unique plate condensor, named AC 600,
was completed and the first order secured in December 2002. In 2002, the Equipment division launched CB 20, a new brazed heat exchanger for district heating applications. This new concept
radically increases heat transfer coefficiency. Compared with its predecessors, the CB 20 boosts output by approximately 30%. Also launched in 2002 was the AlfaGreen, a range of high performance axial
condenser air units with high capacity and low refrigerant hold-up volume.

In
the centrifugal separation market, the Process Technology division continues to develop sterilisable centrifuges for the bio-pharmacy industry. In addition, a new hermetic
separator with extremely gentle treatment for mammalian cell cultures was sent for field tests in December 2002. A new olive oil separator based on the new marine platform is expected to be
launched in time for the 2003 olive oil campaign. In 2002, the Equipment Division launched Alfie 200, a small adaptable direct-drive separator designed for workshops with a small number of machine
tools. Alfie 200 keeps the coolants clean and free from tramp oil and thus from bacteria. Tool life can therefore be improved by approximately 20% and the fluid disposal and replacement costs can be
reduced by up to 75%.

In
the sanitary flow sector, our main product launches during 2002 were the LKH 120 multistage pump for high pressure applications, for example in filtration systems within the dairy and
bio pharmacy industries for nano filtration or reverse osmosis and also the STP rotary lobe pump for trailers transporting sanitary products.

During
2002, our Process Technology division brought 29 new centrifuges to the market. For heat exchangers only one new product was introduced, as a lot of resources were used to upgrade
the complete range of heat exchangers to new pressure vessel codes called PED. New projects for 2003 include a large separator for dehydration of heavy crude oils, which is expected to enable
exploration of difficult-to-process heavy crude oil deposits. Field tests are scheduled for December 2003 in the United States. For wastewater sludge treatment, Alfa
Laval has recently started marketing of a new automatic optimisation solution that can reduce operating cost in sewage treatment plants substantially.

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A complete range of new cost efficient sewage decanters is expected to be launched during mid of 2003. The plate condenser concept will be further extended with larger units. Our Equipment division
has 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, a crank case gas cleaner for heavy diesel vehicles. The oil mist is
efficiently separated from the gas and thereby meeting the emission requirements in 2005.

We
own approximately 185 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

We expect orders received during 2003 to show a limited increase compared to 2002. The major part of the increase is expected through acquired activities together
with a marginal organic growth during the latter part of 2003. The uncertainty that currently characterises the world economy means, however, that such forecasts are uncertain.

Our
restructuring programme,"Beyond Expectations", that will be completed by the end of 2003, is expected to result in continued savings during 2003.

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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

45

ChairmanSigge Haraldsson

2000

58

DirectorJohan Ahlgren

2002

41

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 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 Advokatbyrõ 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 holds a Master of Law from the
University of Lund, which he received in 1986. Mr. Ahlgren has no outside directorships.

Sigge Haraldsson, the Alfa Laval Group chief executive officer since 1998, has been a director of ours since 2000. From 1970 to 1992,
Mr. Haraldsson has held various positions within the Alfa Laval Group, including president of Alfa Laval Thermal AB from 1983 to 1992. From 1993 to 1998, he was a member of the Tetra Pak group
management, initially heading Processing and Packaging Systems, and from 1995 heading the Fibre Packaging division, the largest of the three divisions in Tetra Pak. He received a M.Sc. from LTH in
1970. Mr. Haraldsson is a member of the board of Hans Stahles Minnesfond.

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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                                    
|------------------ |  | ------------------ |  | --- |  | --------------------------------------------
|Sigge Haraldsson   |  | 1970               |  | 58  |  | Chief Executive Officer                     
|Thomas Thuresson   |  | 1988               |  | 45  |  | Chief Financial Officer                     
|Svante Karlsson    |  | 1984               |  | 47  |  | Executive Vice President, Equipment         
|Yannick Richomme   |  | 1986               |  | 50  |  | Executive Vice President, Process Technology
|Ulf Granstrand     |  | 1975               |  | 55  |  | Executive Vice President, Operations        
|Per Erik Lindquist |  | 2001               |  | 43  |  | Executive Vice President, Regions           
|Peter Leifland     |  | 1985               |  | 49  |  | Executive Vice President, Regions           
|Peter Torstensson  |  | 1999               |  | 47  |  | Vice President, Corporate Communications    
|David Ford         |  | 1993               |  | 48  |  | Senior Vice President, Human Resources      
|Nils Olof Björk    |  | 1975               |  | 56  |  | Senior Vice President, Corporate Development

Sigge Haraldsson.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.

Yannick Richommeis an executive vice president of Alfa Laval and president of our Process Technology division. Mr. Richomme has
held various positions with us since 1986, including president of business area Separation from 1998 until 2001, managing director of Alfa Laval Separation Inc., USA from 1996 to 1998 and
managing director of Alfa Laval SnC France from 1993 to 1996. He has held his current position since 2001. Prior to joining us, Mr. Richomme was managing director at Bran & Luebbe,
France from 1989 to 1993. Mr. Richomme has a M.Sc. in Chemistry from the University of Limoges in France and an AMP from INSEAD in France.

Ulf Granstrandis executive vice president for Operations. 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.

Per Erik Lindquistis an executive vice president with regional responsibilities. Mr. Lindquist joined us in 2001, prior to which
he was employed by Scania where he worked in the European sales and marketing organisation. Mr. Lindquist was formerly managing director of Scania, Belgium, a post he held until 2000.
Mr. Lindquist holds an M.Sc. from Royal Institute of Technology, Stockholm.

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 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

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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, 2002 were approximately SEK 2 million and SEK 26 million, respectively.

The
compensation of our board of directors is not based upon any bonus targets nor linked to stock options.

Total
compensation paid to our auditors, Ernst & Young, for the year ended December 31, 2002 was approximately SEK 13 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, excluding union representatives.

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 consists of Thomas Oldér, Björn Savén and Jörn Rausing. The remuneration
committee meets when necessary, but usually not less than twice a year. Executive

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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.

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.

Sigge
Haraldsson, in his capacity as our chief executive officer, has an early retirement clause in his service contract which gives him the option of retiring at 60 years of age
at his request, or 55 years of age at the request of the company. He is entitled to a pension equal to 50.0% of his pensionable salary at the time of retirement if he retires after reaching
55 years of age but before reaching 58 years of age, and 70.0% of his pensionable salary at the time of retirement after 58 years of age irrespective of when he retires.

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 37,900 in 2002 under
the National Insurance Scheme), Sigge Haraldsson is 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 is entitled to receive an amount which is 52.5% of such salary. For that part of Sigge
Haraldsson's salary Haraldsson is 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 is 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 is
entitled to receive a family pension which is 16.3% of such amount. In addition to his entitlements under ITP, Sigge Haraldsson has a special family pension that represents a life long supplement.

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

During
2002, we have recorded costs in relation to Mr. Haraldsson's pension premiums of SEK 7.2 million, of which SEK 3.4 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, our Executive Vice
President for Operations, 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, 2002, 2001 and 2000 the Alfa Laval group employed
9,292, 9,693 and 11,001 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 Alfa Laval group workforce for the year ended December 31, 2002:

2 PIE CHARTS

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 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 December 31, 2002. Alfa Laval AB still owns all of our outstanding
shares, and we still own all of the outstanding shares of 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
OwnedIndustri Kapital 2000(1)
26 New Street
St. Helier
Jersey
JE2 3RA
Channel Islands

30,010,391

26.9
%Tetra Laval B.V.
Amsteldijk 166
1079 LH Amsterdam
The Netherlands

19,744,014

17.7
%Robur Fonder

4,553,660

4.1
%State Street Bank and Trust Co.

4,283,520

3.8
%ALECTA

3,789,300

3.4
%Deutsche Bank

3,457,261

3.1
%Tredje AP-fonden

3,414,000

3.1
%ATP DK Client

2,497,828

2.2
%SEB and Enskilda

2,467,996

2.2
%HQ-fonder

2,334,221

2.1
%Other

35,119,802

31.4
%Total

111,671,993

100
%


---

Industri
Kapital is a private equity firm, which has significant experience and expertise in the manufacturing, service, retailing, speciality chemicals and building materials
industries. Industri Kapital creates value in companies through refining strategy, operations and by restructuring. Industri Kapital

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has, through its four funds, acquired 45 European companies since 1989 and has a current portfolio of 25 companies. The Industri Kapital 2000 Fund comprises a number of limited partnerships, the
general partner of each of which is Industri Kapital 2000 Ltd.

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 20,900 employees, Tetra Pak had
€ 7.5 billion in sales in 2002.

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 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 20,900 employees, Tetra Pak had
€ 7.5 billion in sales in 2002. The Tetra Laval group acquired the Alfa Laval group in 1991. Alfa Laval Holding AB was acquired by us in August 2000. See
"Item 4.A: Information about the CompanyHistory and Development of 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 5.7% of our sales in 2002. 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.

Our
chief executive officer, Sigge Haraldsson, was a member of the Tetra Pak group management from 1993 to 1997. 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.

Vendor Warrant

Pursuant to the terms of an amended and restated investment and shareholders' agreement and the terms of an amended and restated management shareholders'
agreement relating to the Alfa Laval group, each dated August 2000, Tetra Laval B.V. held a warrant (the Vendor Warrant) to subscribe for shares worth up to €40 million
if Industri Kapital 2000's internal rate of return exceeds certain specified levels upon a trade sale or public offering of shares in Alfa Laval AB. Pursuant to the terms of an agreement dated
April 23, 2002, the parties agreed to settle this obligation in cash, amounting to €40 million (SEK 368 million), upon consummation of the Offering. The Vendor
Warrant was assigned to Tetra Laval Finance Ltd., prior to the execution of this agreement.

Purchasing Contract with Tetra Pak

In June 1999, Alfa Laval AB, on behalf of itself and all the companies in which our subsidiary, Alfa Laval Holding AB, directly or indirectly holds or
controls more than 50% of the votes of all

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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, originally to remain in place through December 31, 2001, was extended for two further years during 2002, and will now remain in effect until December 31,
2003, subject to termination by either party upon 12 months' written notice.

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



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

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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. and Industri Kapital 2000 Ltd. have entered into an agreement with Alfa Laval AB regarding future offerings and sales of ordinary shares
by Tetra Laval and/or Industri Kapital 2000. The agreement provides, among other things, that at the request of Tetra Laval and/or Industri Kapital 2000, 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 and/or Industri Kapital 2000 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 10.5 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 € 280 million through June 30, 2004; thereafter €140 million from
July 1, 2004 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.During the second half of 2002, a subsidiary of ours in the United States,
Alfa Laval Inc., was named with increasing frequency as a co-defendant in lawsuits related to injuries allegedly suffered from the use of asbestos. These lawsuits relate to claims
alleging injuries from exposure to asbestos primarily from the 1930s to the end of the 1970s. Historically, claims against Alfa Laval Inc. had been dismissed due to lack of relevance or have
been settled for insignificant amounts, far below expected defence costs.

As
of February 15, 2003, Alfa Laval Inc., was named as a co-defendant in a total of 73 asbestos-related lawsuits with a total of approximately 15,000
plaintiffs. Alfa Laval Inc. is only named as one of numerous defendants. The lawsuits do not identify any Alfa Laval products that we believe could form the basis for liability. Eleven multiple
plaintiff lawsuits, filed in the State of Mississippi, account for

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99% of all plaintiffs. We strongly believe the claims against us are without merit and intend to vigorously contest each lawsuit.

Since
November 4, 2002, 13 lawsuits have been dismissed, giving a total of 30 lawsuits that have been dismissed for lack of connection to Alfa Laval Inc. Moreover, one
multiple plaintiff lawsuit in Mississippi, with 507 plaintiffs, has been dismissed from state court and transferred to a federal court, which is expected to dismiss all claims from plaintiffs with no
manifested illness. This lawsuit, however, is still included in the total count. Since November 4, 2002, Alfa Laval Inc. has also been named as a co-defendant in an
additional 19 lawsuits with a total of approximately 7,500 plaintiffs. 99.7% of the increase of plaintiffs is related to multiple plaintiff lawsuits filed in Mississippi. The State of Mississippi has
adopted a new law, which took effect on January 1, 2003, that legal experts expect to limit the filing of multiple plaintiff lawsuits after December 31, 2002. It is believed that this
new law is the principal driving force behind the increase of lawsuits during the latter part of 2002. We are not aware of any new multiple plaintiff lawsuits filed against Alfa Laval Inc.
during 2003.

After
thorough investigations we continue to believe that potential claims in connection with the asbestos related lawsuits against Alfa Laval Inc. will be covered by insurance
policies. Furthermore, primary insurance policies issued in favour of Alfa Laval Inc. provide for coverage of its defence costs.

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

Amylum Group proceedings.In April 1999, the Amylum Group initiated court proceedings in France against
Dorr-Oliver for property damage and personal injuries resulting from the alleged failure of high-speed separators manufactured by Dorr-Oliver. In
December 1999, Alfa Laval Separation Inc. acquired Dorr-Oliver's intellectual property rights to their high-speed separators, including the rights in relation to
the products involved in the Amylum suit. Pursuant to the Sale and Purchase Agreement, Dorr-Oliver agreed to indemnify Alfa Laval Separation Inc. for any litigation related to these
products. Amylum has nevertheless included Alfa Laval Separation Inc. and a French subsidiary, Alfa Laval snc, as defendants in these proceedings, along with a number of other defendants.
Amylum's claim is presently estimated at US$12 million (SEK 113 million). Court-directed technical investigative proceedings have indicated various possible causes of the product
failures, including manufacturing the machines with improper materials and the use of an inappropriate manufacturing process. The court has recently appointed a financial specialist to determine the
economic value of the product failures. The financial specialist appointed by the court has estimated the economic value of the product failures to be approximately US$ 8 million.

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 six 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 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".

Existing Senior Credit Facility

For a description of our Existing Senior Credit Facility see "Item 5.B: Operating and Financial Review and ProspectsLiquidity and Capital
ResourcesExisting 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".

Intercreditor Agreement

For a description of the Intercreditor Agreement between us, the Guarantor, the financial institutions named therein as lenders and SEB Merchant Banking as
facility agent, see "Item 5.B: Operating and Financial Review and ProspectsLiquidity and Capital ResourcesIntercreditor Agreement".

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 per cent 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 holder
that is a citizen or resident of the United States or a US corporation or that otherwise is subject to US federal income taxation on a net income basis in respect of the Senior Notes (a "US holder").
The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a holder of Senior Notes. 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 as banks, tax-exempt entities, insurance companies, dealers in securities or currencies, traders in securities electing to mark to market,
persons that hold notes as a hedge against currency risk or as a position in a "straddle" or conversion transaction, and persons that have a "functional currency" other than the US dollar. The summary
is based on the Internal Revenue Code of 1986, as amended, existing and proposed Treasury regulations, administrative and judicial interpretations thereof, all

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as in effect on the date hereof 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.

Interest

Interest 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.

A
US holder that uses the cash method of accounting for tax purposes will realises interest income equal to the US dollar value of the interest payment, based on the exchange rate on the
date of receipt, regardless of whether the payment in fact is converted into US dollars.

A
US holder that uses the accrual method of accounting for tax purposes will 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 portion thereof within the US holder's taxable year). 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 if the exchange rate in effect on the date the payment is received differs from the rate applicable to a previous accrual of that interest. This foreign currency gain or loss
will be treated as ordinary income or loss, and generally will not be treated as an adjustment to interest 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 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.

Upon
the sale, exchange or retirement of a Senior Note, a US holder generally will recognise gain or loss equal to the difference between the amount realised (less any accrued interest,
which will be taxable as interest income) and the holder's adjusted tax basis in such Senior Note. If a US holder receives foreign currency in respect of the sale, exchange or retirement 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 or retirement of a Senior Note generally will be
long-term capital gain or loss if the US holder has held the Senior Note for more than one year at the time of

I-90

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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 or retirement of a Senior Note generally will be treated as ordinary income or loss to the extent that the gain or loss is
attributable to changes in exchange rates during the period in which the holder held such Senior Note. This foreign currency gain or loss generally will not be treated as an adjustment to interest
income received on the Senior Note.

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
Internal Revenue Service and possible US backup withholding at a current rate of 30%. 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 Internal Revenue Service 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 Internal Revenue
Service 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 filing the appropriate claim for refund with the Internal Revenue Service 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-91

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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 29,2002, we entered into the Existing Senior Credit Facility of €575 million with SEB Merchant Banking, a unit within
Skandinaviska Enskilda Banken AB (publ) ("SEB"), SEB and Svenska Handelsbanken AB (publ) as arrangers. The Existing Senior Credit Facility was amended and restated on July 11,
2002. It is structured in two tranchesa Tranche A €425 million 5 year multi-currency term loan facility and a Tranche B
€150 million 5 year multi-currency revolving credit facility. Tranche B has not yet been utilised. The following table presents our debt instruments sensitive to
changes in interest rates.

|                                 |     | Maturity dates |   |   |   |   |   |   |   |      
|-------------------------------- | --- | -------------- | - | - | - | - | - | - | - | -----
|
|
|
|Existing Senior-Credit Facility: |     |                |   |   |   |   |   |   |   |      
|Tranche A                        |     |                |   |   |   |   |   |   |   |      
|                                 | EUR |                |  |   |  |   |  |   |  |      
|                                 | USD |                |  |   |  |   |  |   |  |      
|                                 | GBP |                |  |   |  |   |  |   |  |      
|                                 | DKK |                |  |   |  |   |  |   |  |      
|                                 | SEK |                |  |   |  |   |  |   |  |      
|                                 | JPY |                |  |   |  |   |  |   |  |      
|                                 |     |                |   |   |   |   |   |   |   |      
|                                 |     |               |   |  |   |  |   |  |   | 3,065
|Notes (fixed interest)           |     |               |   |  |   |  |   |  |   | 1,128

As
part of our hedging strategy to minimiser interest rate risk we have undertaken interest rate swaps to effectively convert 64% of our variable rate exposure associated with the senior
debt into fixed rate debt. As we do not apply hedge accounting according to FAS 133, our results reported under US GAAP as of December 31, 2002 include the fair value of the interest
rate swaps, which resulted in the recognition of a liability of SEK 61 million.

|                     |     | Notional amount |       | Fixed rate |      | Market rate |      | Maturity |                | Fair value |    
|-------------------- | --- | --------------- | ----- | ---------- | ---- | ----------- | ---- | -------- | -------------- | ---------- | ---
|
|Interest rate swaps: |     |                 |       |            |      |             |      |          |                |            |    
|                     | EUR |                 | 119   |            | 5.35 | %           | 2.51 | %        | September 2003 |            | (2 
|                     | USD |                 | 1,274 |            | 6.54 | %           | 1.36 | %        | September 2003 |            | (49
|                     | JPY |                 | 36    |            | 0.92 | %           | 0.70 | %        | September 2003 |            | (0 
|                     | DKK |                 | 247   |            | 6.02 | %           | 2.67 | %        | September 2003 |            | (6 
|                     | SEK |                 | 140   |            | 5.44 | %           | 3.89 | %        | September 2003 |            | (2 
|                     | GBP |                 | 108   |            | 6.22 | %           | 3.55 | %        | September 2003 |            | (2 
|                     |     |                 |       |            |      |             |      |          |                |            |    
|                     |     |                 |       |            |      |             |      |          |                | (61        | )  
|                     |     |                 |       |            |      |             |      |          |                |            |    

Amounts
outstanding under the Existing 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.

I-92

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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. To achieve this objective, we hedge on a net exposure basis
using foreign currency forward contracts. 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.



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, 2002, we had foreign exchange contracts outstanding in various currencies. Our primary net foreign currency exposures at December 31, 2002 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, 2002
resulted in a receivable of SEK 151 million.

I-93

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The
following table provides information about our foreign exchange forward contracts at December 31, 2002. The table presents the value of the contracts in Swedish kronor at the
contract exchange rate as of the contract maturity date.

Forward Exchange Contracts as of December 31, 2002 are:

Notional amountBuying currency

Selling
currency

Average
contractual
rate

Maturity
Date

Original
currency

SEK

Fair
value
SEK(amounts in millions)DKK

EUR

7.436

2003

266

330

0DKK

USD

8.277

2003

90

111

15EUR

HKD

7.501

2003

24

216

15EUR

JPY

109.869

2003

20

183

14EUR

USD

1.040

2003

88

808

55EUR

SEK

9.107

2003

88

808

8SEK

DKK

1.226

2003

1,124

1,124

(9
)SEK

EUR

9.270

2003

3,264

3,264

14SEK

NOK

1.234

2003

188

188

(2
)SEK

USD

9.367

2003

1,034

1,034

41USD

EUR

1.021

2003

19

171

(3
)Various

Various



2003-2004



797

39,034

151


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.

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

101

(101
)EUR

154

(154
)DKK

(135
)
135Other USD related currencies

29

(29
)Other

58

(58
)Total

207

(207
)


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 financial policy relating to those financial risks we are prepared to accept and how such risks should be

I-94

---

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-95

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ITEM 12:    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

I-96

---



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

Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in US
Exchange Act Rules 13a-14(c)) within 90 days of the date of this Form 20-F, have concluded that, as of such date, our disclosure controls and procedures
were effective to ensure that material information relating to us was made known to them by others within our organisation particularly during the period in which this Form 20-F was
being prepared.

There
were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date our Chief Executive Officer and our
Chief Financial Officer completed their evaluation, nor were there any significant deficiencies or material weaknesses in our internal controls requiring corrective actions.

II-3

---

ITEM 16:    [RESERVED.]

II-4

---



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                         |  | F-2 
|Consolidated Income Statements of Alfa Laval Special Finance AB for the three years ended December 31, 2002                    |  | F-3 
|Consolidated Balance Sheet of Alfa Laval Special Finance AB as at December 31, 2001 and 2002                                   |  | F-4 
|Consolidated Cash Flow Statements of Alfa Laval Special Finance AB for the three years ended December 31, 2002                 |  | F-6 
|Consolidated Statement of Changes in Equity Capital of Alfa Laval Special Finance AB for the two years ended December 31, 2002 |  | F-7 
|Notes to Consolidated Financial Statements of Alfa Laval Special Finance AB                                                    |  | F-9 

III-1

---



INDEX TO FINANCIAL STATEMENTS

|                                                                                              |  | Page
|--------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Auditors                                                                |  | F-2 
|Consolidated Statements of Income for the three years ended December 31, 2002                 |  | F-3 
|Consolidated Balance Sheets as at December 31, 2001 and 2002                                  |  | F-4 
|Consolidated Cash-Flow Statements for the three years ended December 31, 2002                 |  | F-6 
|Consolidated Statement of Changes in Equity Capital for the two years ended December 31, 2002 |  | F-7 
|Notes to the Financial Statements                                                             |  | F-9 

F-1

---



REPORT OF INDEPENDENT AUDITORS

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 (the successor) as of December 31, 2002 and 2001 and the related consolidated
statements of income, changes in equity capital and cash flows for each of the two years in the period ended December 31, 2002 and for the period from August 24, 2000 to
December 31, 2000 and the related consolidated statements of income, changes in equity capital, and cash flows of Alfa Laval Holding AB (the predecessor) for the period from January 1,
2000 to August 23, 2000. 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 auditing standards generally accepted in Sweden and in the United States of America. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes 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, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2002, and for the period from
August 24, 2000 to December 31, 2000 and the consolidated results of operations and cash flows of Alfa Laval Holding AB for the period from January 1, 2000 to August 23,
2000 in conformity with accounting principles generally accepted in Sweden.

Generally
accepted accounting principles in Sweden vary in certain significant respects from generally accepted accounting principles in the United States. Application of generally
accepted accounting principles in the United States would have affected consolidated net income in each of the three years ended December 31, 2002 and consolidated shareholders' equity as of
December 31, 2002 and 2001, to the extent summarised in Note 34 to the consolidated financial statements.

Malmö,
Sweden

March 26,
2003



Ingvar
Ganestam
Authorised Public Accountant
Ernst & Young AB

F-2

---



ALFA LAVAL SPECIAL FINANCE AB    CONSOLIDATED INCOME STATEMENT

|                                       |  | Successor  |  | Predecessor |  
|-------------------------------------- |  | ---------- |  | ----------- | -
|
|
|
|Net sales                              |  | 1          |  | 14,594.9    |  
|Cost of goods sold                     |  | 7          |  | (9,262.2    | )
|                                       |  |            |  |             |  
|Gross profit                           |  | 1          |  | 5,332.7     |  
|                                       |  |            |  |             |  
|Sales costs                            |  | 2, 3, 5    |  | (2,115.1    | )
|Administration costs                   |  | 2, 3, 4, 7 |  | (1,026.8    | )
|Research and development costs         |  | 2, 3, 5, 7 |  | (355.2      | )
|Comparison distortion items            |  | 6          |  | (29.2       | )
|Other operating income                 |  |            |  | 268.7       |  
|Other operating costs                  |  | 7          |  | (663.6      | )
|Amortisation of goodwill               |  | 7, 8       |  | (187.7      | )
|                                       |  |            |  |             |  
|Operating income                       |  |            |  | 1,223.8     |  
|                                       |  |            |  |             |  
|Dividends                              |  | 9          |  | 7.8         |  
|Interest income                        |  | 10         |  | 322.7       |  
|Interest costs                         |  | 10         |  | (803.5      | )
|Comparison distortion items            |  |            |  | (290.7      | )
|                                       |  |            |  |             |  
|Result after financial items           |  |            |  | 460.1       |  
|                                       |  |            |  |             |  
|Minority share in subsidiaries' income |  | 11         |  | (33.7       | )
|Taxes (benefit) on this year's result  |  | 12         |  | (185.7      | )
|Other taxes                            |  | 12         |  | (32.6       | )
|                                       |  |            |  |             |  
|Net income (loss) for the year         |  |            |  | 208.2       |  
|                                       |  |            |  |             |  
|Earnings per share (SEK)               |  |            |  | 39.82       |  
|Average number of shares *             |  |            |  | 5,229,137   |  

---

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

F-3

---

ALFA LAVAL SPECIAL FINANCE AB        CONSOLIDATED BALANCE SHEET

|Amounts in MSEK                                                                             |  | Note   |  | 2002     |  | 2001    
|------------------------------------------------------------------------------------------- |  | ------ |  | -------- |  | --------
|ASSETS                                                                                      |  |        |  |          |  |         
|Fixed assets                                                                                |  |        |  |          |  |         
|Intangible assets                                                                           |  | 13, 14 |  |          |  |         
|Concessions, patents, licenses, trademarks and similar rights                               |  |        |  | 1.333.6  |  | 1,640.0 
|Renting and similar rights                                                                  |  |        |  | 0.7      |  | 0.4     
|Goodwill                                                                                    |  |        |  | 3,369.0  |  | 3,372.9 
|                                                                                            |  |        |  |          |  |         
|                                                                                            |  |        |  | 4,703.3  |  | 5,013.3 
|Property, plant and equipment                                                               |  | 13, 15 |  |          |  |         
|Real estate                                                                                 |  |        |  | 1,309.9  |  | 1,479.0 
|Machinery and other technical installations                                                 |  |        |  | 990.1    |  | 1,146.6 
|Equipment, tools and installations                                                          |  |        |  | 742.0    |  | 915.3   
|Construction in progress and advances to suppliers concerning property, plant and equipment |  |        |  | 40.8     |  | 57.9    
|                                                                                            |  |        |  |          |  |         
|                                                                                            |  |        |  | 3,082.7  |  | 3,598.9 
|Financial long-term assets                                                                  |  |        |  |          |  |         
|Other long-term securities                                                                  |  | 16     |  | 53.1     |  | 62.4    
|Pension assets                                                                              |  | 23     |  | 106.8    |  | 175.4   
|Capitalised financing costs, acquisition loans                                              |  |        |  | 58.0     |  | 227.9   
|Deferred tax asset                                                                          |  |        |  | 534.1    |  | 623.8   
|                                                                                            |  |        |  |          |  |         
|                                                                                            |  |        |  | 751.9    |  | 1,089.5 
|                                                                                            |  |        |  |          |  |         
|Total fixed assets                                                                          |  |        |  | 8,537.9  |  | 9,701.6 
|Current assets                                                                              |  |        |  |          |  |         
|Inventories                                                                                 |  | 17     |  | 2,279.0  |  | 2,623.9 
|Current receivables                                                                         |  |        |  |          |  |         
|Accounts receivable                                                                         |  | 18     |  | 2,504.0  |  | 3,032.0 
|Other receivables                                                                           |  | 19     |  | 973.9    |  | 1,172.9 
|Prepaid costs and accrued income                                                            |  |        |  | 99.5     |  | 111.0   
|Capitalised financing costs, acquisition loans                                              |  |        |  | 12.2     |  | 35.6    
|                                                                                            |  |        |  |          |  |         
|                                                                                            |  |        |  | 3,589.6  |  | 4,351,5 
|Current deposits                                                                            |  |        |  |          |  |         
|Other current deposits                                                                      |  | 20     |  | 414.3    |  | 293.3   
|Cash and bank                                                                               |  | 21     |  | 605.9    |  | 666.4   
|                                                                                            |  |        |  |          |  |         
|Total current assets                                                                        |  |        |  | 6,888.7  |  | 7,935.1 
|                                                                                            |  |        |  |          |  |         
|                                                                                            |  |        |  |          |  |         
|                                                                                            |  |        |  |          |  |         
|TOTAL ASSETS                                                                                |  |        |  | 15,426.6 |  | 17,636.7
|                                                                                            |  |        |  |          |  |         

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

F-4

---



ALFA LAVAL SPECIAL FINANCE AB
CONSOLIDATED BALANCE SHEET (Continued)

|Amounts in MSEK (except share information)          |  | Note |  | 2002     |  | 2001    
|--------------------------------------------------- |  | ---- |  | -------- |  | --------
|EQUITY CAPITAL AND LIABILITIES                      |  |      |  |          |  |         
|Equity capital                                      |  |      |  |          |  |         
|Restricted equity capital                           |  |      |  |          |  |         
|Share capital, 1,000 shares (par value SEK 100)     |  |      |  |          |  | 0.1     
|Share capital, 8,191,000 shares (par value SEK 100) |  |      |  | 819.1    |  |         
|Restricted reserves                                 |  |      |  | 114.6    |  | 36.9    
|                                                    |  |      |  |          |  |         
|                                                    |  |      |  | 933.7    |  | 37.0    
|Unrestricted equity capital                         |  |      |  |          |  |         
|Unrestricted reserves                               |  |      |  | 3,271.1  |  | 3,224.5 
|Net income (loss) for the year                      |  |      |  | 208.2    |  | 367.4   
|                                                    |  |      |  |          |  |         
|                                                    |  |      |  | 3,479.3  |  | 3,591.9 
|                                                    |  |      |  |          |  |         
|Total equity                                        |  |      |  | 4,413.0  |  | 3,628.9 
|Minority interest                                   |  | 11   |  | 108.2    |  | 131.8   
|Provisions                                          |  |      |  |          |  |         
|Provisions for pensions and similar commitments     |  | 23   |  | 720.6    |  | 774.9   
|Provisions for taxes                                |  | 12   |  | 990.3    |  | 1,143.6 
|Other provisions                                    |  | 24   |  | 989.3    |  | 1,063.2 
|                                                    |  |      |  |          |  |         
|                                                    |  |      |  | 2,700.2  |  | 2,981.7 
|Long-term liabilities                               |  | 25   |  |          |  |         
|Liabilities to credit institutions                  |  |      |  | 3,105.8  |  | 4,190.5 
|Bond loan                                           |  |      |  | 1,127.6  |  | 2,045.3 
|                                                    |  |      |  |          |  |         
|                                                    |  |      |  | 4,233.4  |  | 6,235.8 
|Current liabilities                                 |  |      |  |          |  |         
|Liabilities to credit institutions                  |  | 25   |  | 254.4    |  | 382.5   
|Advances from customers                             |  |      |  | 571.3    |  | 609.1   
|Accounts payable                                    |  |      |  | 1,027.9  |  | 1,302.8 
|Notes payable                                       |  |      |  | 145.3    |  | 123.1   
|Liabilities to associated companies                 |  |      |  | 98.6     |  |        
|Tax liabilities                                     |  |      |  | 457.6    |  | 627.2   
|Other liabilities                                   |  | 26   |  | 632.5    |  | 667.4   
|Accrued costs and prepaid income                    |  | 27   |  | 784.3    |  | 946.2   
|                                                    |  |      |  |          |  |         
|                                                    |  |      |  | 3,971.9  |  | 4,658.4 
|                                                    |  |      |  |          |  |         
|TOTAL EQUITY CAPITAL AND LIABILITIES                |  |      |  | 15,426.6 |  | 17,636.7
|                                                    |  |      |  |          |  |         
|PLEDGED ASSETS AND CONTINGENT LIABILITIES           |  |      |  |          |  |         
|Pledged assets                                      |  | 28   |  | 78.3     |  | 4,173.9 
|Contingent liabilities                              |  | 28   |  | 1,698.0  |  | 2,201.4 

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

F-5

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ALFA LAVAL SPECIAL FINANCE AB    CONSOLIDATED CASH FLOW STATEMENTS

|                                                            |                                            |    |  | Successor |        | Predecessor |       
|----------------------------------------------------------- | ------------------------------------------ | -- |  | --------- | ------ | ----------- | ------
|
|Cash flow from operating activities                         |                                            |    |  |           |        |             |       
|Operating income                                            |                                            |    |  | 1,223.8   |        | 1,233.8     |       
|Adjustment for depreciations                                |                                            |    |  | 838.0     |        | 912.2       |       
|Adjustment for non cash items                               |                                            |    |  | 35.0      |        | 3.9         |       
|                                                            |                                            |    |  |           |        |             |       
|                                                            |                                            |    |  | 2,096.8   |        | 2,149.8     |       
|Taxes paid                                                  |                                            |    |  | (396.2    | )      | (462.9      | )     
|Cash flow from operations before changes in working capital |                                            |    |  | 1,700.6   |        | 1,686.9     |       
|Changes in working capital:                                 |                                            |    |  |           |        |             |       
|                                                            | (Increase)/decrease of current receivables |    |  |           | 340.0  |             | 209.2 
|                                                            | (Increase)/decrease of inventories         |    |  |           | 140.4  |             | 263.1 
|                                                            | Increase/(decrease) of liabilities         |    |  |           | (134.2 | )           | (182,8
|                                                            |                                            |    |  |           |        |             |       
|                                                            |                                            |    |  | 346.2     |        | 289.5       |       
|                                                            |                                            |    |  |           |        |             |       
|Cash flow from operating activities                         |                                            |    |  | 2,046.8   |        | 1,976.4     |       
|                                                            |                                            |    |  |           |        |             |       
|Cash flow from investing activities                         |                                            |    |  |           |        |             |       
|Investments in fixed assets                                 |                                            |    |  | (276.7    | )      | (274.9      | )     
|Divestment of fixed assets                                  |                                            |    |  | 120.7     |        | 336.2       |       
|Additional purchase price                                   |                                            |    |  | (367.5    | )      |            |       
|Acquisition of businesses                                   |                                            | 22 |  | (135.7    | )      | (58.5       | )     
|Purchase price reimbursement                                |                                            | 22 |  | 81.6      |        | 76.3        |       
|Divestment of businesses                                    |                                            | 22 |  |          |        | 281.6       |       
|Provisions                                                  |                                            |    |  | 29.8      |        | (249.1      | )     
|                                                            |                                            |    |  |           |        |             |       
|Cash flow from investing activities                         |                                            |    |  | (547.8    | )      | 111.6       |       
|                                                            |                                            |    |  |           |        |             |       
|Cash flow from financing activities                         |                                            |    |  |           |        |             |       
|Financial net, paid                                         |                                            |    |  | (590.1    | )      | (672.2      | )     
|New issue of shares                                         |                                            |    |  | 819.0     |        |            |       
|Shareholders' contribution                                  |                                            |    |  |          |        |            |       
|(Increase)/decrease of other current deposits               |                                            |    |  | (84.2     | )      | 306.6       |       
|Capitalised financing costs, acquisition loans              |                                            |    |  | (39.7     | )      |            |       
|Increase/(decrease) of liabilities to credit institute.     |                                            |    |  | (1,548.2  | )      | (1,703.8    | )     
|                                                            |                                            |    |  |           |        |             |       
|Cash flow from financing activities                         |                                            |    |  | (1,443.3  | )      | (2,069.4    | )     
|                                                            |                                            |    |  |           |        |             |       
|Net incr/(decr) in cash/bank                                |                                            |    |  | 55.7      |        | 18.7        |       
|Cash and bank at the beginning of the year                  |                                            |    |  | 666.4     |        | 634.5       |       
|Translation difference in cash/bank                         |                                            |    |  | (116.2    | )      | 13.2        |       
|                                                            |                                            |    |  |           |        |             |       
|Cash and bank at end of the period                          |                                            | 21 |  | 605.9     |        | 666.4       |       
|                                                            |                                            |    |  |           |        |             |       

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

F-6

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ALFA LAVAL SPECIAL FINANCE AB    CHANGES IN CONSOLIDATED EQUITY CAPITAL

|Amounts in MSEK                                                                |  | Share
capital |  | Restricted
equity |  | Unrestricted
equity |   | Total   |  
|------------------------------------------------------------------------------ |  | ------------- |  | ----------------- |  | ------------------- | - | ------- | -
|2000                                                                           |  |               |  |                   |  |                     |   |         |  
|At the formation of the company March 27, 2000                                 |  | 0.1           |  |                  |  |                    |   | 0.1     |  
|Shareholders' contribution                                                     |  |              |  |                  |  | 3,642.3             |   | 3,642.3 |  
|Translation difference etc.                                                    |  |              |  |                  |  | (94.5               | ) | (94.5   | )
|Net loss for 2000                                                              |  |              |  |                  |  | (383.2              | ) | (383.2  | )
|                                                                               |  |               |  |                   |  |                     |   |         |  
|As of December 31, 2000                                                        |  | 0.1           |  |                  |  | 3,164.6             |   | 3,164.7 |  
|                                                                               |  |               |  |                   |  |                     |   |         |  
|2001                                                                           |  |               |  |                   |  |                     |   |         |  
|Transfer between restricted equity and unrestricted equity in group companies  |  |              |  | 36.9              |  | (36.9               | ) | 0.0     |  
|Translation difference etc.                                                    |  |              |  |                  |  | 96.7                |   | 96.7    |  
|Net income for 2001                                                            |  |              |  |                  |  | 367.4               |   | 367.4   |  
|                                                                               |  |               |  |                   |  |                     |   |         |  
|As of December 31, 2001                                                        |  | 0.1           |  | 36.9              |  | 3,591.8             |   | 3,628.8 |  
|                                                                               |  |               |  |                   |  |                     |   |         |  
|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               | ) | 0.0     |  
|Translation difference etc.                                                    |  |              |  | 0.8               |  | (190.4              | ) | (189.6  | )
|Net income for 2002                                                            |  |              |  |                  |  | 208.2               |   | 208.2   |  
|                                                                               |  |               |  |                   |  |                     |   |         |  
|As of December 31, 2002                                                        |  | 819.1         |  | 114.6             |  | 3,479.3             |   | 4,413.0 |  
|                                                                               |  |               |  |                   |  |                     |   |         |  

Specification of changes in number of shares and share capital

Consolidated MSEK

|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               

F-7

---

Specification of accumulated translation differences reported against equity capital

Consolidated MSEK

|Year                   |  | Change |   | Accumulated |   | Explanation to change                                                         |  | The change has been affected by hedging measures of |  
|---------------------- |  | ------ | - | ----------- | - | ----------------------------------------------------------------------------- |  | --------------------------------------------------- | -
|Formation of the Group |  |        |   |             |   |                                                                               |  |                                                     |  
|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                   |  | (189.6 | ) | (187.4      | ) | The USD was depreciated by 16.7%                                              |  | (164.9                                              | )

Comments on changes in consolidated equity capital

The share capital of SEK 819,100,000 (100,000) is divided among 8,191,000 (1,000) 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
allocation into local currencies of the step-up values and the goodwill that arose in connection with the acquisition on August 24, 2000 has been finalised during
2001. This resulted in an increase of the equity capital with MSEK 162.9 as of December 31, 2000 from MSEK 1,149.4 to MSEK 1,312.3. The following adjustments have been made to the comparison
figures for 2000:

|MSEK                                                |  | Assets |  | Liabilities |  | Equity capital |  
|--------------------------------------------------- |  | ------ |  | ----------- |  | -------------- | -
|Translation difference taken against equity capital |  |       |  |            |  | 174.5          |  
|Goodwill                                            |  | 92.2   |  |            |  |               |  
|Intangible assets                                   |  | 44.2   |  |            |  |               |  
|Property, plant and equipment                       |  | 52.8   |  |            |  |               |  
|Deferred tax liability                              |  |       |  | 26.3        |  |               |  
|Amortisation                                        |  |       |  |            |  | (0.2           | )
|Tax cost                                            |  |       |  |            |  | (11.4          | )
|                                                    |  |        |  |             |  |                |  
|Total                                               |  | 189.2  |  | 26.3        |  | 162.9          |  
|                                                    |  |        |  |             |  |                |  

The
proposed dispositions of earnings for the subsidiaries suggest transfers to restricted equity capital of MSEK 22.0 (60.7).

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

F-8

---



ALFA LAVAL SPECIAL FINANCE AB

NOTES TO THE FINANCIAL STATEMENTS

Amounts in MSEK 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's O-list since May 17, 2002 and on Attract 40 since July 1. The total number
of shareholders is 5,746. After the IPO, the two largest owners are Industri Kapital and Tetra Laval, where 26.9 (62.2) percent are owned by the partnerships that are controlled by Industri Kapital
2000 Ltd, United Kingdom and 17.7 (36.7) percent are owned by Tetra Laval B.V., the Netherlands. In November 2002, Tetra Laval BV has increased the ownership in Alfa Laval by
1.8 percentage points from the 15.9 percent that was valid after the IPO. Thereafter, there are eight institutional investors with ownership interests of 4.1 to 2.1 percent. These
ten largest owners own 68.6 percent of the shares.

Until
August 24, 2000, the Alfa Laval Group with its parent company Alfa Laval Holding AB was owned 100 percent by Tetra Laval BV, the Netherlands. On August 24,
2000, Industri Kapital with partnerships acquired control over Alfa Laval. The acquisition is described in Note 13.

In
connection with the acquisition on August 24, 2000, the Alfa Laval Group got a new parent company, Alfa Laval AB (publ). This company was formed on March 27, 2000
specifically for the acquisition.

Due
to the above transactions, the following group structure exists:

FLOW CHART

IPO of the Alfa Laval share

On April 8, the owners of Alfa Laval decided to list the Alfa Laval share in connection with a new issue of shares in the order of MSEK 3,000. The IPO was
completed on May 17, 2002. All warrants held by Alfa Laval management have been used for subscription of new shares at the IPO. The capital injection totalling MSEK 3,136.6 from the new issue
of shares has been used to repay the debt to Tetra Laval Finance Ltd and to amortise 35 percent of the listed bond loan. In connection with the IPO, the

F-9

---

previous syndicated loan has been replaced by a new loan at conditions that better reflect the financial position of Alfa Laval after the new issue of shares. In connection with the IPO an additional
purchase price of MEUR 40.0, corresponding to MSEK 367.5, was paid to Tetra Laval BV for the original acquisition on August 24, 2000 of the Alfa Laval Credit Finance AB Group. This has entirely
been reported as goodwill in the Group and is amortised over 20 years.

Accounting consequences of the change of ownership and the change of parent company

The Alfa Laval Special Finance AB Group was created in connection with the change of ownership on August 24, 2000. Due to this, comparison figures for 2000
are presented on a combined pro forma basis for the predecessor the Alfa Laval Holding AB Group for the period January 1, 2000 to August 23, 2000 and for the successor the Alfa Laval
Special Finance AB Group for the period from August 24, 2000 to December 31, 2000. In the pro forma calculation, amortisation of goodwill and other step-up values and the
financing costs that arose in connection with the acquisition on August 24 and the consequential tax adjustments, have been accounted for as if the acquisition occurred on January 1,
2000 in order to be comparable with 2001, see Note 34. The figures for 2002 are accompanied by comparison figures within parenthesis for (2001) and (pro forma 2000 for the successor).
Comparison figures for 2000 are only stated for items in the income statement.

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. As of January 1, 2001, the sales and marketing activities are performed in two divisions "Equipment" and "Process
Technology". The divisions are based on ten customer segments. 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 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 36.

Alfa
Laval 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.

Changed/implemented accounting principles

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

During
2001 RR 15 Intangible assets, RR 21 Borrowing costs, RR22 Financial statements and RR23 Related parties disclosures were implemented. Segment reporting is from the same point in
time

F-10

---

reported according to IAS 14 in the absence of a Swedish recommendation at the time (currently RR25 Segment reportingbusiness and geographical segments).

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
2002 or 2001.

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 MSEK 225 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 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
Special Finance Group.

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

RR22 Financial statements, RR25 Segment reportingbusiness and geographical segments and RR26 Events after the balance sheet date become effective on
January 1, 2003. RR 29 Employee benefits become effective on January 1, 2004. Earlier application of all these recommendations is encouraged and the Group has also applied them earlier
as described above.

The
Swedish Financial Accounting Standards Council's recommendation's RR 1:00 Business combinations, RR 15 Intangible assets, RR16 Provisions, contingent liabilities and contingent
assets, RR17 Impairments, RR21 Borrowing costs and RR23 Related parties disclosures became effective on January 1, 2002. Earlier application was encouraged and the Group has applied these
recommendations during 2001 or 2000 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 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. 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

F-11

---

trigger a write down even in the part of the financial reporting that is regulated by the recommendations from the Financial Accounting Standards Council.

The
Group's reporting of provisions according to RR16 means that MSEK 989,3 (1 063,2) is reported as other provisions. This constitutes 6.4 (6.0) 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.

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 AB (publ) 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 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. One joint venture, called Rolls Laval Heat Exchangers Ltd with Rolls Royce as partner, is owned 50 percent and is 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.

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.
Bolivia, Colombia, Indonesia, Mexico, Russia, Turkey and Venezuela are regarded as highly inflationary countries.

F-12

---

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

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 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.

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 programmes, computers |  | 3.3 years   |  | The Predecessor:           |  | Alfa Laval Holding AB        
|------------------------------ |  | ----------- |  | -------------------------- |  | -----------------------------
|Office equipment               |  | 4 years     |  | Intangible assets          |  | 10 years                     
|Vehicles                       |  | 5 years     |  | Goodwill, harmonisation    |  | 5 years                      
|Machinery and equipment        |  | 7-14 years  |  | Goodwill, other            |  | 10 years                     
|Land improvements              |  | 20 years    |  |                            |  |                              
|Buildings                      |  | 25-33 years |  | The Successor:             |  | Alfa Laval Special Finance AB
|                               |  |             |  | Patents and trademarks     |  | 20 years                     
|                               |  |             |  | Step-up values, technology |  | 7.5 years                    
|                               |  |             |  | Goodwill                   |  | 20 years                     

The
acquisition of the Alfa Laval Holding AB Group is considered to be a strategic acquisition where the intangible assets have a lifetime of more than 20 years.

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.

F-13

---

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.

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.

Research and development

Research and development costs are charged to the income statement in the year in which they are incurred. Development costs do normally not meet the requirements
for capitalisation according to RR15 Intangible assets.

Taxes

Current tax is calculated according to the rules that apply in the countries where the profit was generated. Deferred tax is calculated in accordance with RR9
Income taxes. This means that the Group has recognised deferred tax assets relating to temporary differences and unused tax losses and tax credits to the extent it is deemed probable (>
50 percent) that they will decrease future tax costs. When the subsidiaries report losses, deferred tax assets are only recognised if it is probable that the unused tax losses and tax credits
will be possible to be utilised against future taxable profits.

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, see the below heading.

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

F-14

---

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.

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.

Advertising costs

Advertising costs are expensed as incurred.

Financial instruments

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, see Note 25.

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 Swedish ITP plan is thereby seen as a "multi-employer plan" that is treated as a defined contribution plan according to item 30 in RR29. The present value of the benefit
obligations in the defined benefit plans is decided through yearly actuarial calculations made by independent actuaries.

Provisions

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

Events after the balance sheet date

On January 31, 2003, the Danish Toftejorg A/S group was acquired, with effect from January 1, 2003. The group has annual sales of about MSEK 210 and
approximately 100 employees. The operations covers R&D, assembly and sales of advanced tank cleaning equipment, targeting the food and marine industries. In addition to the operations in Denmark, the
group has sales companies in Sweden, Norway, Germany, the UK, France, Singapore, the US and a own representation in South Korea.

On
January 27, 2003 a voluntary amortisation of MSEK 227.7 was made on the syndicated loan.

On
February 26, 2003 the real estate in Newmarket in Canada was sold for MSEK 20.0.

F-15

---



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 customer segments that belong to the Equipment division purchase products whereas the customer segments that belong to Process Technology purchase systems for the processing industry. In addition,
the Group has a common function "Operations" for procurement, manufacturing and logistics.

Presentation of divisions

|                     |  | Orders received |  | Order backlog
|-------------------- |  | --------------- |  | -------------
|
|Equipment            |  | 8,092.6         |  | 8,557.9      
|Process Technology   |  | 6,488.1         |  | 7,026.9      
|Operations and other |  | 94.1            |  | 96.1         
|                     |  |                 |  |              
|Subtotal             |  | 14,674.8        |  | 15,680.9     
|Divested             |  |                |  | 213.0        
|                     |  |                 |  |              
|Total                |  | 14,674.8        |  | 15,893.9     
|                     |  |                 |  |              

|                            |  | Net sales |  | Operating income | 
|--------------------------- |  | --------- |  | ---------------- | 
|
|Equipment                   |  | 8,129.6   |  | 8,576.2          | 
|Process Technology          |  | 6,377.1   |  | 6,872.0          | 
|Operations and other        |  | 88.2      |  | 169.4            | 
|                            |  |           |  |                  | 
|Subtotal                    |  | 14,594.9  |  | 15,617.6         | 
|Comparison distortion items |  |          |  |                 | 
|Divested                    |  |          |  | 212.0            | 
|                            |  |           |  |                  | 
|Total                       |  | 14,594.9  |  | 15,829.6         | 
|                            |  |           |  |                  | 

F-16

---

Assets

LiabilitiesConsolidated MSEK2002

2001

2002

2001Equipment

3,425.7

4,988.4

1,085.6

1,534.3Process Technology

3,604.9

4,386.9

1,142.3

1,349.3Operations and other

6,260.3

5,682.2

1,983.9

1,756.7Subtotal

13,290.9

15,057.5

4,211.8

4,640.3Divested

0.0

54.3

0.0

7.6Subtotal

13,290.9

15,111.8

4,211.8

4,647.9Corporate

2,135.7

2,524.9

6,693.7

9,228.0Total

15,426.6

17,636.7

10,905.5

13,875.9


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

Investments

DepreciationConsolidated MSEK

2002

2001

Un-audited Pro forma
2000

2002

2001Equipment

24.8

31.5

50.8

250.5

261.9Process Technology

33.7

38.0

66.2

236.2

248.6Operations and other

218.2

205.4

184.2

351.3

395.2Subtotal

276.7

274.9

301.2

838.0

905.8Divested





10.5

0.0

6.4Total

276.7

274.9

311.7

838.0

912.2


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

F-17

---

Presentation of geographical markets

|Consolidated |                     | 2002     |         | %     |      | 2001     |         | %     |      | Un-audited
Pro forma
2000 |         | %     |     
|------------ | ------------------- | -------- | ------- | ----- | ---- | -------- | ------- | ----- | ---- | ------------------------- | ------- | ----- | ----
|
|Net sales    |                     |          |         |       |      |          |         |       |      |                           |         |       |     
|Customers in |                     |          |         |       |      |          |         |       |      |                           |         |       |     
|             | Sweden              |          | 835.1   |       | 5.7  | %        | 770.0   |       | 4.9  | %                         | 744.3   |       | 5.0 
|             | Other EU            |          | 4,953.0 |       | 33.9 | %        | 5,448.5 |       | 34.4 | %                         | 5,521.3 |       | 36.8
|             | Other Europe        |          | 1,497.8 |       | 10.3 | %        | 1,426.0 |       | 9.0  | %                         | 1,237.1 |       | 8.2 
|             | United States       |          | 2,638.7 |       | 18.1 | %        | 2,815.7 |       | 17.8 | %                         | 2,865.2 |       | 19.1
|             | Other North America |          | 423.5   |       | 2.9  | %        | 347.3   |       | 2.2  | %                         | 371.7   |       | 2.5 
|             | Latin America       |          | 626.7   |       | 4.3  | %        | 728.0   |       | 4.6  | %                         | 635.8   |       | 4.2 
|             | Africa              |          | 69.6    |       | 0.5  | %        | 151.7   |       | 1.0  | %                         | 150.8   |       | 1.0 
|             | Asia                |          | 3,296.6 |       | 22.6 | %        | 3,835.3 |       | 24.2 | %                         | 3,193.5 |       | 21.3
|             | Oceania             |          | 253.8   |       | 1.7  | %        | 307.2   |       | 1.9  | %                         | 292.6   |       | 1.9 
|             |                     |          |         |       |      |          |         |       |      |                           |         |       |     
|Total        |                     | 14,594.9 |         | 100.0 | %    | 15,829.6 |         | 100.0 | %    | 15,012.3                  |         | 100.0 | %   
|             |                     |          |         |       |      |          |         |       |      |                           |         |       |     

The
split of net sales by geographical market for 2000 is shown only on a pro forma combined basis since no distribution of the predecessor's invoicing up to August 24, 2000 on
geographical markets has been available.

Consolidated

2002

%

2001

%MSEK



MSEKAssetsSweden

2,202.4

14.3
%
2,303.1

13.1
%Denmark

1,627.0

10.5
%
1,516.4

8.6
%Other EU

4,209.9

27.3
%
4,764.6

27.0
%Other Europe

440.3

2.9
%
478.8

2.7
%United States

2,208.7

14.3
%
2.960.9

16.8
%Other North America

247.2

1.6
%
280.4

1.6
%Latin America

237.4

1.5
%
374.0

2.1
%Africa

25.8

0.2
%
14.5

0.1
%Asia

1,924.9

12.5
%
2,235.1

12.7
%Oceania

167.3

1.1
%
184.0

1.0
%Subtotal

13,290.9

86.2
%
15,111.8

85.7
%Corporate

2,135,7

13.8
%
2,524.9

14.3
%Total

15,426.6

100.0
%
17,636.7

100.0
%


F-18

---



|Consolidated |                     | 2002  |      | %     |      | 2001  |      | %     |      | Unaudited
Pro forma
2000 |       | %     |     
|------------ | ------------------- | ----- | ---- | ----- | ---- | ----- | ---- | ----- | ---- | ------------------------ | ----- | ----- | ----
|
|Investments  |                     |       |      |       |      |       |      |       |      |                          |       |       |     
|             | Sweden              |       | 62.8 |       | 22.7 | %     | 76.5 |       | 27.8 | %                        | 114.0 |       | 36.6
|             | Denmark             |       | 34.0 |       | 12.3 | %     | 35.6 |       | 13.0 | %                        | 46.3  |       | 14.9
|             | Other EU            |       | 52.0 |       | 18.8 | %     | 58.6 |       | 21.3 | %                        | 80.1  |       | 25.7
|             | Other Europe        |       | 11.5 |       | 4.2  | %     | 22.7 |       | 8.3  | %                        | 11.1  |       | 3.6 
|             | United States       |       | 84.8 |       | 30.6 | %     | 37.5 |       | 13.6 | %                        | 28.5  |       | 9.1 
|             | Other North America |       | 1.9  |       | 0.7  | %     | 2.4  |       | 0.9  | %                        | 2.5   |       | 0.8 
|             | Latin America       |       | 2.2  |       | 0.8  | %     | 3.8  |       | 1.4  | %                        | 4.0   |       | 1.3 
|             | Africa              |       | 0.6  |       | 0.2  | %     | 0.6  |       | 0.2  | %                        | 1.0   |       | 0.3 
|             | Asia                |       | 26.0 |       | 9.4  | %     | 35.7 |       | 13.0 | %                        | 22.9  |       | 7.3 
|             | Oceania             |       | 0.9  |       | 0.3  | %     | 1.5  |       | 0.5  | %                        | 1.3   |       | 0.4 
|             |                     |       |      |       |      |       |      |       |      |                          |       |       |     
|Total        |                     | 276.7 |      | 100.0 | %    | 274.9 |      | 100.0 | %    | 311.7                    |       | 100.0 | %   
|             |                     |       |      |       |      |       |      |       |      |                          |       |       |     

The
split of investments by geographical market for 2000 is shown only on a pro forma combined basis since no distribution of the predecessors investments up to August 24, 2000 on
geographical markets has been available.

Note 2. Average number of employeestotal

|                           |  | Number of female employees |  | Total number of employees
|-------------------------- |  | -------------------------- |  | -------------------------
|
|Parent company             |  |                           |  |                         
|Subsidiaries in Sweden (8) |  | 347                        |  | 306                      
|                           |  |                            |  |                          
|Total in Sweden (8)        |  | 347                        |  | 306                      
|Total abroad (76)          |  | 1,444                      |  | 1,544                    
|                           |  |                            |  |                          
|Total for the group (84)   |  | 1,791                      |  | 1,850                    
|                           |  |                            |  |                          

The
average number of employees during 2000 is shown only on a pro forma combined basis since no distribution can be made for the period prior to and after August 24, 2000. The
figures in brackets in the text column state how many companies had employees as well as salaries and remunerations in 2002.

F-19

---

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

Employees in Sweden

2002

2001

Un-audited Pro forma 2000Botkyrka

483

476

528Eskilstuna

175

181

182Göteborg

2

2

3Lund

951

873

847Malmö

3

3

4Ronneby

240

215

199Stockholm

3

10

10Västerõs





52Other municipality with < 10 employees

34

33

69Total

1,891

1,793

1,894


In
the line "Other municipality < 10 employees", employees at branch offices abroad are included.

Note 2. Continued. Average number of employeesby country

|                     |  | Number of female employees |  | Total number of employees
|-------------------- |  | -------------------------- |  | -------------------------
|
|Argentina            |  | 6                          |  | 20                       
|Australia            |  | 21                         |  | 22                       
|Belgium              |  | 23                         |  | 30                       
|Brazil               |  | 23                         |  | 27                       
|Bulgaria             |  | 4                          |  | 6                        
|Canada               |  | 28                         |  | 27                       
|Chile                |  | 4                          |  | 4                        
|Colombia             |  | 2                          |  | 2                        
|Denmark              |  | 253                        |  | 227                      
|Estonia              |  | 2                          |  | 2                        
|Philippines          |  | 3                          |  | 4                        
|Finland              |  | 28                         |  | 32                       
|France               |  | 120                        |  | 121                      
|United Arab Emirates |  | 7                          |  | 8                        
|Greece               |  | 12                         |  | 13                       
|Hongkong             |  | 15                         |  | 14                       
|India                |  | 29                         |  | 29                       
|Indonesia            |  | 13                         |  | 15                       
|Iran                 |  | 2                          |  | 1                        
|Italy                |  | 63                         |  | 69                       
|Japan                |  | 41                         |  | 47                       
|China                |  | 75                         |  | 90                       

F-20

---

|Korea                                                |  | 15    |  | 16    |  | 16    |  | 77    |  | 68    |  | 70    
|---------------------------------------------------- |  | ----- |  | ----- |  | ----- |  | ----- |  | ----- |  | ------
|Latvia                                               |  | 4     |  | 4     |  | 0     |  | 7     |  | 7     |  | 6     
|Lithuania                                            |  | 4     |  | 3     |  | 0     |  | 4     |  | 4     |  | 5     
|Malaysia                                             |  | 24    |  | 19    |  | 22    |  | 68    |  | 72    |  | 81    
|Mexico                                               |  | 9     |  | 13    |  | 13    |  | 50    |  | 62    |  | 66    
|Netherlands                                          |  | 32    |  | 19    |  | 17    |  | 108   |  | 110   |  | 119   
|Norway                                               |  | 16    |  | 17    |  | 21    |  | 60    |  | 74    |  | 97    
|New Zealand                                          |  | 6     |  | 7     |  | 7     |  | 32    |  | 34    |  | 39    
|Peru                                                 |  | 6     |  | 6     |  | 6     |  | 26    |  | 30    |  | 33    
|Poland                                               |  | 25    |  | 29    |  | 26    |  | 123   |  | 122   |  | 88    
|Portugal                                             |  | 3     |  | 3     |  | 3     |  | 14    |  | 14    |  | 14    
|Romania                                              |  | 5     |  | 7     |  | 7     |  | 16    |  | 19    |  | 22    
|Russia                                               |  | 112   |  | 100   |  | 102   |  | 244   |  | 244   |  | 252   
|Switzerland                                          |  | 2     |  | 2     |  | 3     |  | 15    |  | 15    |  | 17    
|Singapore                                            |  | 21    |  | 21    |  | 21    |  | 46    |  | 49    |  | 65    
|Slovakia                                             |  | 1     |  | 1     |  | 4     |  | 11    |  | 9     |  | 11    
|Spain                                                |  | 33    |  | 32    |  | 41    |  | 210   |  | 218   |  | 320   
|UK*                                                  |  | 55    |  | 80    |  | 121   |  | 344   |  | 519   |  | 817   
|Sweden                                               |  | 347   |  | 306   |  | 399   |  | 1,891 |  | 1,793 |  | 1,894 
|South Africa                                         |  | 9     |  | 9     |  | 11    |  | 38    |  | 39    |  | 55    
|Taiwan                                               |  | 12    |  | 12    |  | 12    |  | 32    |  | 32    |  | 32    
|Thailand                                             |  | 13    |  | 13    |  | 13    |  | 37    |  | 36    |  | 37    
|Czech Republic                                       |  | 13    |  | 14    |  | 13    |  | 58    |  | 54    |  | 45    
|Turkey                                               |  | 7     |  | 8     |  | 7     |  | 28    |  | 29    |  | 31    
|Germany                                              |  | 56    |  | 64    |  | 102   |  | 256   |  | 347   |  | 496   
|Hungary                                              |  | 5     |  | 5     |  | 4     |  | 26    |  | 28    |  | 31    
|USA                                                  |  | 172   |  | 222   |  | 275   |  | 849   |  | 966   |  | 1,210 
|Venezuela                                            |  | 4     |  | 4     |  | 3     |  | 15    |  | 17    |  | 21    
|Austria                                              |  | 6     |  | 4     |  | 13    |  | 21    |  | 23    |  | 38    
|                                                     |  |       |  |       |  |       |  |       |  |       |  |       
|Total for the group                                  |  | 1,791 |  | 1,850 |  | 2,096 |  | 9,292 |  | 9,693 |  | 11,001
|                                                     |  |       |  |       |  |       |  |       |  |       |  |       
|* of which employed by the joint venture Rolls Laval |  |       |  |       |  |       |  | 1     |  | 21    |  | 25    

F-21

---

Note 3. Salaries and remunerationstotal

Consolidated

2002

2001

Un-audited
Pro forma
2000Board of Directors, Presidents and Vice Presidents

133.8

141.0

137.8Of which, bonus

18.3

23.8

15.9Other

2,815.9

3,062.7

3,176.8Total salaries and remunerations

2,949.7

3,203.7

3,314.6Social security costs

548.5

550.9

693.6Pension costs, defined benefit plans

161.9

85.9

67.0Pension costs, defined premium plans

222.8

267.7

211.7Total costs of personnel

3,883.0

4,108.2

4,286.9


Salaries
and remunerations for 2000 are shown only on a pro forma combined basis since no distribution has been available for the period prior to and after August 24, 2000.

The
Group's pension costs and pension liabilities relating to the Board of Directors, presidents and vice presidents amounts to MSEK 46.8 (31.2) (18.7) and MSEK 346.9 (376.4) (381.5)
respectively, of which MSEK 223.0 (246.1) (260.4) is covered by the Alfa Laval Pension Fund.

Chief Executive Officer/Managing Director

The Chief Executive Officer and Managing Director Sigge Haraldsson receives a remuneration of SEK 5,098,854 (5,352,173) (6,085,332), of which bonus
was(200,000) (1,404,000). The bonus refers to bonus paid during the year.

Sigge
Haraldsson has an agreement on early retirement that gives him the option to enter into early retirement at his request from the age of 60 or to enter into early retirement at the
request of the company from the age of 55. The agreement provides a pension level of 50 percent of the salary at the time of retirement if he enters into early retirement between the age of 55
and 58 and 70 percent of the salary if he enters into early 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.

For
the part of the salary that is above the ITP plan's 30 price base amounts (one price base amount equals SEK 37,900), the old age pension after 65 is paid with 52.5 percent of
the salary up to 80 price base amounts and above that with 32.5 percent and family pension with 16.25 percent of the salary. He has 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 pension premiums of MSEK 7.2 (7.3) (7.5), of which MSEK 3.4 (3.4)
(3.3) relates to premiums for early retirement that are paid during a short period of time. There is no separate agreement on severance pay.

Board of Directors

The Chairman of the Board Thomas Oldér receives a remuneration of SEK 500,000 per year. He does not have any agreement on future retirement or
severance pay with Alfa Laval.

F-22

---

For
2002, the Board of Directors receive a total fee of SEK 2,250,000 (2,250,000) (-), which is distributed among the members elected at the Annual General Meeting.

Other executive officers

Other executive officers are the nine members of Group Management in addition to the Chief Executive Officer. Their remunerations amount to MSEK 21.3 (22.1)
(20.3), of which bonuses were MSEK 4.1 (2.7) (1.4). 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 price 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 price 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.

Note 3. Salaries and remunerationsby country

|          |  | Board of Directors, Presidents and Vice Presidents |  | Other employees
|--------- |  | -------------------------------------------------- |  | ---------------
|
|Argentina |  | 0.5                                                |  | 1.1            
|Australia |  | 2.6                                                |  | 2.4            
|Belgium   |  | 3.3                                                |  | 3.7            
|Brazil    |  | 1.1                                                |  | 1.4            
|Bulgaria  |  | 0.2                                                |  | 0.2            
|Canada    |  | 3.3                                                |  | 4.0            
|Chile     |  | 0.0                                                |  | 0.0            
|Colombia  |  | 0.4                                                |  | 0.5            

F-23

---

|Denmark              |  | 9.1  |  | 8.3  |  | 10.4 |  | 409.0 |  | 431.9 |  | 376.2
|-------------------- |  | ---- |  | ---- |  | ---- |  | ----- |  | ----- |  | -----
|Estonia              |  | 0.0  |  | 0.0  |  | 0.3  |  | 0.5   |  | 0.7   |  | 0.4  
|Philippines          |  | 0.4  |  | 0.3  |  | 0.3  |  | 1.8   |  | 1.8   |  | 2.0  
|Finland              |  | 2.6  |  | 2.2  |  | 2.2  |  | 38.8  |  | 40.0  |  | 38.9 
|France               |  | 3.4  |  | 4.2  |  | 3.6  |  | 178.0 |  | 173.9 |  | 158.2
|United Arab Emirates |  | 1.7  |  | 1.4  |  | 1.2  |  | 14.5  |  | 13.6  |  | 7.7  
|Greece               |  | 0.0  |  | 0.0  |  | 0.0  |  | 10.6  |  | 10.6  |  | 8.9  
|Hongkong             |  | 3.4  |  | 3.5  |  | 3.4  |  | 22.7  |  | 25.5  |  | 29.0 
|India                |  | 1.2  |  | 1.2  |  | 1.0  |  | 39.7  |  | 39.7  |  | 39.6 
|Indonesia            |  | 0.5  |  | 0.5  |  | 0.4  |  | 4.6   |  | 4.5   |  | 2.9  
|Iran                 |  | 0.0  |  | 0.0  |  | 0.9  |  | 4.1   |  | 3.6   |  | 0.8  
|Italy                |  | 4.5  |  | 4.1  |  | 3.1  |  | 125.2 |  | 134.3 |  | 122.8
|Japan                |  | 8.8  |  | 8.4  |  | 8.2  |  | 84.9  |  | 115.2 |  | 113.8
|China                |  | 0.0  |  | 0.0  |  | 0.0  |  | 21.6  |  | 19.9  |  | 16.1 
|Korea                |  | 1.0  |  | 0.8  |  | 0.8  |  | 19.9  |  | 18.9  |  | 18.5 
|Latvia               |  | 0.4  |  | 0.4  |  | 0.3  |  | 1.0   |  | 0.9   |  | 0.5  
|Lithuania            |  | 0.0  |  | 0.0  |  | 0.2  |  | 0.7   |  | 0.7   |  | 0.6  
|Malaysia             |  | 1.5  |  | 1.4  |  | 1.0  |  | 10.5  |  | 11.9  |  | 9.9  
|Mexico               |  | 1.7  |  | 5.4  |  | 3.5  |  | 11.1  |  | 13.0  |  | 6.2  
|Netherlands          |  | 2.3  |  | 2.1  |  | 3.0  |  | 46.4  |  | 46.0  |  | 41.0 
|Norway               |  | 1.3  |  | 1.3  |  | 1.0  |  | 36.4  |  | 37.3  |  | 38.7 
|New Zealand          |  | 0.4  |  | 0.0  |  | 0.0  |  | 7.7   |  | 8.4   |  | 8.0  
|Peru                 |  | 1.1  |  | 1.1  |  | 1.2  |  | 3.7   |  | 6.1   |  | 4.8  
|Poland               |  | 4.0  |  | 3.7  |  | 0.9  |  | 14.1  |  | 15.0  |  | 10.3 
|Portugal             |  | 1.8  |  | 1.8  |  | 1.7  |  | 3.2   |  | 3.0   |  | 2.6  
|Romania              |  | 0.0  |  | 0.0  |  | 0.0  |  | 2.3   |  | 2.5   |  | 2.2  
|Russia               |  | 1.4  |  | 1.3  |  | 0.0  |  | 25.8  |  | 27.6  |  | 20.5 
|Switzerland          |  | 1.9  |  | 1.7  |  | 1.2  |  | 10.5  |  | 9.9   |  | 10.0 
|Singapore            |  | 1.4  |  | 1.8  |  | 2.7  |  | 11.8  |  | 11.2  |  | 16.8 
|Slovakia             |  | 0.1  |  | 0.0  |  | 0.0  |  | 1.2   |  | 1.4   |  | 1.0  
|Spain                |  | 1.8  |  | 1.1  |  | 1.8  |  | 64.0  |  | 69.5  |  | 78.9 
|UK                   |  | 4.8  |  | 6.0  |  | 5.8  |  | 124.7 |  | 176.8 |  | 266.7
|Sweden               |  | 21.6 |  | 27.6 |  | 33.9 |  | 676.4 |  | 629.6 |  | 628.4
|South Africa         |  | 0.6  |  | 0.6  |  | 0.5  |  | 6.0   |  | 6.7   |  | 9.4  
|Taiwan               |  | 0.9  |  | 0.9  |  | 0.8  |  | 7.9   |  | 8.9   |  | 8.4  
|Thailand             |  | 1.3  |  | 1.1  |  | 1.1  |  | 4.4   |  | 4.5   |  | 4.6  
|Czech Republic       |  | 0.8  |  | 0.7  |  | 0.2  |  | 7.0   |  | 5.9   |  | 4.8  
|Turkey               |  | 1.1  |  | 0.9  |  | 1.2  |  | 5.1   |  | 4.7   |  | 6.0  
|Germany              |  | 13.9 |  | 11.8 |  | 10.0 |  | 133.7 |  | 168.5 |  | 211.9

F-24

---

|Hungary             |  | 0.7   |  | 0.5   |  | 0.5   |  | 3.4     |  | 3.2     |  | 2.9    
|------------------- |  | ----- |  | ----- |  | ----- |  | ------- |  | ------- |  | -------
|USA                 |  | 17.0  |  | 17.5  |  | 13.1  |  | 475.6   |  | 591.8   |  | 641.8  
|Venezuela           |  | 0.0   |  | 0.0   |  | 0.3   |  | 2.0     |  | 2.3     |  | 3.9    
|Austria             |  | 1.7   |  | 1.7   |  | 1.4   |  | 8.2     |  | 9.2     |  | 11.7   
|                    |  |       |  |       |  |       |  |         |  |         |  |        
|Total for the group |  | 133.8 |  | 141.0 |  | 137.8 |  | 2,815.9 |  | 3,062.7 |  | 3,176.8
|                    |  |       |  |       |  |       |  |         |  |         |  |        

Note 4. Information on auditors' fee

During 2000 quotations were taken in from four of the large international audit firms. After a selection process, Ernst & Young were given the assignment
to be the Group's auditors as of year 2000 and four years ahead. Ernst & Young were already the Group's main auditors and audited the consolidated group and most of the subsidiaries. To the
extent it was not possible to exchange other auditors with Ernst & Young during 2000, this happened during the first part of 2001.

Fees and expense compensation

2002

2001

Un-audited
Pro forma
2000AuditErnst & Young

12.7

10.2

9.1Other audit firms

1.1

2.7

1.9Total

13.8

12.9

11.0Other projectsErnst & Young

2.8

7.2

1.9Other audit firms

6.6

5.3

4.0Total

9.4

12.5

5.9


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 MSEK 40.0 (53.9) (62.0). These refer to costs for advertisements in newspapers and technical press, participation in trade
fairs, brochures and for year 2001 the building of the Alfa Laval trademark and the new logotype.

F-25

---



Note 6. Comparison distortion items

|      |                                                       | Successor |       |    
|----- | ----------------------------------------------------- | --------- | ----- | ---
|
|
|      | Surplus funds from SPP                                |           |      |    
|      | Sale of Tetra Pak division in India subsidiary        |           |      |    
|      | Reversal of step up value on inventory                |           |      |    
|      | Reversal of step up value on research and development |           |      |    
|      | Sale of real estate                                   |           | (43.2 | )  
|      | Sale of Industrial Flow                               |           | 14.0  |    
|      | Sale of Automation                                    |           |      |    
|      |                                                       |           |       |    
|Total |                                                       | (29.2     | )     | 5.3
|      |                                                       |           |       |    

The
sale of the property in Warminster in the United States was completed at the end of March at a price of MUSD 6.4 corresponding to MSEK 62.1. The realised loss was
MSEK -43.2.

An
agreement was signed on December 19, 2000 concerning the divestment of the Industrial Flow operation. The agreement was made with Crane Co in the US and the divestment was made
on April 2, 2001. The sales price was MSEK 330.6. After considering the reversal of Group step-up values and provisions for deferred costs, the divestment has resulted in a
gain of MSEK 10.0 in the annual report for 2001. A few activities have remained before the divestment could be considered to be completed. During September 2002 a final settlement has
been made with the buyer, resulting in an increase of the realised gain by MSEK 14.0.

The
real estate in Johannesburg in South Africa was divested in May 2001. The sales price was MSEK 13.6. The local realised gain of MSEK 2.4 corresponded to a
reversal of Group step-up values relating to the real estate, which resulted in a loss of MSEK -0.3. The sale of the real estate in Glinde in Germany was completed in
October 2001 at a price of MSEK 196.4. The local realised gain of MSEK 147.8 corresponded to a reversal of Group step-up values relating to the real estate and
provisions for certain future rent commitments, which resulted in a loss of MSEK -8.3. In addition, some smaller properties in Spain and Sweden and one condominium in Sweden were
sold with a total realised gain of MSEK 3.9.

Due
to the repayment of the PRI debt that took place in May 1999, the Swedish Group companies have been able to receive all surplus consolidation funds of MSEK 270.7 from
SPP in cash as of February 2001.

The
Tetra Pak division of the Indian subsidiary was divested in May 2000 for MSEK 38.6, which resulted in a realised gain of MSEK 30.8. During 1999, this division
had net sales of MSEK 47.3 and 58 employees.

F-26

---

The
step-up values for inventory and research and development appeared in connection with the acquisition on August 24, 2000 and were reversed the same year, see
Note 13.

Note 7. Depreciation by function

|                         |  | Successor |   |        |  
|------------------------ |  | --------- | - | ------ | -
|
|
|Cost of goods sold       |  | (478.0    | ) | (499.8 | )
|Sales                    |  | (60.1     | ) | (68.7  | )
|Administration           |  | (97.9     | ) | (145.3 | )
|Research and development |  | (7.5      | ) | (8.6   | )
|Other income and costs   |  | (6.8      | ) | (11.8  | )
|Goodwill                 |  | (187.7    | ) | (178.0 | )
|                         |  |           |   |        |  
|Total                    |  | (838.0    | ) | (912.2 | )
|                         |  |           |   |        |  

Note 8. Depreciation by type of assets

|                                          |  | Successor |   |        |  
|----------------------------------------- |  | --------- | - | ------ | -
|
|
|Goodwill                                  |  | (187.7    | ) | (178.0 | )
|Patents, trademarks, etc.                 |  | (208.3    | ) | (214.6 | )
|Machinery and equipment                   |  | (351.4    | ) | (403.6 | )
|Financial leasing machinery and equipment |  | (7.8      | ) | (10.9  | )
|Buildings and ground installations        |  | (82.8     | ) | (105.1 | )
|                                          |  |           |   |        |  
|Total                                     |  | (838.0    | ) | (912.2 | )
|                                          |  |           |   |        |  

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

|                     |  | Successor |  |    
|-------------------- |  | --------- |  | ---
|
|
|Dividends from other |  | 7.8       |  | 9.6
|                     |  |           |  |    
|Total                |  | 7.8       |  | 9.6
|                     |  |           |  |    

F-27

---

Note 10. Interest income/costs and similar result items

|                |                   | Successor          |        |          |       
|--------------- | ----------------- | ------------------ | ------ | -------- | ------
|
|
|Interest income |                   |                    |        |          |       
|                | Financial leasing |                    |        |          |       
|                |                   | External companies |        | 0.2      |       
|                | Other interest    |                    |        |          |       
|                |                   | External companies |        | 139.5    |       
|Exchange gains  |                   |                    |        |          |       
|                | Unrealised        |                    | 46.3   |          | 76.9  
|                | Realised          |                    | 136.8  |          | 53.0  
|                |                   |                    |        |          |       
|Total           |                   | 322.7              |        | 238.0    |       
|                |                   |                    |        |          |       
|Interest costs  |                   |                    |        |          |       
|                | Financial leasing |                    |        |          |       
|                |                   | External companies |        | (2.7     | )     
|                | Other interest    |                    |        |          |       
|                |                   | External companies |        | (644.2   | )     
|Exchange loss   |                   |                    |        |          |       
|                | Unrealised        |                    | (26.0  | )        | (244.8
|                | Realised          |                    | (130.6 | )        | (30.4 
|                |                   |                    |        |          |       
|Total           |                   | (803.5             | )      | (1,108.3 | )     
|                |                   |                    |        |          |       

In
the Group, reported net exchange differences of MSEK 164.9 (-105.5) (-312.5) 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. In the parent company, the exchange differences are taken to the income
statement.

Net
commercial exchange differences have amounted to MSEK 284.8 (137.7) (-52.5). These arise in connection with delivery of goods and other operational activities and
have thereby affected the operating result.

Note 11. Minority interest

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

F-28

---



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

|                                                                                                                                 |  | 2002   |   | 2001   |   | Un-audited
Pro forma
2000 |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ------ | - | ------ | - | ------------------------- | -
|The major components of the group's tax costs:                                                                                   |  |        |   |        |   |                           |  
|Current tax cost                                                                                                                 |  | (336.0 | ) | (396.9 | ) | (300.4                    | )
|Adjustment for current taxes on prior periods                                                                                    |  | 72.1   |   | 84.8   |   | (95.3                     | )
|Deferred tax costs/income on changes in temporary differences                                                                    |  | 95.0   |   | 374.6  |   | 375.4                     |  
|Deferred tax costs/income on changes in tax rates or new taxes                                                                   |  | 3.4    |   | 12.0   |   | (13.8                     | )
|Tax income from previously unrecognised tax losses or tax credits on temporary differences of prior periods                      |  | 6.0    |   | 1.3    |   | (1.8                      | )
|Deferred tax income from previously unrecognised tax losses or tax credits on temporary differences of prior periods             |  | 0.3    |   | 0.7    |   | 2.4                       |  
|Deferred tax cost from the write down or reversal of a previous write down of a deferred tax asset                               |  | (26.5  | ) | (15.6  | ) | (18.6                     | )
|Other taxes                                                                                                                      |  | (32.5  | ) | (34.6  | ) | (53.0                     | )
|                                                                                                                                 |  |        |   |        |   |                           |  
|Total tax cost/(benefit)                                                                                                         |  | (218.2 | ) | 26.3   |   | (105.2                    | )
|                                                                                                                                 |  |        |   |        |   |                           |  
|The difference between the tax costs of the group and the tax cost based upon applicable tax rates, can be explained as follows: |  |        |   |        |   |                           |  
|Result before minority interests and tax                                                                                         |  | 460.1  |   | 373.1  |   | 7.5                       |  
|Tax according to applicable tax rates                                                                                            |  | (133.6 | ) | (14.6  | ) | (2.6                      | )
|Tax effect of:                                                                                                                   |  |        |   |        |   |                           |  
|Non deductible costs including group adjustments                                                                                 |  | (268.0 | ) | (257.4 | ) | (102.5                    | )
|Non taxable income                                                                                                               |  | 164.2  |   | 149.3  |   | 11.2                      |  
|Differences between reported depreciation and depreciation according to tax rules                                                |  | (7.2   | ) | (7.4   | ) | (17.7                     | )
|Differences between reported other depreciation and other depreciation according to tax rules                                    |  | (40.7  | ) | 12.1   |   | (31.7                     | )
|Tax losses and tax credits                                                                                                       |  | 2.9    |   | 42.5   |   | 124.3                     |  
|Other                                                                                                                            |  | (7.9   | ) | 17.0   |   | 9.2                       |  
|Adjustment for current tax on prior periods                                                                                      |  | 72.1   |   | 84.8   |   | (95.3                     | )
|                                                                                                                                 |  |        |   |        |   |                           |  
|Total tax cost/(benefit)                                                                                                         |  | (218.2 | ) | 26.3   |   | (105.2                    | )
|                                                                                                                                 |  |        |   |        |   |                           |  

The
Group's effective tax rate is approximately 33 percent based on taxable result, and it is calculated as a weighted average based on each subsidiaries' part of the result
before tax.

F-29

---

During the year the nominal tax rates have been changed in the following countries:

Tax rates in percentage2002

2001

Un-audited
Pro forma
2000Peru

25

25

30India

37

36

39Iran

40

12

50Pakistan

43

43

40Singapore

22

25

26Bulgaria

20

20

25France

35

34

35Germany

37

37

51Greece

35

38

40Italy

38

40

39Poland

28

28

30Portugal

34

34

30Australia

30

30

36Chile

16

15

15China

11

3

3Korea

29

28

28United Arab Emirates

7

4

4Switzerland

24

28

28Turkey

28

33

33Russia

24

35

35Latvia

22

25

25Lithuania

15

24

24


In
the Group there are temporary differences and unused tax losses and tax credits of MSEK 2,197.1 (2,567.0) that have not resulted in corresponding deferred tax assets, since
these are not likely to be used.

F-30

---

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:

|                            |  | 2002  |  | 2001  |  | 2000 
|--------------------------- |  | ----- |  | ----- |  | -----
|
|Intangible assets           |  | 71.5  |  | 410.0 |  | 96.9 
|Tangible assets             |  | 10.0  |  | 471.1 |  | 8.3  
|Inventory                   |  | 44.4  |  | 27.7  |  | 90.4 
|Other current assets        |  | 11.3  |  | 2.5   |  | 2.5  
|Financial assets            |  | 4.5   |  |      |  | 4.6  
|Short term liabilities      |  | 361.6 |  | 40.8  |  | 364.1
|Equity capital/minority     |  |      |  |      |  | 12.5 
|Tax losses and tax credits* |  | 19.3  |  |      |  | 59.0 
|Other                       |  | 11.5  |  | 0.4   |  | (14.5
|Total                       |  | 534.0 |  | 952.5 |  | 623.8

---

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

The acquisition

The acquisition on August 24, 2000 was made in several steps. The first step was that Alfa Laval Holding AB's subsidiary Alfa Laval NV sold Alfa Laval
Bostadsförvaltning AB to Tetra Laval BV in the Netherlands. Alfa Laval Bostadsförvaltning AB was in connection with this renamed to Alfa Laval Credit
Finance AB. Tetra Laval BV in its turn sold Alfa Laval Holding AB with subsidiaries to Alfa Laval Credit Finance AB. All of these transactions took place on August 24,
2000.

Prior
to the acquisition, Industri Kapital had created a new company, Alfa Laval AB. In connection with a new issue of shares, Industri Kapital subscribed for 51.9 percent,
Alfa Laval management for 0.3 percent and Tetra Laval BV for 47.8 percent of the total number of shares in the company. Alfa Laval AB had before the acquisition created a
new company, Alfa Laval Special Finance AB, which acquired Alfa Laval Credit Finance AB with subsidiaries on August 24, 2000.

The
same day Industri Kapital acquired an additional 11.0 percent of the shares in Alfa Laval AB from Tetra Laval BV. Later during the autumn 2000, Industri Kapital
sold shares corresponding to 0.4 percent of the share capital to Alfa Laval management. During 2001 Industri Kapital sold shares corresponding to a further 0.4 percent of the share
capital to a third group of management within Alfa Laval.

The
acquisition value for the shares of Alfa Laval Holding AB was MSEK 8,213.8 at the transaction on August 24, 2000. Below is shown a summary of the goodwill and the group
step-up or step down values that the acquisition resulted in and the amortisation cost per type of asset. The

F-31

---

goodwill is amortised over 20 years. The corresponding presentation by asset type is found in Notes 14 and 15.

|                               |  | Alfa Laval August 24, 2000 to December 31, 2000 |  
|------------------------------ |  | ----------------------------------------------- | -
|
|Buildings                      |  | 1,058.5                                         |  
|Land and land improvements     |  | (228.4                                          | )
|Machinery                      |  | 548.3                                           |  
|Equipment                      |  | 452.1                                           |  
|Construction in progress       |  | 15.9                                            |  
|Inventory                      |  | 340.2                                           |  
|Patent and trademarks          |  | 461.3                                           |  
|Technology                     |  | 1,279.8                                         |  
|Research and development       |  | 53.6                                            |  
|Capital gain (Industrial Flow) |  | 41.8                                            |  
|                               |  |                                                 |  
|Subtotal                       |  | 4,023.1                                         |  
|Goodwill                       |  | 3,276.6                                         |  
|                               |  |                                                 |  
|Total                          |  | 7,299.7                                         |  
|                               |  |                                                 |  

The
amortisation for the full-year 2000 (pro forma) was MSEK 163.8 for goodwill and MSEK 315.9 for other Group step-up values.

The
costs for the reversal of the step-up values for inventory and research and development have been accounted for as comparison distortion items. For assets sold, net gains
or losses are recognised on the costs basis including any related step-up value.

F-32

---

Construction
in process was transferred to machinery in 2001.

|                                                                                                |  | Alfa Laval 2002 |  
|----------------------------------------------------------------------------------------------- |  | --------------- | -
|
|Buildings                                                                                       |  | 682.7           |  
|Land and land improvements                                                                      |  | (180.3          | )
|Machinery                                                                                       |  | 527.2           |  
|Equipment                                                                                       |  | 419.7           |  
|Patent and trademarks                                                                           |  | 469.3           |  
|Technology                                                                                      |  | 1,128.2         |  
|                                                                                                |  |                 |  
|Subtotal for other step up values                                                               |  | 3,046.8         |  
|Goodwill                                                                                        |  | 3,372.9         |  
|
|Goodwill related to the acquisition of Alfa Laval Credit Finance AB (additional purchase price) |  |                 |  
|Danish Separation System A/S                                                                    |  |                |  
|                                                                                                |  |                 |  
|Subtotal goodwill                                                                               |  | 3,372.9         |  
|                                                                                                |  |                 |  
|Total                                                                                           |  | 6,419.7         |  
|                                                                                                |  |                 |  

In
connection with the IPO an additional purchase price of MEUR 40.0, corresponding to MSEK 367.5, was paid to Tetra Laval BV for the original acquisition on August 24,
2000 of the Alfa Laval Credit Finance AB Group. This has been reported entirely as goodwill in the Group and is amortised over 20 years.

At
the acquisition of Danish Separation Systems A/S in 2002, no other group surplus values than goodwill have been identified.

There
is no deferred tax liability calculated on the goodwill. The deferred tax liability on the other step-up values is MSEK 826.7 (978.7).

F-33

---



Note 14. Intangible fixed assets

|Consolidated                                                      |  | 2002    |   | 2001    |  
|----------------------------------------------------------------- |  | ------- | - | ------- | -
|Concessions, patents, licenses, trademarks and similar rights     |  |         |   |         |  
|Opening balance, accumulated acquisition values                   |  | 1,993.8 |   | 1,953.9 |  
|Purchases                                                         |  | 0.6     |   | 3.6     |  
|Sales/disposals                                                   |  | (2.4    | ) | (60.2   | )
|Reclassifications                                                 |  | (13.5   | ) | 6.8     |  
|Translation difference for the year                               |  | 154.3   |   | 89.8    |  
|                                                                  |  |         |   |         |  
|Closing balance, accumulated acquisition values                   |  | 2,132.8 |   | 1,993.8 |  
|Opening balance, accumulated depreciation                         |  | (353.8  | ) | (148.8  | )
|Sales/disposals                                                   |  | 2.4     |   | 17.9    |  
|Reclassifications                                                 |  | 10.8    |   | (5.1    | )
|Depreciation of step-up value, patent & trademarks                |  | (24.1   | ) | (25.0   | )
|Depreciation of step-up value, technology                         |  | (177.2  | ) | (182.0  | )
|Depreciation for the year                                         |  | (6.9    | ) | (7.6    | )
|Translation difference for the year                               |  | (250.4  | ) | (3.2    | )
|                                                                  |  |         |   |         |  
|Closing balance, accumulated depreciation                         |  | (799.2  | ) | (353.8  | )
|Closing balance, net book value                                   |  | 1,333.6 |   | 1,640.0 |  
|                                                                  |  |         |   |         |  
|Goodwill                                                          |  |         |   |         |  
|Opening balance, accumulated acquisition values                   |  | 3,611.7 |   | 3,370.4 |  
|Acquisition of 13.1% of Alfa Laval (India) Ltd                    |  |        |   | 39.2    |  
|Goodwill in connection with acquisition of Alfa Laval Nakskov A/S |  | 102.4   |   |        |  
|Additional purchase price                                         |  | 367.5   |   |        |  
|Translation difference for the year                               |  | (313.0  | ) | 202.1   |  
|                                                                  |  |         |   |         |  
|Closing balance, accumulated acquisition values                   |  | 3,768.6 |   | 3,611.7 |  
|Opening balance, accumulated depreciation                         |  | (238.8  | ) | (56.2   | )
|Depreciation for the year                                         |  | (187.7  | ) | (178.0  | )
|Translation difference for the year                               |  | 26.8    |   | (4.6    | )
|                                                                  |  |         |   |         |  
|Closing balance, accumulated depreciation                         |  | (399.6  | ) | (238.8  | )
|Closing balance, net book value                                   |  | 3,369.0 |   | 3,372.9 |  
|                                                                  |  |         |   |         |  
|Renting rights and similar rights                                 |  |         |   |         |  
|Opening balance, accumulated acquisition values                   |  | 0.6     |   | 0.4     |  
|Purchases                                                         |  | 0.1     |   | 0.2     |  
|Reclassifications                                                 |  | 0.4     |   |        |  
|                                                                  |  |         |   |         |  
|Closing balance, accumulated acquisition values                   |  | 1.1     |   | 0.6     |  
|Opening balance, accumulated depreciation                         |  | (0.2    | ) | (0.2    | )
|Reclassifications                                                 |  | (0.2    | ) |        |  
|Depreciation for the year                                         |  | (0.1    | ) | 0.0     |  
|Translation difference for the year                               |  | 0.1     |   |        |  
|                                                                  |  |         |   |         |  
|Closing balance, accumulated depreciation                         |  | (0.4    | ) | (0.2    | )
|Closing balance, net book value                                   |  | 0.7     |   | 0.4     |  
|                                                                  |  |         |   |         |  

F-34

---

Note 15. Property, plant and equipment

|Consolidated                                    |  | 2002     |   | 2001     |  
|----------------------------------------------- |  | -------- | - | -------- | -
|Real estate                                     |  |          |   |          |  
|Opening balance, accumulated acquisition values |  | 2,305.0  |   | 2,604.4  |  
|Purchases                                       |  | 12.0     |   | 5.6      |  
|Acquisitions of businesses                      |  | 17.9     |   |         |  
|Sales/disposal                                  |  | (158.5   | ) | (243.3   | )
|Reclassifications                               |  | 29.1     |   | (24.3    | )
|Realisation of step-up values due to sale       |  | 8.5      |   | (164.0   | )
|Translation difference for the year             |  | (242.8   | ) | 126.6    |  
|                                                |  |          |   |          |  
|Closing balance, accumulated acquisition values |  | 1,971.2  |   | 2,305.0  |  
|Opening balance, accumulated depreciation       |  | (916.0   | ) | (964.7   | )
|Sales/disposals                                 |  | 75.6     |   | 187.4    |  
|Acquisition of businesses                       |  | (1.3     | ) |         |  
|Reclassifications                               |  | 47.7     |   | (2.1     | )
|Depreciation of step-up value                   |  | (27.5    | ) | (33.4    | )
|Depreciation for the year                       |  | (54.6    | ) | (71.0    | )
|Translation difference for the year             |  | 125.4    |   | (32.2    | )
|                                                |  |          |   |          |  
|Closing balance, accumulated depreciation       |  | (750.7   | ) | (916.0   | )
|Opening balance, accumulated revaluations, net  |  | 90.0     |   | 90.6     |  
|Revaluation for the year                        |  | 0.1      |   | 0.0      |  
|Depreciation for the year on revaluation        |  | (0.7     | ) | (0.6     | )
|                                                |  |          |   |          |  
|Closing balance, accumulated revaluation, net   |  | 89.4     |   | 90.0     |  
|Closing balance, net book value                 |  | 1,309.9  |   | 1,479.0  |  
|                                                |  |          |   |          |  
|Machinery and other technical installations     |  |          |   |          |  
|Opening balance, accumulated acquisition values |  | 2,828.1  |   | 2,834.9  |  
|Purchases                                       |  | 97.6     |   | 119.0    |  
|Acquisition of businesses                       |  | 6.6      |   |         |  
|Sales/disposal                                  |  | (157.0   | ) | (250.6   | )
|Reclassifications                               |  | 56.9     |   | 1.6      |  
|Realisation of step-up values due to sale       |  |         |   | (1.3     | )
|Translation difference for the year             |  | (220.6   | ) | 124.5    |  
|                                                |  |          |   |          |  
|Closing balance, accumulated acquisition values |  | 2,611.6  |   | 2,828.1  |  
|Opening balance, accumulated depreciation       |  | (1,690.3 | ) | (1,619.8 | )
|Sales/disposals                                 |  | 132.2    |   | 170.2    |  
|Acquisitions of businesses                      |  | (2.5     | ) |         |  
|Reclassifications                               |  | (27.6    | ) | (2.4     | )
|Depreciation of step-up value                   |  | (59.0    | ) | (60.2    | )
|Depreciation for the year                       |  | (130.2   | ) | (111.9   | )
|Translation difference for the year             |  | 148.8    |   | (66.2    | )
|                                                |  |          |   |          |  
|Closing balance, accumulated depreciation       |  | (1,628.6 | ) | (1,690.3 | )
|Closing balance, net book value                 |  | 983.0    |   | 1,137.8  |  
|                                                |  |          |   |          |  

F-35

---

|Equipment, tools and installations                                                          |  |          |   |          |  
|------------------------------------------------------------------------------------------- |  | -------- | - | -------- | -
|Opening balance, accumulated acquisition values                                             |  | 2,288.1  |   | 2,537.9  |  
|Purchases                                                                                   |  | 71.6     |   | 125.4    |  
|Acquisition of businesses                                                                   |  | 3.9      |   |         |  
|Sales/disposal                                                                              |  | (150.3   | ) | (480.8   | )
|Reclassifications                                                                           |  | (59.6    | ) | 36.7     |  
|Realisation of step-up values due to sale                                                   |  |         |   | (0.1     | )
|Translation difference for the year                                                         |  | (129.1   | ) | 69.0     |  
|                                                                                            |  |          |   |          |  
|Closing balance, accumulated acquisition values                                             |  | 2,024.6  |   | 2,288.1  |  
|Opening balance, accumulated depreciation                                                   |  | (1,411.4 | ) | (1,518.7 | )
|Sales/disposals                                                                             |  | 127.4    |   | 394.1    |  
|Acquisition of businesses                                                                   |  | (2.1     | ) |         |  
|Reclassifications                                                                           |  | 47.6     |   | 3.6      |  
|Depreciation of step-up value                                                               |  | (31.3    | ) | (33.3    | )
|Depreciation for the year                                                                   |  | (130.5   | ) | (198.5   | )
|Translation difference for the year                                                         |  | 83.0     |   | (58.7    | )
|                                                                                            |  |          |   |          |  
|Closing balance, accumulated depreciation                                                   |  | (1,317.3 | ) | (1,411.4 | )
|Opening balance, accumulated revaluation, net                                               |  | 16.9     |   | 7.7      |  
|Sales/disposal                                                                              |  | (0.2     | ) | 9.5      |  
|Reclassifications                                                                           |  | (0.5     | ) | 0.0      |  
|Revaluation for the year                                                                    |  | 0.1      |   | 0.1      |  
|Depreciation for the year on revaluation                                                    |  | (0.4     | ) | (0.4     | )
|                                                                                            |  |          |   |          |  
|Closing balance, accumulated revaluation, net                                               |  | 15.9     |   | 16.9     |  
|Closing balance, net book value                                                             |  | 723.2    |   | 893.6    |  
|                                                                                            |  |          |   |          |  
|Construction in progress and advances to suppliers concerning property, plant and equipment |  |          |   |          |  
|Opening balance, accumulated acquisition values                                             |  | 57.9     |   | 71.9     |  
|Purchases                                                                                   |  | 93.7     |   | 38.6     |  
|Sales/disposal                                                                              |  | (1.2     | ) | (4.9     | )
|Reclassifications                                                                           |  | (103.9   | ) | (50.9    | )
|Translation difference for the year                                                         |  | (5.7     | ) | 3.2      |  
|                                                                                            |  |          |   |          |  
|Closing balance, accumulated acquisition values                                             |  | 40.8     |   | 57.9     |  
|Closing balance, net book value                                                             |  | 40.8     |   | 57.9     |  
|                                                                                            |  |          |   |          |  
|Leased machinery                                                                            |  |          |   |          |  
|Opening balance, accumulated acquisition values                                             |  | 13.2     |   | 27.4     |  
|Purchases                                                                                   |  | 0.2      |   | 0.0      |  
|Acquisition of businesses                                                                   |  | 7.2      |   |         |  
|Sales/disposal                                                                              |  | (6.2     | ) | (13.4    | )
|Reclassifications                                                                           |  |         |   | (2.2     | )
|Translation difference for the year                                                         |  | (0.3     | ) | 1.4      |  
|                                                                                            |  |          |   |          |  
|Closing balance, accumulated acquisition values                                             |  | 14.1     |   | 13.2     |  

F-36

---

|Opening balance, accumulated depreciation       |  | (4.4  | ) | (6.2  | )
|----------------------------------------------- |  | ----- | - | ----- | -
|Sales/disposals                                 |  | 3.3   |   | 3.1   |  
|Acquisition of businesses                       |  | (3.1  | ) |      |  
|Reclassifications                               |  |      |   | 2.2   |  
|Depreciation for the year                       |  | (3.0  | ) | (3.2  | )
|Translation difference for the year             |  | 0.1   |   | (0.3  | )
|                                                |  |       |   |       |  
|Closing balance, accumulated depreciation       |  | (7.1  | ) | (4.4  | )
|Closing balance, net book value                 |  | 7.0   |   | 8.8   |  
|                                                |  |       |   |       |  
|Leased equipment, tools and installations       |  |       |   |       |  
|Opening balance, accumulated acquisition values |  | 58.8  |   | 94.9  |  
|Purchases                                       |  | 0.9   |   | 5.7   |  
|Sales/disposal                                  |  | (11.2 | ) | (33.4 | )
|Reclassifications                               |  | 0.2   |   | (13.3 | )
|Translation difference for the year             |  | (4.0  | ) | 4.9   |  
|                                                |  |       |   |       |  
|Closing balance, accumulated acquisition values |  | 44.7  |   | 58.8  |  
|Opening balance, accumulated depreciation       |  | (37.1 | ) | (48.4 | )
|Sales/disposals                                 |  | 8.8   |   | 15.8  |  
|Reclassifications                               |  | 4.4   |   | 6.0   |  
|Depreciation for the year                       |  | (4.8  | ) | (7.8  | )
|Translation difference for the year             |  | 2.8   |   | (2.7  | )
|                                                |  |       |   |       |  
|Closing balance, accumulated depreciation       |  | (25.9 | ) | (37.1 | )
|Closing balance, net book value                 |  | 18.8  |   | 21.7  |  
|                                                |  |       |   |       |  

Leased
machinery, equipment and real estate 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, 2002 amounted to MSEK 122.6 (121.8), out of which MSEK 47.2 (47.0) referred to land and land
improvements and MSEK 75.4 (74.8) buildings. The book values of the Swedish real estate amounted to MSEK 57.2 (62.5), out of which land and land improvements were MSEK 9.1 (9.9)
and buildings were MSEK 48.1 (52.6).

F-37

---



Note 16. Financial long-term assets

Book value

2002

2001Shares in subsidiaries



Shares in other companies

53.1

62.4Total

53.1

62.4


Specification of shares in subsidiaries

|Company name                  |                                            | Reg.no                   |             | Domicile    |              | No. of
shares |            | Share of
capital
% |     | Book
value
MSEK
|----------------------------- | ------------------------------------------ | ------------------------ | ----------- | ----------- | ------------ | ------------- | ---------- | ------------------ | --- | ---------------
|Alfa Laval Special Finance AB |                                            | 556587-8062              |             | Lund        |              |               |            | 100                |     | 4,460.9        
|                              | Alfa Laval Credit Finance AB               |                          | 556025-2792 |             | Lund         |               |            |                    | 100 |                
|                              |                                            | Alfa Laval Holding AB    |             | 556019-2949 |              | Lund          |            |                    |     | 100            
|Alfa Laval Holding AB         |                                            | 556019-2949              |             | Lund        |              | 12,500,000    |            | 100                |     | 0.0            
|Alfa Laval NV                 |                                            |                          |             | Maarssen    |              | 227,754       |            | 100                |     | 0.0            
|                              | Alfa Laval Inc                             |                          |             |             | Newmarket    |               | 1,000,000  |                    | 68  |                
|                              | Alfa Laval S.A. DE C.V.                    |                          |             |             | Tlalnepantla |               | 45,057,057 |                    | 100 |                
|                              | Alfa Laval S.A.                            |                          |             |             | San Isidro   |               | 699        |                    | 100 |                
|                              | Alfa Laval Bolivia S.R.L.                  |                          |             |             | Santa Cruz   |               | 69         |                    | 100 |                
|                              | Alfa Laval S/A                             |                          |             |             | 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      |               |            |                    | 100 |                
|                              | Alfa Laval (Shanghai) Technologies Co Ltd  |                          |             |             | Shanghai     |               |            |                    | 100 |                
|                              | Alfa Laval Taiwan Ltd                      |                          |             |             | Taipei       |               | 1,499,994  |                    | 100 |                
|                              | Alfa Laval (Hongkong) Ltd                  |                          |             |             | Hongkong     |               | 79,999     |                    | 100 |                
|                              | Alfa Laval (China) Ltd                     |                          |             |             | Hongkong     |               | 9,999      |                    | 100 |                
|                              | PT Alfa Laval Separatama                   |                          |             |             | Jakarta      |               | 1,000      |                    | 80  |                
|                              | Alfa Laval Iran P.J.S. Co                  |                          |             |             | Teheran      |               | 2,199      |                    | 100 |                
|                              | Alfa Laval KK                              |                          |             |             | Tokyo        |               | 1,200,000  |                    | 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 NV SA                           |                          |             |             | Brussels     |               | 33,811     |                    | 100 |                

F-38

---

| | Alfa Laval Slovakia S.R.O.              |                               |                                          |                           | Bratislanva    |           |            |           | 1      |      | 0.0 
| | --------------------------------------- | ----------------------------- | ---------------------------------------- | ------------------------- | -------------- | --------- | ---------- | --------- | ------ | ---- | ----
| |                                         |                               |                                          | Liptovsky                 |                |           |            |           |        |     
| | Cetetherm SR spol S.R.O.                |                               |                                          |                           | Mikulas        |           |            |           | 15     |      | 0.0 
| | Alfa Laval Spol S.R.O.                  |                               |                                          |                           | Hradec Kralove |           |            |           | 20     |      | 0.0 
| | Cetetherm S.R.O.                        |                               |                                          |                           | Prague         |           |            |           | 5      |      | 0.0 
| | Alfa Laval Denmark Holding A/S          |                               |                                          |                           | Kolding        |           |            |           | 100    |      | 0.0 
| |                                         | Alfa Laval LKM A/S            |                                          |                           |                | Kolding   |            | 100,000   |        | 100  |     
| |                                         |                               | Alfa Laval Nordic A/S                    |                           |                |           | Rödovre    |           | 1      |      | 100 
| |                                         |                               |                                          | Alfa Laval Copenhagen A/S |                |           |            | Söborg    |        | 1    |     
| |                                         |                               |                                          | Alfa Laval Nakskov A/S    |                |           |            | Nakskov   |        | 1    |     
| | Alfa Laval Ltd                          |                               |                                          |                           | Sofia          |           | 100        |           | 100    |      | 0.0 
| | Alfa Laval Nordic OY                    |                               |                                          |                           | Espoo          |           | 20,000     |           | 100    |      | 0.0 
| |                                         | Cetetherm OY                  |                                          |                           |                | Tuusula   |            | 5,000     |        | 100  |     
| | Alfa Laval Nederland B.V.               |                               |                                          |                           | Maarssen       |           | 10,000     |           | 100    |      | 0.0 
| |                                         | Alfa Laval B.V.               |                                          |                           |                | Maarssen  |            | 1,475     |        | 100  |     
| |                                         | Alfa Laval Merco B.V.         |                                          |                           |                | Hoofddorp |            | 1,475     |        | 100  |     
| | Alfa Laval Holding A/S                  |                               |                                          |                           | Oslo           |           | 520,000    |           | 100    |      | 0.0 
| |                                         | Alfa Laval Nordic A/S         |                                          |                           |                | Oslo      |            | 10,000    |        | 100  |     
| | CTC Ronneby AB                          |                               | 556092-3194                              |                           | Ronneby        |           | 138,000    |           | 100    |      | 0.0 
| | Alfa Laval ExCell AB                    |                               | 556306-2404                              |                           | Skogstorp      |           | 2,500      |           | 100    |      | 0.0 
| | Alfa Laval Nordic AB                    |                               | 556243-2061                              |                           | Tumba          |           | 1,000      |           | 100    |      | 0.0 
| | Cetetherm AB                            |                               | 556058-3162                              |                           | Ronneby        |           | 20,000     |           | 100    |      | 0.0 
| | Alfa Laval Corporate AB                 |                               | 556007-7785                              |                           | Lund           |           | 13,920,000 |           | 100    |      | 0.0 
| |                                         | Alfa Laval Real Estate AB     |                                          | 556008-3650               |                | Lund      |            | 680,000   |        | 100  |     
| |                                         | Alfa Laval (India) Ltd        |                                          |                           |                | Poona     |            | 9,261,889 |        | 64.1 |     
| |                                         |                               | Skansen Engineering & Consultancy Co Ltd |                           |                |           | Poona      |           | 50,000 |      | 64.1
| |                                         | Alfa Laval Korea Ltd          |                                          |                           |                | Seoul     |            | 3,640,000 |        | 100  |     
| |                                         | Alfa Laval (Malaysia) Sdn Bhd |                                          |                           |                | Shah Alam |            | 10,000    |        | 100  |     
| |                                         | 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    |      | 0.0 
| | Alfa Laval Europe AB                    |                               | 556128-7847                              |                           | Tumba          |           | 500        |           | 100    |      | 0.0 
| | Alfa Laval Lund AB                      |                               | 556016-8642                              |                           | Lund           |           | 100        |           | 100    |      | 0.0 
| | Alfa Laval International Engineering AB |                               | 556039-8934                              |                           | Tumba          |           | 4,500      |           | 100    |      | 0.0 
| | Alfa Laval Tumba AB                     |                               | 556021-3893                              |                           | Lund           |           | 1,000      |           | 100    |      | 0.0 
| | Bitec Enterprise AG                     |                               |                                          |                           | Volketswil     |           | 86,935     |           | 88.8   |      | 0.0 
| | Alfa Laval Dis Ticaret Ltd Sti          |                               |                                          |                           | Istanbul       |           | 27,001,755 |           | 99     |      | 0.0 
| | OÜ Cetetherm                            |                               |                                          |                           | Tallinn        |           | 100        |           | 100    |      | 0.0 

F-39

---

|                      | Alfa Laval SIA                       |                                             |                       |                | Tallinn        |                | 125        |           | 100     |         | 0.0
|--------------------- | ------------------------------------ | ------------------------------------------- | --------------------- | -------------- | -------------- | -------------- | ---------- | --------- | ------- | ------- | ---
|                      | SIA Cetetherm                        |                                             |                       |                | Riga           |                | 200        |           | 100     |         | 0.0
|                      | Alfa Laval UAB Ltd                   |                                             |                       |                | Vilnius        |                | 2,009      |           | 100     |         | 0.0
|                      | UAB Cetetherm                        |                                             |                       |                | Vilnius        |                | 100        |           | 100     |         | 0.0
|                      | Alfa Laval Australia Pty Ltd         |                                             |                       |                | Homebush       |                | 2,088,076  |           | 100     |         | 0.0
|                      |                                      | Alfa Laval Pty Ltd                          |                       |                |                | Homebush       |            | 3,500,000 |         | 100     |    
|                      |                                      | Alfa Laval Hamilton Pty Ltd                 |                       |                |                | Homebush       |            | 10,000    |         | 100     |    
|                      |                                      | Heat Transfer Pty Ltd                       |                       |                |                | Homebush       |            | 15,000    |         | 100     |    
|                      |                                      | Alfa Laval Flow Pty Ltd                     |                       |                |                | Mentone        |            | 3,500,000 |         | 100     |    
|                      | Alfa Laval New Zealand Ltd           |                                             |                       |                | Hamilton       |                | 1,000      |           | 100     |         | 0.0
|Alfa Laval Holding BV |                                      |                                             |                       | Maarssen       |                | 70,000,000     |            | 100       |         | 0.0    
|                      | Alfa Laval (Pty) Ltd                 |                                             |                       |                | Isando         |                | 2,000      |           | 100     |         | 0.0
|                      | Alfa Laval Slovakia S.R.O.           |                                             |                       |                | Bratislava     |                |            |           | 99      |         | 0.0
|                      |                                      |                                             |                       | Liptovsky      |                |                |            |           |         |        
|                      | Cetetherm SR spol S.R.O.             |                                             |                       |                | Mikulas        |                |            |           | 85      |         | 0.0
|                      | Alfa Laval Spol S.R.O.               |                                             |                       |                | Hradec Kralove |                |            |           | 80      |         | 0.0
|                      | Cetetherm S.R.O.                     |                                             |                       |                | Prague         |                |            |           | 95      |         | 0.0
|                      | Alfa Laval France SAS                |                                             |                       |                | Les Clayes     |                | 920,000    |           | 100     |         | 0.0
|                      |                                      | Alfa Laval SAS                              |                       |                |                | Les Clayes     |            | 560,000   |         | 100     |    
|                      |                                      |                                             | Alfa Laval Moatti SNC |                |                |                | Les Clayes |           | 24,000  |         | 100
|                      |                                      |                                             | Alfa Laval Spiral SNC |                |                |                | Nevers     |           | 79,999  |         | 100
|                      |                                      | MCD SAS                                     |                       |                |                | Guny           |            | 71,300    |         | 100     |    
|                      |                                      | Alfa Laval Vicarb SA                        |                       |                |                | Grenoble       |            | 200,000   |         | 100     |    
|                      |                                      |                                             | Canada Inc            |                |                |                | Newmarket  |           | 480,000 |         | 100
|                      |                                      |                                             |                       | Alfa Laval Inc |                |                |            | Newmarket |         | 481,600 |    
|                      |                                      |                                             | SCI du Companil       |                |                |                | Grenoble   |           | 32,165  |         | 100
|                      |                                      | Cetetherm SA                                |                       |                |                | Lyon           |            | 150,000   |         | 100     |    
|                      | Cetetherm Wärrmetauschersysteme GmbH |                                             |                       |                | Glinde         |                |            |           | 6       |         | 0.0
|                      | Alfa Laval Holding GmbH              |                                             |                       |                | Glinde         |                |            |           | 100     |         | 0.0
|                      |                                      | Alfa Laval GmbH                             |                       |                |                | Wiener Neudorf |            |           |         | 100     |    
|                      |                                      | Alfa Laval GmbH                             |                       |                |                | Glinde         |            | 1         |         | 100     |    
|                      |                                      | Cetetherm Wärrmetauschersysteme GmbH        |                       |                |                | Glinde         |            | 3         |         | 94      |    
|                      |                                      | Cetetherm Wärrmetauschersysteme Glinde GmbH |                       |                |                | Glinde         |            | 1         |         | 100     |    
|                      |                                      | Alfa Laval AG                               |                       |                |                | Dietlikon      |            | 647       |         | 100     |    
|                      | Alfa Laval AEBE                      |                                             |                       |                | Holargos       |                | 10,000     |           | 100     |         | 0.0
|                      | Alfa Laval Kft                       |                                             |                       |                | Budapest       |                | 1          |           | 100     |         | 0.0

F-40

---

|      | Cetetherm Vicarb Hungary Kft         |                           |                                 |             | Budapest       |               |                  |           | 100        |         | 0.0
|----- | ------------------------------------ | ------------------------- | ------------------------------- | ----------- | -------------- | ------------- | ---------------- | --------- | ---------- | ------- | ---
|      | Alfa Laval SpA                       |                           |                                 |             | Monza          |               | 1,930,500        |           | 100        |         | 0.0
|      | Alfa Laval Polska Sp.z.o.o.          |                           |                                 |             | Warzaw         |               | 6,862            |           | 100        |         | 0.0
|      | Cetetherm Polska Sp.z.o.o.           |                           |                                 |             | Warzaw         |               |                  |           | 100        |         | 0.0
|      | Wytwornia Separator Krakow Sp.z.o.o. |                           |                                 |             | Krakow         |               |                  |           | 100        |         | 0.0
|      | Alfa Laval (Portugal) Ltd            |                           |                                 |             | Linda-A- Velha |               |                  |           | 1          |         | 0.0
|      | Alfa Laval SRL                       |                           |                                 |             | Bucharest      |               | 61,435           |           | 100        |         | 0.0
|      | Alfa Laval Iberia SA                 |                           |                                 |             | Madrid         |               |                  |           | 100        |         | 0.0
|      |                                      | Alfa Laval (Portugal) Ltd |                                 |             |                | Linda-A-Velha |                  | 1         |            | 99      |    
|      | Alfa Laval Dis Ticaret Ltd Sti       |                           |                                 |             | Istanbul       |               | 1                |           | 99         |         | 0.0
|      | Alfa Laval Holdings Ltd              |                           |                                 |             | Camberley      |               | 28,107,000       |           | 100        |         | 0.0
|      |                                      | Alfa Laval 2000           |                                 |             |                | Camberley     |                  | 28,106    |            | 100     |    
|      |                                      |                           | Alfa Laval Ltd                  |             |                |               | Camberley        |           | 12,710,000 |         | 100
|      |                                      |                           | Alfa Laval Finance Co Ltd       |             |                |               | Camberley        |           | 856,000    |         | 100
|      |                                      |                           | Alfa Laval Oilfield Ltd         |             |                |               | Aberdeen         |           | 500,000    |         | 100
|      |                                      |                           | Alfa Laval Flow Ltd             |             |                |               | Sutton Coldfield |           | 100        |         | 100
|      |                                      |                           | Alfa Laval Pumps Ltd            |             |                |               | Eastbourne       |           | 100        |         | 100
|      |                                      |                           | Alfa Laval Thermal Ltd          |             |                |               | Camberley        |           | 1,000      |         | 100
|      |                                      |                           | Alfa Laval Separation Ltd       |             |                |               | Camberley        |           | 375,000    |         | 100
|      |                                      |                           | Rolls Laval Heat Exchangers Ltd |             |                |               | Wolverhampton    |           | 5,000      |         | 50 
|      | Alfa Laval USA inc                   |                           |                                 |             | Kenosha        |               |                  |           | 100        |         | 0.0
|      |                                      | Alfa Laval US Holding Inc |                                 |             |                | Kenosha       |                  | 180       |            | 100     |    
|      |                                      |                           | Alfa Laval Inc                  |             |                |               | Kenosha          |           | 44,000     |         | 100
|      |                                      |                           |                                 | Tri-Lad Inc |                |               |                  | Brantford |            | 4,000   |    
|      |                                      |                           | Alfa Laval US Treasury Inc      |             |                |               | Kenosha          |           | 1,000      |         | 100
|      | AO Alfa Laval Potok                  |                           |                                 |             | Koroljov       |               | 31,057,529       |           | 100        |         | 0.0
|      | OÜ Alfa Laval                        |                           |                                 |             | Tallinn        |               | 1                |           | 100        |         | 0.0
|      |                                      |                           |                                 |             |                |               |                  |           |            |        
|Total |                                      |                           |                                 |             |                |               |                  |           |            | 4,460.9
|      |                                      |                           |                                 |             |                |               |                  |           |            |        

F-41

---



Specification of shares in other companies

|Company name               |                                                      | Reg.no |  | Domicile |             | No. of
shares |            | Share of
capital
% |       | Book
value
KSEK
|-------------------------- | ---------------------------------------------------- | ------ |  | -------- | ----------- | ------------- | ---------- | ------------------ | ----- | ---------------
|Alfa Laval (India) Ltd     |                                                      |        |  |          |             |               |            |                    |       |                
|                           | National Saving Certificate                          |        |  |          | India       |               | 201        |                    |       |                
|                           | Mutual funds Investment                              |        |  |          | India       |               | 22,861,122 |                    |       |                
|                           | Unit Trust of India                                  |        |  |          | India       |               | 300,000    |                    |       |                
|Alfa Laval KK              |                                                      |        |  |          |             |               |            |                    |       |                
|                           | Namura Zosen                                         |        |  |          | Japan       |               | 5,000      |                    |       |                
|                           | Cyugairo                                             |        |  |          | Japan       |               | 5,250      |                    |       |                
|                           | Orugano                                              |        |  |          | Japan       |               | 769        |                    |       |                
|                           | Sasebo Heavy Ind.                                    |        |  |          | Japan       |               | 10,000     |                    |       |                
|                           | Asahi Denka                                          |        |  |          | Japan       |               | 8,618      |                    |       |                
|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  |                
|Cetetherm SA               |                                                      |        |  |          |             |               |            |                    |       |                
|                           | Credit Mutuel                                        |        |  |          | France      |               | 2          |                    |       |                
|                           | Thermothec                                           |        |  |          | France      |               | 9,130      |                    |       |                
|                           | Point Piscine                                        |        |  |          | France      |               | 210        |                    |       |                
|Alfa Laval NV              |                                                      |        |  |          |             |               |            |                    |       |                
|                           | DeSmet Engineering & Contractors S.A.                |        |  |          | Netherlands |               | 9,999      |                    | 10    |                
|                           | Dalian Haven Automation Co Ltd                       |        |  |          | Hongkong    |               | 102        |                    | 42.5  |                
|Cetetherm AB               |                                                      |        |  |          |             |               |            |                    |       |                
|                           | Stiftelsen VTC Syd                                   |        |  |          | Sweden      |               |           |                    |       |                
|                           | VVSFabrikanternas Rõd                               |        |  |          | Sweden      |               |           |                    |       |                
|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. (preferens)                 |        |  |          | Luxembourg  |               | 1,911      |                    | 0.30  |                
|                           | Adela Investment Co S.A.                             |        |  |          | Luxembourg  |               | 1,911      |                    | 0.30  |                
|                           | Mas Dairies Ltd                                      |        |  |          | Pakistan    |               | 125,000    |                    | 5.00  |                
|                           |                                                      |        |  |          |             |               |            |                    |       |                
|Total                      |                                                      |        |  |          |             |               |            |                    |       | 53,023.4       
|                           |                                                      |        |  |          |             |               |            |                    |       |                

F-42

---

Note 17. Inventories

Consolidated

2002

2001Raw materials and consumables

694.4

776.7Work in progress

655.2

596.2Finished goods & goods for resale, new sale

570.2

770.4Finished goods & goods for resale, spare parts

330.7

439.8Advance payments to suppliers

28.4

40.8Total

2,278.9

2,623.9


The
provision for obsolescence amounts to and has changed as follows:

|Consolidated |  | January 1 |  | Translation
difference |   | New
provisions
and increase
of existing
provisions |  | Amounts used |   | Unused
amounts
reversed |   | Change due
to
discounting |   | December 31
|------------ |  | --------- |  | ---------------------- | - | -------------------------------------------------- |  | ------------ | - | ----------------------- | - | ------------------------- | - | -----------
|2001         |  | 673.2     |  | 40.8                   |   | 161.1                                              |  | (223.8       | ) | (80.7                   | ) | (0.1                      | ) | 570.4      
|2002         |  | 570.4     |  | (56.8                  | ) | 112.0                                              |  | (103.7       | ) | (22.9                   | ) | 0.0                       |   | 499.0      
|             |  |           |  |                        |   |                                                    |  |              |   |                         |   |                           |   |            

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 2002 amounts to MSEK 136.7 (170.3).

Note 18. Accounts receivable

Accounts receivable with a maturity exceeding one year of MSEK 127.7 (173.9) 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:

|Consolidated |  | January 1 |  | Translation
difference |   | New
provisions
and increase
of existing
provisions |  | Amounts used |   | Unused
amounts
reversed |   | Change due
to
discounting |   | December 31
|------------ |  | --------- |  | ---------------------- | - | -------------------------------------------------- |  | ------------ | - | ----------------------- | - | ------------------------- | - | -----------
|2001         |  | 350.4     |  | 12.0                   |   | 112.7                                              |  | (139.3       | ) | (34.1                   | ) | 0.0                       |   | 301.6      
|2002         |  | 301.6     |  | (17.3                  | ) | 71.8                                               |  | (73.5        | ) | (39.6                   | ) | (0.7                      | ) | 242.3      
|             |  |           |  |                        |   |                                                    |  |              |   |                         |   |                           |   |            

F-43

---

Note 19. Other short-term receivables

Consolidated

2002

2001Notes receivable

283.2

314.6Tax receivable

334.9

417.4Financial leasing receivables

0.0

3.1Other receivables

355.8

437.8Total

973.9

1,172.9Of which receivables not due within one yearNotes receivable

7.1

4.2Other receivables

13.6

29.5Total

20.7

33.7


Note 20. Other current deposits

Consolidated

2002

2001Loan receivables

253.4

195.3Bonds and other securities

88.6

84.2Other deposits

72.3

13.8414.3

293.3Of which deposits not due within one yearLoans receivable

8.4

19.9Other deposits

5.3

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 MSEK 55.2 (66.0). The company is not a wholly owned subsidiary of the Alfa Laval Group, but is only owned to
64.1 percent.

Note 22. Impact on cash flow due to acquisition and sale of business

Acquisitions

On September 4, 2002, Alfa Laval acquired the company Danish Separation Systems A/S, specialists within membrane filtration in the biotechnology,
pharmaceutical and food industries. The difference between the purchase price paid and the net assets acquired was MSEK 102.4. This has entirely been
allocated to goodwill. This goodwill is amortised over 20 years. The company has annual sales of about MSEK 90 and 65 employees within R&D, manufacturing and sales.

A
public offering for an additional 25 percent of the share capital in Alfa Laval (India) Ltd was made on July 14, 2001. The offering to the minority share holders
was a requirement according to law as a consequence of the change of majority owner of Alfa Laval. The offering expired on August 14

F-44

---

and resulted in Alfa Laval acquiring an additional 2.4 million shares corresponding to 13.1 percent of the total number of shares. After the acquisition, Alfa Laval's shareholding is
64.1 percent. This has resulted in a cash payment of MSEK 87.3. The difference between the purchase price paid and the net assets acquired was MSEK 39.2. This has in whole been allocated to
goodwill.

On
August 24, 2000, the Alfa Laval Holding AB Group was acquired, see description in Note 13.

On
September 4, 2000, the separator division of the Polish company Wytwornia Sprzetu Komunikacyjnego "Krakow" SA was acquired for MSEK 10.4. Otherwise no other acquisitions have
been made during the year.

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.

|                                                      |  | 2002  |   | 2001  |   | 2000
excluding the acquisition of Alfa Laval Holding AB |   | 2000
the acquisition of Alfa Laval Holding AB |   | 2000
Total
|----------------------------------------------------- |  | ----- | - | ----- | - | ------------------------------------------------------- | - | --------------------------------------------- | - | ----------
|Property, plant and equipment                         |  | 22.6  |   | 10.1  |   | 0.0                                                     |   | 2,844.5                                       |   |           
|Inventory                                             |  | 21.6  |   | 21.0  |   | 4.5                                                     |   | 3,338.9                                       |   |           
|Accounts receivable                                   |  | 11.9  |   | 19.5  |   | 2.5                                                     |   | 3,200.8                                       |   |           
|Other receivables                                     |  | 30,2  |   | 3.8   |   | 2.9                                                     |   | 1,382.3                                       |   |           
|Liquid assets                                         |  | 7.4   |   | 28.8  |   | 1.6                                                     |   | 764.0                                         |   |           
|Long-term liabilities                                 |  | (8.5  | ) | (2.6  | ) | 0.0                                                     |   | (457.0                                        | ) |           
|Accounts payable                                      |  | (6.2  | ) | (10.7 | ) | (1.1                                                    | ) | (1,352.5                                      | ) |           
|Other liabilities                                     |  | (38.3 | ) | (22.3 | ) | 0.0                                                     |   | (7,560.3                                      | ) |           
|Goodwill                                              |  | 102.4 |   | 39.7  |   | 0.0                                                     |   | 3,276.6                                       |   |           
|Other surplus values                                  |  |       |   |       |   |                                                         |   | 4,023.1                                       |   |           
|Deferred tax                                          |  |       |   |       |   |                                                         |   | (1,246.6                                      | ) |           
|                                                      |  |       |   |       |   |                                                         |   |                                               |   |           
|Purchase price                                        |  | 143.1 |   | 87.3  |   | 10.4                                                    |   | 8,213.8                                       |   |           
|Liquid assets in the acquired business                |  | (7.4  | ) | (28.8 | ) | (1.6                                                    | ) | N/A                                           |   |           
|                                                      |  |       |   |       |   |                                                         |   |                                               |   |           
|Effect on the Group's liquid assets (negative effect) |  | 135.7 |   | 58.5  |   | 8.8                                                     |   | 8,213.8                                       |   | 8,222.6   
|                                                      |  |       |   |       |   |                                                         |   |                                               |   |           

The
reason why liquid assets are not deducted in the calculation of the cash flow impact of the acquisition of the Alfa Laval Holding AB Group is that these liquid assets were already
part of the opening cash and bank in the cash flow statement of MSEK 677.0 and that the change from MSEK 677.0 to MSEK 764.0 at the time of the acquisition is explained as a part of the rest of the
cash flow analysis.

Purchase price reimbursement

During the year the Alfa Laval Group has received MSEK 81.6 (76.3) from Tetra Laval BV as a reduction of the purchase price for the acquisition of the Alfa Laval
Holding AB Group. The reduction is related to the guarantees issued by the seller in relation to taxes. The amount has not had an impact

F-45

---

on the goodwill for the acquisition but has instead been reported against the increased tax cost that the Group has experienced after the acquisition. The amount received during 2002 constitutes a
final settlement with Tetra Laval concerning these guarantees.

Divestments

RemaControl, operating within sawmill automation, was divested to the management of the operation per January 1, 2001.

Industrial
Flow was divested on April 2, 2001 to Crane Co in the US. The sales price amounted to MSEK 330.6 and was paid on the same date. The divestment included three existing
subsidiaries in the UK, Germany and India and two, for this purpose, newly created subsidiaries in Italy and Belgium. In addition, fixed assets and personnel have been transferred from a few Alfa
Laval companies in other countries. A few activities have remained before the divestment could be considered to be completed. During September 2002 a final settlement has been made with the
buyer, resulting in an increase of the realised gain by MSEK 14.0. This result item has however no cash flow impact during 2002.

The
Tetra Pak division of the Indian subsidiary was divested in May 2000 for MSEK 38.6.

On
January 1, 2000 the subsidiary Ållekulla AB was sold for MSEK 4.8.

One
of the Spanish subsidiaries, Aircoil SL, which manufactures heat exchangers for cooling equipment, was sold on December 1, 2000 for MSEK 0.0.

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

2002

2001

Un-audited Pro forma
2000Property, plant and equipment



101.4

35.3Inventory



219.8

14.0Accounts receivable



134.9

16.8Other receivables



35.9

3.6Liquid assets



49.1

4.4Long-term liabilities



(28.1
)
(14.2
)Accounts payable



(32.8
)
(33.2
)Other liabilities



(144.5
)
(13.8
)Realised result



(5.0
)
30.5Purchase price



330.7

43.4Liquid assets in the sold business



(49.1
)
(4.4
)Effect on the Group's liquid assets



281.6

39.0


F-46

---



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.

|                                                                |  | 2002     |   | 2001     |   | Un-audited
Pro forma
2000 |  
|--------------------------------------------------------------- |  | -------- | - | -------- | - | ------------------------- | -
|(Liability) asset                                               |  |          |   |          |   |                           |  
|Present value of the defined benefit obligation, unfounded      |  | (833.2   | ) | (721.2   | ) | (652.8                    | )
|Present value of the defined benefit obligation, funded         |  | (2,196.1 | ) | (2,462.3 | ) | (2,089.8                  | )
|                                                                |  |          |   |          |   |                           |  
|Present value of the defined benefit obligation at year end     |  | (3,029.3 | ) | (3,183.5 | ) | (2,742.7                  | )
|Unrecognised actuarial gains                                    |  | 567.6    |   | 204.3    |   | 12.9                      |  
|Unrecognised past service cost                                  |  | 0.9      |   | 47.9     |   | 74.6                      |  
|Fair value of plan assets                                       |  | 1,853.1  |   | 2,338.2  |   | 2,168.7                   |  
|                                                                |  |          |   |          |   |                           |  
|Defined benefit liability                                       |  | (607.7   | ) | (593.1   | ) | (486.5                    | )
|less amount disallowed                                          |  | (6.1     | ) | (6.4     | ) | (7.3                      | )
|                                                                |  |          |   |          |   |                           |  
|Net defined benefit liability                                   |  | (613.8   | ) | (599.5   | ) | (493.7                    | )
|(Cost) income                                                   |  |          |   |          |   |                           |  
|Current service cost                                            |  | (49.0    | ) | (59.6    | ) | (46.0                     | )
|Interest cost                                                   |  | (171.0   | ) | (178.3   | ) | (154.9                    | )
|Expected return on plan Assets                                  |  | 90.3     |   | 146.4    |   | 141.1                     |  
|Recognised actuarial losses                                     |  | (82.4    | ) | (109.3   | ) | 2.7                       |  
|Recognised past service cost                                    |  | (8.2     | ) |         |   | (6.9                      | )
|Effect of any curtailments or settlements                       |  | 67.7     |   | 42.1     |   | 0.1                       |  
|                                                                |  |          |   |          |   |                           |  
|Net plan cost                                                   |  | (152.7   | ) | (158.7   | ) | (64.0                     | )
|(Liability) asset                                               |  |          |   |          |   |                           |  
|Change in present value of the defined benefit liability:       |  |          |   |          |   |                           |  
|Present value of defined benefit liability at January 1, 2002   |  | (3,183.5 | ) | (2,742.7 | ) | (2,725.4                  | )
|Translation difference                                          |  | 226,4    |   | (290.6   | ) |                          |  
|Current service cost                                            |  | (49.1    | ) | (59.6    | ) | (46.0                     | )
|Interest cost                                                   |  | (171.0   | ) | (178.3   | ) | (154.9                    | )
|Employee contributions                                          |  | (5.9     | ) | (9.0     | ) | (9.0                      | )
|Recognised actuarial losses                                     |  | (82.4    | ) | (109.3   | ) | 74.2                      |  
|Recognised past service cost                                    |  | (8.2     | ) |         |   | (6.9                      | )
|Effect of any curtailments or settlements                       |  | 67.7     |   | 42.1     |   | 0.1                       |  
|Benefit payments                                                |  | 176.7    |   | 163.9    |   | 125.2                     |  
|                                                                |  |          |   |          |   |                           |  
|Present value of defined benefit liability at December 31, 2002 |  | (3,029.3 | ) | (3,183.5 | ) | (2,742.7                  | )

F-47

---

|(Liability) asset                                           |  |          |   |          |   |          |  
|----------------------------------------------------------- |  | -------- | - | -------- | - | -------- | -
|Change in plan assets:                                      |  |          |   |          |   |          |  
|Fair value of plan assets at January 1, 2002                |  | 2,338.2  |   | 2,168.7  |   | 2,045.8  |  
|Translation difference                                      |  | (222.5   | ) | 259.8    |   |         |  
|Employer contributions                                      |  | 71.4     |   | 44.7     |   | 39.1     |  
|Employee contributions                                      |  | 5.9      |   | 9.0      |   | 9.0      |  
|Actual return on plan assets                                |  | (163.1   | ) | 19.9     |   | 200.0    |  
|Benefit payments                                            |  | (176.7   | ) | (163.9   | ) | (125.2   | )
|                                                            |  |          |   |          |   |          |  
|Fair value at December 31, 2002                             |  | 1,853.1  |   | 2,338.2  |   | 2,168.7  |  
|(Liability) asset                                           |  |          |   |          |   |          |  
|Change in defined benefit liability/(asset)                 |  |          |   |          |   |          |  
|Defined benefit liability/(asset) at January 1, 2002        |  | (599.4   | ) | (493.7   | ) | (449.7   | )
|Translation difference                                      |  | 71.9     |   | (37.3    | ) |         |  
|Net plan cost                                               |  | (152.7   | ) | (158.7   | ) | (64.0    | )
|Employer contributions                                      |  | 71.4     |   | 44.7     |   | 39.1     |  
|Change in unrecognised actuarial gains/losses               |  | (7.3     | ) | 46.2     |   | 15.3     |  
|Change in unrecognised past service cost                    |  | 0.6      |   | 0.6      |   | (9.2     | )
|Change in disallowed asset amount                           |  | 1.7      |   | (1.2     | ) | (25.3    | )
|                                                            |  |          |   |          |   |          |  
|Defined benefit liability/(asset) at December 31, 2002      |  | (613.8   | ) | (599.4   | ) | (493.7   | )
|(Liability) asset                                           |  |          |   |          |   |          |  
|Assets                                                      |  |          |   |          |   |          |  
|Fair value of plan assets                                   |  | 1,853.1  |   | 2,338.2  |   | 2,168.7  |  
|Less amount disallowed                                      |  | (6.1     | ) | (6.4     | ) | (7.3     | )
|                                                            |  |          |   |          |   |          |  
|                                                            |  | 1,847.0  |   | 2,331.8  |   | 2,161.4  |  
|Netting                                                     |  | (1,740.2 | ) | (2,156.4 | ) | (1,996.9 | )
|                                                            |  |          |   |          |   |          |  
|Assets in balance sheet                                     |  | 106.8    |   | 175.4    |   | 164.6    |  
|                                                            |  |          |   |          |   |          |  
|Liabilities                                                 |  |          |   |          |   |          |  
|Present value of the defined benefit obligation at year end |  | (3,029.3 | ) | (3,183.5 | ) | (2,742.7 | )
|Unrecognised actuarial gains (less losses)                  |  | 567.6    |   | 204.3    |   | 12.9     |  
|Unrecognised past service costs                             |  | 0.9      |   | 47.9     |   | 74.6     |  
|                                                            |  |          |   |          |   |          |  
|                                                            |  | (2,460.8 | ) | (2,931.3 | ) | (2,655.2 | )
|Netting                                                     |  | 1,740.2  |   | 2,156.4  |   | 1,996.9  |  
|                                                            |  |          |   |          |   |          |  
|Provision in balance sheet                                  |  | (720.6   | ) | (774.9   | ) | (658.3   | )
|                                                            |  |          |   |          |   |          |  

F-48

---

The
more significant actuarial assumptions that have been used at the year end are:

|                                                     |  | 2002 |  | 2001 |  | Un-audited
Pro forma
2000
|---------------------------------------------------- |  | ---- |  | ---- |  | -------------------------
|Discount rate                                        |  | 7%   |  | 7%   |  | 8%                       
|Expected return on investment                        |  | 8%   |  | 8%   |  | 8%                       
|Expected wage increase                               |  | 4%   |  | 4%   |  | 4%                       
|Change in health care costs                          |  | 9%   |  | 9%   |  | 12%                      
|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 2002:

|Effect on:                                                  |  | 1% increase
MSEK |  | 1% decrease
MSEK |  
|----------------------------------------------------------- |  | ---------------- |  | ---------------- | -
|Current service costs and interest costs                    |  | 1.4              |  | (1.2             | )
|Present value of the defined benefit obligation at year end |  | 14.9             |  | (12.4            | )

Note 24. Other provisions

|2001              |  | January 1 |  | Translation
difference |  | New
provisions
and increase
of existing
provisions |  | Amounts
used |   | Unused
amounts
reversed |   | Change due to discounting |   | December 31
|----------------- |  | --------- |  | ---------------------- |  | -------------------------------------------------- |  | ------------ | - | ----------------------- | - | ------------------------- | - | -----------
|Claims & warranty |  | 343.0     |  | 17.3                   |  | 208.6                                              |  | (128.3       | ) | (54.3                   | ) | (2.0                      | ) | 384.3      
|Deferred costs    |  | 124.4     |  | 4.5                    |  | 52.4                                               |  | (15.0        | ) | (24.8                   | ) | 0.0                       |   | 141.5      
|Restructuring     |  | 519.4     |  | 8.6                    |  | 138.6                                              |  | (354.2       | ) | (18.6                   | ) | 0.0                       |   | 293.8      
|Onerous contracts |  | 26.3      |  | 0.9                    |  | 20.2                                               |  | (23.5        | ) | 0.0                     |   | 0.0                       |   | 23.9       
|Environmental     |  | 22.1      |  | 2.3                    |  | 0.0                                                |  | (15.9        | ) | 0.0                     |   | (1.1                      | ) | 7.3        
|Litigations       |  | 62.3      |  | 1.1                    |  | 53.4                                               |  | (0.3         | ) | (2.6                    | ) | (4.0                      | ) | 109.8      
|Other             |  | 81.6      |  | 8.7                    |  | 113.0                                              |  | (83.0        | ) | (17.0                   | ) | (0.6                      | ) | 102.7      
|                  |  |           |  |                        |  |                                                    |  |              |   |                         |   |                           |   |            
|                  |  | 1,179.1   |  | 43.4                   |  | 586.1                                              |  | (620.2       | ) | (117.3                  | ) | (7.7                      | ) | 1,063.2    
|                  |  |           |  |                        |  |                                                    |  |              |   |                         |   |                           |   |            

|2002              |  | January 1 |  | Translation
difference |   | New
provisions
and increase
of existing
provisions |  | Amounts
used |   | Unused
amounts
reversed |   | Change due to discounting |   | December 31
|----------------- |  | --------- |  | ---------------------- | - | -------------------------------------------------- |  | ------------ | - | ----------------------- | - | ------------------------- | - | -----------
|Claims & warranty |  | 348.3     |  | (24.4                  | ) | 239.9                                              |  | (144.5       | ) | (35.9                   | ) | (5.7                      | ) | 413.7      
|Deferred costs    |  | 141.5     |  | (2.0                   | ) | 28.3                                               |  | (41.4        | ) | (22.4                   | ) | 0.0                       |   | 104.0      
|Restructuring     |  | 293.8     |  | (13.7                  | ) | 56.6                                               |  | (117.3       | ) | (12.3                   | ) | 0.0                       |   | 207.1      
|Onerous contracts |  | 23.9      |  | (0.4                   | ) | 0.0                                                |  | (11.2        | ) | (2.8                    | ) | 0.0                       |   | 9.5        
|Environmental     |  | 7.3       |  | (1.2                   | ) | 0.0                                                |  | (2.9         | ) | 0.0                     |   | 0.0                       |   | 3.2        
|Litigations       |  | 109.8     |  | (0.4                   | ) | 36.5                                               |  | (27.9        | ) | (2.0                    | ) | 0.0                       |   | 116.0      
|Other             |  | 102.7     |  | (6.2                   | ) | 84.3                                               |  | (34.9        | ) | (10.0                   | ) | 0.0                       |   | 135.9      
|                  |  |           |  |                        |   |                                                    |  |              |   |                         |   |                           |   |            
|                  |  | 1,063.2   |  | (48.3                  | ) | 445.6                                              |  | (380.1       | ) | (85.4                   | ) | (5.7                      | ) | 989.3      
|                  |  |           |  |                        |   |                                                    |  |              |   |                         |   |                           |   |            

F-49

---

Unused
amounts reversed refer to, among other items, sold companies, changed classifications and reversals of provisions made on an estimated basis.

In
connection with the acquisition on August 24, 2000, a restructuring provision of MSEK 407.9 was established. This pertains to such restructuring measures that are
triggered by the change of ownership and that Alfa Laval management has committed to implement. The costs are mainly referring to redundancies in connection with the close down of manufacturing sites,
rationalisation of the logistics function and introduction of a customer segment based organisation with changed order processes. As of the end of 2002, MSEK 50.9 (107.8) remains of this
acquisition provision. The remaining amount relates to projects or parts of projects that have not yet been fully implemented.

Due
to the financial unrest in Argentina, a provision was made in 2001 under "Other" for estimated losses. Since Alfa Laval has a limited operation in Argentina, the provision could be
limited to MSEK 23.7. At the end of 2002, the remaining provision is MSEK 7.0.

Note 25. Loans

Consolidated MSEK

2002

2001Credit institutions

3,360.2

4,573.1Bond loan

1,127.6

2,045.3Capitalised financial leases

24.7

26.9Interest-bearing pension liabilities

6.1

6.4Total interest bearing debt

4,518.7

6,651.6Cash and bank and current deposits

1,020.2

959.7Net debt

3.498.5

5,691.9


As
a consequence of the IPO of Alfa Laval AB (publ), the structure of the financial debt has been changed considerably. The costs for the change of the structure are of a
non-recurring nature.

In
connection with the repayment of the previous syndicated loans and the amortisation of the bond loan, capitalised financing costs of totally MSEK 205.5 have been reversed. This
cost is reported as a comparison distortion financial cost.

Total
bank borrowings amounted to MSEK 3,360.2 (4,573.1) at the end of the year. The total financial indebtedness including leasing and interest bearing pension liabilities
amounted to MSEK 4,518.7 (6,651.6).

Net
financial debt amounted to MSEK 3,498.5 (5,691.9) at the end of the year.

Loan from credit institutions

On May 28 the loans from the previous banking syndicate led by SEB were replaced by loans from a new banking syndicate, arranged by SEB and SHB, at terms
that better reflect the financial position of Alfa Laval after the new issue of shares. During the period January 1 and May 28, the old loans were amortised by MSEK 323.4. After
May 28 the new loans have been amortised by MSEK 551.3.

F-50

---

The
loan facility that has been agreed with the new banking syndicate consists of an amortisation free part of originally MEUR 423.9, that now voluntarily has been amortised down
to MEUR 334.6 and a revolving working capital part of MEUR 150, which was unutilised as of December 31 2002. As of the end of December 2001, MSEK 508.6 was utilised
of the loan facility for operating capital of MSEK 1,246.0 (MEUR 134) that was in the loan agreement with the old banking syndicate.

The
syndicated loans amounted to MSEK 3,064.7 (4,064.7). The maturity of the new loan is five years and the interest is based on applicable IBOR plus a mark up based on the
relation between net debt and EBITDA. The mark up is 95 points if the quota is larger than 2.75 and 80 points if the quota is
less than or equal to 2.75, but higher than 1.75 and 65 points if the quota is less than or equal to 1.75. The mark up is currently 80 interest points. At the end of 2002 the loans are accruing
interest in the range of 0.86% - 4.82%. The average interest rate at the end of 2002 was 5.58 percent. The maturity of the old loan was eight years and the interest was based on EURIBOR
or LIBOR plus a mark up of 150 interest points. As of the end of 2001, the loan was accruing interest in the range of 1.59% - 7.92%. The average interest rate at year-end 2001 was
6.49 percent.

When
raising the syndicated loans in August 2000, Alfa Laval was obliged to hedge at least 66 percent of the loans to a fixed interest rate.
Vis-à-vis the new syndicate these is no such obligation. As per the end of December 2002, 64 percent is, however, hedged.

Transaction
costs totalling MSEK 35.1 (194.4) have been capitalised and are being amortised over the maturity of the loan. The current year's cost for the fee amortisation is
-16.8 (-29.2) (-10.0). An additional MSEK -182.2 are reported as comparison distorting as a part of the MSEK -205.5.

The
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 May 2002.

Bond loan

On June 24, 35 percent of the bond loan of MEUR 220 was amortised, which corresponded to MEUR 77.0 or MSEK 703.6. This was made
at a premium of 12.125 percent corresponding to one year's interest, which amounted to MSEK 85.2. This cost has been reported as a comparison distortion financial cost.

At
the beginning of October 2002 Alfa Laval has re-purchased bonds at the prevailing market rate for a face value of MSEK 31.4. Additional
re-purchases have been made at the beginning of November for a face value of MSEK 150.1. The difference between the higher market value and the face value was MSEK 23.3,
which has been reported as an interest expense. The bond loan accrues interest at 12.125 percent, which is considerably more than the Group's current cost for other external financing.

On
August 24, 2000, Alfa Laval Special Finance AB borrowed MEUR 220 from Donaldsson, Lufkin & Jenrette and UBS Warburg. On November 9, 2000, this loan was
replaced by a bond loan placed with institutional investors of MEUR 220. 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.

F-51

---

Transaction costs totalling MSEK 35.1 (70.7) have been capitalised and are being amortised over the maturity of the loan. The current year's cost for the fee amortisation is
MSEK -12.3 (-8.0) (-1.0). An additional cost of MSEK -23.3 is reported as comparison distorting as a part of the
MSEK -205.5.

The loans are distributed among currencies as follows:

Short-term

Long-termConsolidated Currency2002

2001

2002

2001BRL



6.2



CAD

12.4

0.3



CHF







6.3DKK

69.3

18.4

398.7

701.8EUR

78.7

119.1

1,472.0

2,154.6GBP

14.3

29.2

164.9

266.7GRD



8.3



JPY

14.8

2.8

173.1

116.9NOK







62.3PLN

30.5

46.6



SEK

6.0

51.5

175.1

679.8USD

27.8

99.6

1,838.0

2,233.8Other

0.6

0.5

11.6

13.6Total

254.4

382.5

4,233.4

6,235.8Of which not due within five years:





1,127.7

5,199.7


Note 26. Other liabilities

Consolidated

2002

2001Financial lessee payable

24.7

26.9Other non-interest bearing liabilities

607.8

640.6Total

632.6

667.4


Note 27. Accrued costs and prepaid income

Consolidated

2002

2001Accruals for social security

130.4

147.1Reserve for severance pay

208.9

229.5Accrued interest expenses

22.2

40.7Other accrued expenses and prepaid income

422.8

528.9Total

784.3

946.2Of which accrued costs an prepaid income not due within one yearAccruals for social security

18.0

15.1Reserve for severance pay

119.1

113.5Other accrued expenses and prepaid income

6.1

8.6Total

143.2

137.1


F-52

---



Note 28. Pledged assets and contingent liabilities

Consolidated

2002

2001Pledged assetsReal estate mortgages



114.3Chattel mortgages, etc.



1,023.2Net assets in subsidiaries



2,934.0Other pledges and similar collaterals

78.3

102.4Total

78.3

4,173.9Contingent LiabilitiesDiscounted bills

164.5

194.7Performance guarantees

798.0

1,162.0Other contingent liabilities

735.5

844.7Total

1,698.0

2,201.4


Alfa
Laval Credit Finance AB and a number of local holding companies have borrowed MSEK(4,064.7) from a bank syndicate under the lead of SEB. As security for this loan, the
Alfa Laval Special Finance Group has made pledges in the form of chattel mortgages of MSEK(1,023.2) and real estate mortgages of MSEK(107.5). Furthermore, shares and assets
of(2,934.0) have been pledged in a number of countries. In addition, the Group has to follow customary restrictions on investments, divestments and structural changes. In the new
syndicate loan there are no such pledges or restrictions.

During
the autumn 2000 and the spring 2001, the Group has been partially restructured in order to better match the pledges that the banks have required as a condition for the financing.

Other
contingent liabilities are among other items referring to leased assets.

Note 29. Transactions with related party

Tetra Pak within the Tetra Laval Group is Alfa Laval's single largest customer with 5.7 (4.9) (4.8) 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, 2001. 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.

F-53

---

Ever
since Tetra Laval acquired Alfa Laval in 1991, the Group has purchased services from the Tetra Laval Group Transport & Travel to optimise forwarding, freight and delivery
terms and purchase forwarding, freight and person transportation. Alfa Laval has continued to purchase these services even after August 24, 2000 for MSEK 2.2 (1.6) (1.6). In addition,
Alfa Laval purchases facilities management services relating to the real estate in Lund in Sweden from Tetra Pak Business Support AB for MSEK 3.3 (3.0) (3.5). Alfa Laval rents premises to Tetra
Pak and DeLaval in Russia and, as of this year, in Germany for MSEK 13.8 (4.8) (1.6).

At
year-end, Alfa Laval Special Finance AB has the following balance items against companies within the Tetra Laval group (Tetra Pak and DeLaval).

MESK

2002

2001Assets:Accounts receivable

48.8

56.1Other receivables

79.1

96.5Liabilities:Accounts payable

3.8

9.8Other liabilities

0.4




Alfa
Laval Special Finance AB has had the following transactions with companies within the Tetra Laval group (Tetra Pak and DeLaval).

|Consolidated                                                                         |  | 2002  |   | 2002  |   | Un-audited Pro forma 2000 |  
|------------------------------------------------------------------------------------ |  | ----- | - | ----- | - | ------------------------- | -
|Income statement:                                                                    |  |       |   |       |   |                           |  
|Net sales                                                                            |  | 830.0 |   | 777.9 |   | 727.0                     |  
|Other operating income                                                               |  | 13.8  |   | 4.8   |   | 1.6                       |  
|Other operating costs                                                                |  | (5.5  | ) | (4.6  | ) | (5.1                      | )
|Comparison distortion items                                                          |  |       |   |       |   |                           |  
|Sale of the Tetra Pak division in the Indian subsidiary                              |  |      |   |      |   | 30.8                      |  
|Additional purchase price, increasing the goodwill                                   |  | 367.5 |   |      |   |                          |  
|Purchase price reimbursement leading to reduced tax costs /increased tax liabilities |  | 81.6  |   | 76.3  |   |                          |  

Note 30. Work in progress

|Consolidated                                                                                         |  | 2002  |  | 2001  |  | Un-audited Pro forma 2000
|---------------------------------------------------------------------------------------------------- |  | ----- |  | ----- |  | -------------------------
|Gross amount of project sales revenue recognised in the period                                       |  | 357.4 |  | 635.8 |  | 459.2                    
|Aggregated amount of costs incurred and recognised profits (including deduction for reported losses) |  | 390.5 |  | 692.0 |  | 512.7                    
|Advances received                                                                                    |  | 179.4 |  | 145.2 |  | 62.1                     
|Retentions                                                                                           |  | 11.4  |  | 10.4  |  | 3.8                      
|Gross amount due from customers for plant projects                                                   |  | 80.8  |  | 77.7  |  | 57.4                     
|Gross amount due to customers for plant projects                                                     |  | 0.7   |  | 0.0   |  | 20.9                     

F-54

---

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 were MSEK 232.9 (258.8) (238.0). During the year, the Group
has entered into finance leases with a capitalised value of MSEK 1.1 (5.7). See Note 15 for information on the capitalised value of finance leases.

The
future minimum leasing fees concerning non-cancellable operating leases, distributed on maturity dates, amount to:

Operating leasesConsolidated MSEK Year

2002

2001

Un-audited Pro forma 20002001

N/A

N/A

55.02002

N/A

82.5

44.02003

96.0

62.1

34.02004

75.5

41.5

24.02005

58.4

29.7

22.02006

31.1

16.72007

18.7Later

48.5

46.7

67.0Total

328.2

279.2

246.0


The
future minimum leasing fees concerning financial leasing agreements and their net present value, distributed on maturity dates, amount to:

Financial leases

Present value of financial leasesConsolidated MSEK Year

2002

2001

Un-audited
Pro forma
2000

2002

2001

Un-audited
Pro forma
20002001

N/A

N/A

17.0

N/A

N/A

15.02002

N/A

17.4

17.0

N/A

16.5

16.02003

11.3

6.2

8.0

10.6

5.2

7.02004

6.0

2.9

4.0

5.5

2.1

4.02005

4.0

0.3



3.5

0.2

2006

2.5

0.0



2.1



2007

0.9





0.8



Later

0.0

0.0







Total

24.7

26.8

46.0

22.5

24.0

42.0


Note 32. Un-audited Pro forma 2000 for Successor Alfa Laval Special Finance AB

The Alfa Laval Special Finance AB Group was created in connection with the change of ownership on August 24, 2000. Due to this, comparison figures for 2000
are presented on a combined pro forma basis for the predecessor the Alfa Laval Holding AB Group for the period January 1, 2000 to August 23, 2000 and for the successor the Alfa Laval
Special Finance AB Group for the period from

F-55

---

August 24, 2000 to December 31, 2000. In the pro forma calculation, amortisation of goodwill and other step-up values and the financing costs that appeared in connection
with the acquisition on August 24 and the consequential tax adjustments, have been accounted for as if the acquisition occurred on January 1, 2000 in order to be comparable with 2001.

The
pro forma figures for the income statement for the Alfa Laval Special Finance Group have been calculated in the following way:

|                                       |  | A         |   | B      |   | C      |   | D        |   | E        |  
|-------------------------------------- |  | --------- | - | ------ | - | ------ | - | -------- | - | -------- | -
|
|
|
|Amounts in MSEK                        |  |           |   |        |   |        |   |          |   |          |  
|Net sales                              |  | 15,012.3  |   |        |   |        |   | 5,717.2  |   | 9,295.1  |  
|Cost of goods sold                     |  | (10,124.4 | ) |        |   | (210.6 | ) | (3,951.2 | ) | (5,962.6 | )
|                                       |  |           |   |        |   |        |   |          |   |          |  
|Gross profit                           |  | 4,887.9   |   | 0.0    |   | (210.6 | ) | 1,766.0  |   | 3,332.5  |  
|                                       |  |           |   |        |   |        |   |          |   |          |  
|Sales costs                            |  | (2,583.7  | ) |        |   |        |   | (835.4   | ) | (1,748.3 | )
|Administration costs                   |  | (861.5    | ) |        |   |        |   | (218.2   | ) | (643.3   | )
|Research and development costs         |  | (441.3    | ) |        |   |        |   | (161.9   | ) | (279.4   | )
|Comparison distortion items            |  | 129.9     |   |        |   |        |   | (393.8   | ) | 523.7    |  
|Other operating income                 |  | 525.5     |   |        |   |        |   | 267.8    |   | 257.7    |  
|Other operating costs                  |  | (682.9    | ) |        |   |        |   | (355.7   | ) | (327.2   | )
|Amortisation of goodwill               |  | (163.8    | ) |        |   | 375.8  |   | (54.6    | ) | (485.0   | )
|                                       |  |           |   |        |   |        |   |          |   |          |  
|Operating income                       |  | 810.1     |   | 0.0    |   | 165.2  |   | 14.2     |   | 630.7    |  
|                                       |  |           |   |        |   |        |   |          |   |          |  
|Dividends                              |  | 4.3       |   |        |   |        |   | 1.3      |   | 3.0      |  
|Interest income                        |  | 245.1     |   |        |   |        |   | 109.4    |   | 135.7    |  
|Interest costs                         |  | (1,052.0  | ) | (348.0 | ) |        |   | (440.2   | ) | (263.8   | )
|                                       |  |           |   |        |   |        |   |          |   |          |  
|Result after financial items           |  | (7.5      | ) | (348.0 | ) | 165.2  |   | (315.3   | ) | 505.6    |  
|Minority share in subsidiaries' income |  | (47.6     | ) |        |   |        |   | (11.8    | ) | (35.8    | )
|Taxes on this year's result            |  | (52.2     | ) | 121.8  |   | 73.7   |   | (38.4    | ) | (209.3   | )
|Other taxes                            |  | (53.0     | ) |        |   |        |   | (17.7    | ) | (35.3    | )
|                                       |  |           |   |        |   |        |   |          |   |          |  
|Net income for the year                |  | (145.3    | ) | (226.2 | ) | 238.9  |   | (383.2   | ) | 225.2    |  
|                                       |  |           |   |        |   |        |   |          |   |          |  

Note 33. 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

F-56

---

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
fair values of the Group's long-term debt are estimated using discounted cash-flow analyses, based on the Group's current incremental borrowing rates for
similar types of borrowing arrangements.

The
estimated fair values of the Group's long-term debt as of December 31 are shown below:

2002

2001MSEK

Carrying value

Fair value

Carrying value

Fair valueSyndicated bank loans

3,064.7

3,064.7

4,064.7

4,064.7Bond loan

1,127.6

1,268.6

2,045.3

2,331.6


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, 2001, is shown below:

2002

2001MSEK

Nominal
amount

Fair value

Nominal amount

Fair valueForward exchange contracts

9,033.7

151.3

6,916.2

(6.3
)Currency options





79.0

(4.7
)Interest-rate swaps

1,951.8

(61.1
)
2,910.8

(111.1
)


F-57

---

Note 34. Reconciliation to US GAAP

|                                                                                                                |                                   | Note |   | Year ended
December 31,
2002 |       | Year ended December 31,
2001 |      | Period ended December 31,
2000 |     
|--------------------------------------------------------------------------------------------------------------- | --------------------------------- | ---- | - | ---------------------------- | ----- | ---------------------------- | ---- | ------------------------------ | ----
|Net income/(loss) under Swedish GAAP                                                                            |                                   |      |   | 208.2                        |       | 367.4                        |      | (383.2                         | )   
|US GAAP adjustments:                                                                                            |                                   |      |   |                              |       |                              |      |                                |     
|Goodwill arising from exchanges between entities under common control                                           |                                   | a    |   |                             |       |                             |      |                               |     
|Goodwill and other intangibles arising from push-down accounting                                                |                                   | a    |   |                             |       |                             |      |                               |     
|Goodwill and other intangibles with indefinite useful lives                                                     |                                   | a    |   | 187.7                        |       |                              |      |                                |     
|Leveraged buy-out accounting                                                                                    |                                   | b    |   | 2.1                          |       | 15.0                         |      | (71.8                          | )   
|Pensions and other post-employment benefits                                                                     |                                   | c    |   |                             |       |                             |      |                               |     
|Derivative instruments and hedge accounting                                                                     |                                   | d    |   | 271.2                        |       | (49.5                        | )    | 0.7                            |     
|Revenue recognition                                                                                             |                                   | e    |   |                             |       |                             |      |                               |     
|Tooling costs                                                                                                   |                                   | f    |   | 11.0                         |       | 15.3                         |      | (0.7                           | )   
|Capitalised software                                                                                            |                                   | g    |   | (20.2                        | )     | (6.4                         | )    | (5.2                           | )   
|Restructuring and other provisions                                                                              |                                   | h    |   |                             |       | (0.1                         | )    | (0.3                           | )   
|Long-term contract accounting                                                                                   |                                   | i    |   |                             |       |                             |      |                               |     
|Other                                                                                                           |                                   | j    |   | (0.3                         | )     | (0.3                         | )    | (0.1                           | )   
|Deferred taxes                                                                                                 |                                   |      |   |                              |       |                              |      |                                |     
|                                                                                                                | Full provisioning                 |      | k |                              |      |                              |     |                                |    
|                                                                                                                | Tax effect of US GAAP adjustments |      | k |                              | (26.7 | )                            | 14.3 |                                | 17.5
|Sum of adjustments                                                                                              |                                   |      |   | 424.8                        |       | (11.7                        | )    | (59.9                          | )   
|Net income (loss) under US GAAP before change in accounting principle                                           |                                   |      |   | 633.0                        |       | 355.7                        |      | (443.1                         | )   
|Presented as:                                                                                                   |                                   |      |   |                              |       |                              |      |                                |     
|Net income (loss) from continuing operations before change in accounting principles and discontinued operations |                                   |      |   | 633.0                        |       | 355.7                        |      | (443.1                         | )   
|Income from discontinued operations                                                                             |                                   | l    |   |                              |       |                              |      |                               |     
|                                                                                                                |                                   |      |   |                              |       |                              |      |                                |     
|Net income under US GAAP before change in accounting principle                                                  |                                   |      |   | 633.0                        |       | 355.7                        |      | (443.1                         | )   
|Effect of change in accounting principle, net of tax                                                            |                                   | d    |   |                              |       | (61.9                        | )    |                               |     
|                                                                                                                |                                   |      |   |                              |       |                              |      |                                |     
|Net income (loss) under US GAAP                                                                                 |                                   |      |   | 633.0                        |       | (293.8                       | )    | (443.1                         | )   
|                                                                                                                |                                   |      |   |                              |       |                              |      |                                |     

F-58

---

|                                                            |       | Note |   | Year ended December 31, 2002 |     | Year ended December 31, 2001 |    
|----------------------------------------------------------- | ----- | ---- | - | ---------------------------- | --- | ---------------------------- | ---
|Shareholder's equity under Swedish GAAP                     |       |      |   | 4,413.0                      |     | 3,628.9                      |    
|US GAAP adjustments:                                        |       |      |   |                              |     |                              |    
|Goodwill and other intangibles with indefinite useful lives |       | a    |   | 187.7                        |     |                             |    
|Leveraged buy-out accounting                                |       | b    |   | 444.2                        |     | 439.8                        |    
|Derivative instruments and hedge accounting                 |       | d    |   | 26.3                         |     | (80.0                        | )  
|Tooling costs                                               |       | f    |   | 95.7                         |     | 84.7                         |    
|Capitalised software                                        |       | g    |   | 22.5                         |     | 42.8                         |    
|Restructuring and other provisions                          |       | h    |   |                             |     | (6.4                         | )  
|                                                            | Other |      | j |                              | 5.1 |                              | 5.4
|Deferred taxes                                             |       |      |   |                              |     |                              |    
|Tax effect of US GAAP adjustments                           |       | k    |   | (26.7                        | )   | (16.3                        | )  
|                                                            |       |      |   |                              |     |                              |    
|Sum of adjustments                                          |       |      |   | 754.8                        |     | 470.0                        |    
|                                                            |       |      |   |                              |     |                              |    
|Shareholder's equity under US GAAP                          |       |      |   | 5,167.8                      |     | 4,098.9                      |    
|                                                            |       |      |   |                              |     |                              |    

Change in consolidated equity capital according to US GAAP

Alfa Laval Group

Total2000At the formation of the company March 27, 2000

0.1Shareholder's contribution

3,642.0Impact from leveraged buy-out accounting

593.0Translation difference etc.

(255.3
)Net income for 2000 according to US GAAP

(443.1
)As per balance sheet on December 31, 2000

3,536.72001Translation difference etc.

268.3Net income for 2001 according to US GAAP

293.8As 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 etc.

(329.6
)Net income for 2002 according to US GAAP

633.0As per balance sheet on December 31, 2002

5,167.8


F-59

---



Comments to the US GAAP reconciliation



Goodwill arising from exchanges between entities under common control

During a reorganisation of Tetra Laval in late 1996 through early 1997, the ownership interests in certain legal entities within Tetra Laval were transferred to
Alfa Laval Holding AB and its subsidiaries. Under Swedish GAAP, the excess of the purchase consideration over the net historical book value of the assets acquired was recorded as goodwill. For Swedish
GAAP, such goodwill was being amortised over a period of five years. Under US GAAP, exchanges of assets or shares between entities under common control are reflected on a historical cost basis.
Goodwill and the effects of its amortisation have been reversed from net income for the period ended August 23, 2000.

Goodwill and other intangibles arising from push-down accounting

In connection with Tetra Laval's acquisition of the Alfa Laval Group in July 1991, goodwill arising from the purchase was written off by Tetra Laval
against equity on acquisition under Swedish GAAP. Under US GAAP, purchase accounting requires that the net assets acquired be recorded at fair values, and the excess of the purchase consideration over
the fair value of net assets acquired, representing goodwill, be capitalised and amortised. Such goodwill must be pushed down to the subsidiary that was acquired in the subsidiary's stand alone
financial statements. For US GAAP purposes, the portion of goodwill associated with the businesses transferred into the Alfa Laval Group (MSEK 4,161), after adjusting for pension liabilities described
in item c, was recognised as an asset with effect from the 1991 acquisition and was being amortised over an estimated useful life of 20 years.

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 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 Company has adopted the provisions of
FAS 142 as of January 1 2002.

Upon
adoption of the new standard, goodwill of MSEK 3,217.4 (calculated in accordance with US GAAP as of December 31, 2001) has ceased to be amortised, but is instead tested for
impairment. In addition, intangible assets totalling approximately MSEK 594 relating to in-place workforce calculated for US GAAP purposes, as well as approximately MSEK 208 of related
deferred tax liabilities, have been reclassified as goodwill. The Group estimates that it does no longer record approximately MSEK 192 of annual amortisation expense (calculated in accordance with US
GAAP) relating to its goodwill, as adjusted for the reclassifications discussed above. There has not appeared any need to write down the value of the goodwill in connection with the change in
accounting principle.

F-60

---

Business combinations

Upon the change in control in August 2000 discussed in b, the goodwill associated with the reorganisation, push-down accounting and business
combinations occurring prior to the change in control was eliminated.



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% 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%
by Tetra Laval BV, 62.5% by Industri Kapital and 0.7% by management. For US GAAP purposes, this transaction as described in the Board of Director's 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% of the predecessor and resulting in the former shareholder maintaining a minority interest in the newly formed entity.

For
US GAAP purposes, Alfa Laval's basis in the net assets of Alfa Laval Holding consists of 83.6% fair value and 16.4% predecessor basis calculated as shown below:

MSEKFair value of Alfa Laval Holding on August 23, 2000

10,087Predecessor basis of Alfa Laval Holding on August 23, 2000

5,59263.2% interest in fair value of Alfa Laval Holding of new investors in Alfa Laval AB

6,37436.8% interest in predecessor basis of Alfa Laval Holding of old investors in Alfa Laval AB

2,0588,432Percentage

83.6
%


For
US GAAP purposes, the individual assets acquired in the transaction were stepped up by 83.6% 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 MSEK 8,214 plus other consideration and
transaction costs for an aggregate purchase price of MSEK 8,286 in exchange for 100% 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% interest in Alfa Laval AB must be considered in purchase accounting. Accordingly, the purchase price for US GAAP
purposes

F-61

---

includes the MSEK 1,800 value of the Alfa Laval AB shares issued to Tetra Laval BV as part of the overall consideration paid in exchange for 100% 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.

The
inventory acquired in the transaction was all sold prior to December 31, 2000. Accordingly, the fair value adjustments applied to inventory (MSEK 340 for Swedish GAAP and MSEK
284 for US GAAP) have been expensed through operations during the period from August 24, 2000 to December 31, 2000. Such costs are reflected as non-recurring items in the
local GAAP financial statements, but would be included in cost of goods sold for US GAAP purposes.

In
addition, a minor portion of the purchase price was allocated to in-process research and development by determining the fair value of in-process technology
using the income approach, thus MSEK 54 was expensed immediately and is included with non-recurring items in the accompanying statement of operations. These costs relate to
on-going research and development being performed by the Group to improve existing products and develop new products. For US GAAP purposes, the amount allocated to in-process
research and development would be reflected as research and development expenses.

The
combined effect of the MSEK 1,800 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.

During
2001 the Group completed the exercise of pushing down the fair value step-up adjustments related to the transaction into the local currencies of the entities to which
the step-up adjustments relate. For presentation under Swedish GAAP the recalculated balances, adjusted for the step-up values of the related assets and equity, have been
recorded as a restatement of the balances previously reported at December 31, 2000.

For
US GAAP purposes the adjustment related to pushing down the step-up values into local currencies would not be presented by restating the prior year financial statements.
Instead, the foreign currency change would be included in 2001 as a component of other comprehensive income. The 2000 US GAAP reconciliation of income and equity include adjustments to reverse the
impact of the restatement recorded for Swedish GAAP purposes. The 2001 US GAAP reconciliation of equity
includes an adjustment for the foreign currency translation impact recorded in 2000 for Swedish GAAP purposes.

F-62

---



Pensions

The Group adopted IAS 19 as of January 1, 2000. Prior to the adoption of this guidance, pension costs under former Swedish GAAP represented the expected
cost of providing pension benefits and were required to be charged to the income statement so as to spread the cost over the expected average remaining service lives of the employees. Under IAS 19 and
under US GAAP, the annual pension cost comprises the estimated cost of benefits accruing in the period, adjusted to reflect the cost of benefit improvements and amortisation of surpluses/deficits
which emerge as a result of the actuarial assumptions made not being borne out in practice. Only surpluses/deficits falling outside ten percent of the greater of projected benefit obligations or the
market values of assets are to be amortised.

Upon
the transaction discussed in b, the pension obligations of the Group were adjusted to fair value, which is the same under IAS 19 and under US GAAP. This adjustment was recorded as a
change in accounting principle and recorded as a credit directly to equity in the Swedish GAAP financial statements. For US GAAP purposes, there was no such change in accounting principle. The
statement of operations reconciliation adjustment relates to the difference between pension cost under US GAAP through the date of the transaction. Because the pension assets/obligations were marked
to market upon the transaction, there is no difference in the pension assets/obligations as of the transaction date.

Other post-employment benefits

Until IAS 19 was adopted by the Group in 2000, other post-employment benefits representing the expected cost of providing post-retirement
healthcare benefits were generally charged to the income statement as and when payments were made in accordance with Swedish GAAP. In 2000, the obligation for other post-employment
healthcare benefits was recorded in full as change in accounting principle in accordance with IAS, 19 which is virtually the same as the required accounting under US GAAP. For US GAAP purposes, there
was no such change in accounting principle. Under IAS 19 and under US GAAP, the annual cost of post-retirement benefits comprises the estimated cost of benefits accruing in the period,
adjusted to reflect the cost of benefit improvements and amortisation of surpluses/deficits which emerge as a result of the actuarial assumptions made not being borne out in practice. Only
surpluses/deficits falling outside ten percent of the greater of projected benefit obligations or the market values of assets are to be amortised.

Upon
the transaction discussed in b, the other post-employment healthcare obligation of the Group was adjusted to fair value, which is the same under IAS 19 and under US
GAAP. Accordingly, there is no difference in the obligation as of December 31, 2000.

When
the Group adopted IAS 19, a new actuarial valuation was performed using revised updated assumptions to calculate the beginning and ending balances of the provision. Because of the
change in assumptions, the calculated beginning balance is different from the ending balance calculated for US GAAP purposes in the prior year. The change in assumptions is recorded as a decrease to
the 2000 benefit cost and this amount is included in the US GAAP net income reconciliation for the period ended August 23, 2000.

F-63

---



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 are required to 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 MSEK 61.9 (net of tax benefit of MSEK 33.0) 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

F-64

---

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 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 summarised as follows.

MSEK

2002

2001Hedges of net investments in foreign subsidiaries under Swedish GAAP not qualifying for hedge treatment under FAS 133

164.9

(105.5
)Change in fair market value of interest-rate swaps not recognised under Swedish GAAP

50.0

(15.8
)Change in fair market value of foreign exchange derivatives not recognised under Swedish GAAP

56.3

71.8Total

271.2

(49.5
)




Under
Swedish GAAP, revenue related to sales that are not long-term construction contracts is generally recognised upon delivery. This may include sales for which the Group
must provide installation or other services before formal customer acceptance is received, and also may include sales for which legal title does not pass until payment is received.

Under
US GAAP, revenue related to sales that are not long-term construction contracts is generally recognised upon delivery, however, with the issuance of Staff Accounting
Bulletin No. 101 (SAB 101), the United States Securities and Exchange Commission (SEC) clarified certain aspects of revenue recognition. SAB 101 provides specific criteria to be met before
revenue is recognised. The criteria requires considering the formal sales agreement, delivery terms, pricing and collectability. The Group revised its accounting policy for revenue recognition as of
January 1, 2000 such that any sales that are not accounted for under the percentage of completion method must be recognised in accordance with the provisions of SAB 101.



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.



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.

F-65

---

Amortisation of these assets is calculated on the straight-line method over their estimated economic lives of 3 years.



As
of January 1, 2000 the Group adopted IAS 37 to account for provisions and contingent liabilities. Prior to this adoption, provisions and accruals were recorded using the
principle of conservatism and the guidelines for recording of provisions and accruals were not as proscriptive as those under IAS 37 or under US GAAP. During the years prior to 2000, the Group
recorded certain accruals and reserves for items such as inventory losses, restructurings and contingencies that would not be recorded under US GAAP.

Before
the Group's adoption of IAS 37, provisions for restructuring costs were made when a plan existed and decisions were made by appropriate levels of authority within the Group.
General provisions were also established for loss contingencies. Under US GAAP, requirements for recording provisions are more stringent than those under Swedish GAAP. Provisions for loss
contingencies are recognised when they meet FAS 5 "Accounting for Contingencies" criteria of probable occurrence of loss.

Restructuring
provisions are recorded when they meet specific requirements including those documented in EITF 94-3 covering severance costs related to the exiting of an
activity. Such requirements include all of the following occurring before the date of the financial statements: 1) commitment by the appropriate level of management to the restructuring plan,
2) terminations and related benefits are communicated to affected employees, 3) the plan of termination specifically identifies the number of employees to be terminated, their job
classifications or functions, and their locations, and 4) the period of time to complete the plan of termination indicates that significant changes to the plan of termination are not likely.
Restructuring provisions recorded in connection with
a business combination are accounted for as provided by EITF 95-3 which includes specific requirements similar to those described in EITF 94-3.

Upon
adoption of IAS 37, the Group reversed the provisions that were not accruable under IAS 37 or US GAAP into income in the Swedish GAAP financial statements during the period ended
August 23, 2000. Because these provisions never met the criteria for accrual under US GAAP, the effect of the reversal of these provisions has been adjusted for US GAAP purposes. As of
December 31, 2000 and 2001, the US GAAP differences for other provisions relate primarily to different methods used to calculate reserves for inventory, receivables and compensated absences.



As
of January 1, 2000 the Group revised its revenue recognition policy such that all long-term contracts are accounted for using the percentage of completion method.
Prior to 2000, the Group recorded most revenues from long-term contracts upon completion of the contract and full customer acceptance. Under US GAAP, revenue and profits are recorded for
such contracts using the percentage of completion method.

F-66

---



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.

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, 2002 the Group had sold receivables with recourse totalling MSEK 164.5 (194.7). 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
August 2001 the US Financial Accounting Standards Board issued FAS 144. 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 one property in the United States, one in Canada and one in Brazil. 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:

2002MSEK
Real estate for sale

Carrying value

Market valueUSA, Canada, Brazil

78.1

125.5


F-67

---



As
of January 1, 2000 the Group adopted IAS 12 to account for income taxes. Prior to this adoption, Swedish GAAP did not require the provision for deferred taxation, except for
the accounting of certain specific timing differences between book and tax charges, which related principally to fixed assets and reserves created for tax purposes. US GAAP requires full recognition
of deferred tax liabilities and assets. These balances are determined on the basis of the difference between the income tax basis of assets and liabilities and their respective financial reporting
amounts at tax rates in effect for the periods in which the differences are expected to reverse. Where a deferred tax asset is recognised, an on-going assessment is carried out on the
likelihood of it being realised, and a valuation allowance is established in respect of such asset where it is considered more likely than not that some portion will not be realised. Additionally, for
US GAAP purposes deferred taxes are provided in respect of US GAAP adjustments to the book basis of assets and liabilities.

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. Upon adoption of IAS 12, the Group recorded the impact resulting from deferred tax assets and liabilities built up in prior years as a change in
accounting principle and recorded the impact directly to equity. For US GAAP purposes, there was no such change in accounting principle.

The
components of income (loss) before taxes under US GAAP are as follows:

MSEK

Year ended December 31,
2002

Year ended December 31,
2001

Period ended December 31,
2000Swedish

228.8

161.5

(615.5
)Foreign

564.6

(291.9
)
147.0Total

793.4

(130.4
)
(468.5
)


The
tax cost under US GAAP is composed of the following:

MSEK

Year ended December 31,
2002

Year ended December 31,
2001

Period ended December 31,
2000Current:Swedish

(4.2
)
(24.4
)
4.0Foreign

(282.3
)
(319.6
)
357.0Deferred:Swedish

(20.4
)
77.4

(71.0
)Foreign

58.6

359.4

(139.0
)Total

(248.3
)
92.8

151.0


F-68

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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 capitalised, 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.

Comprehensive
income under US GAAP is presented as follows:

MSEK

Year ended December 31,
2002

Year ended December 31,
2001

Period ended December 31,
2000Net income in accordance with US GAAP

633.0

293.8

(443.1
)Foreign currency translation

(329.6
)
268.3

(255.3
)Comprehensive income in accordance with US GAAP

303.4

562.1

(698.4
)


F-69

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Accumulated
comprehensive income under US GAAP is presented as follows:

MSEK

Year ended December 31, 2002

Year ended December 31, 2001

Period ended December 31, 2000Accumulated net income in accordance with US GAAP

483.7

(149.3
)
(443.1
)Foreign currency translation

(316.6
)
13.0

(255.3
)Accumulated comprehensive income in accordance with US GAAP

167.1

(136.3
)
(698.4
)


Recently issued accounting pronouncements

FAS 145

In
April 2002 the US Financial Accounting Standards Board issued FAS 145, effective for years beginning after May 15, 2002. The standard eliminates the prior
requirement that all gains and losses from the early extinguishment of debt were to be classified as an extraordinary item. The adoption of FAS 145 means that gains and losses from the early
extinguishment of debt now are classified as an extraordinary item only if they meet the "unusual and infrequent" criteria contained in Accounting Principles Board Opinion (APBO) 30. All gains and
losses from early extinguishment of debt that have previously been classified as an extraordinary item are to be reassessed to determine if they would have met the "unusual and infrequent" criteria of
APBO 30. Any such gain or loss that would not have met the APBO 30 criteria are retroactively reclassified and reported as a component of income before extraordinary items.

FAS 145
means that US GAAP in this respect becomes more in line with the accounting under IAS. The adoption of FAS 145 in 2002 has not resulted in any changes of accounting
principles for Alfa Laval. Alfa Laval has reported the costs associated with the early extinguishment of debt as a comparison distortion item and not as an extraordinary item.

FAS 146

In
June 2002 the US Financial Accounting Standards Board issued FAS 146 "Accounting for Costs Associated with Exit or Disposal Activities". It nullifies Emerging Issues
Task Force (EITF) Issue 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity". The principal difference between FAS 146 and
Issue 94-3 relates to its requirements for recognition of a liability for a cost associated with an exit or disposal activity. FAS 146 requires a liability for a cost associated
with an exit or disposal activity be recognised when the liability is incurred. Under Issue 94-3 a liability for an exit cost was recognised at the date of an entity's commitment to an
exit plan. FAS 146 also establishes that fair value is the objective for initial measurement of the liability. FAS 146 is effective for exit or disposal activities initiated after
December 31, 2002. At this time, management is assessing the impact of adopting the standard in 2003.

F-70

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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 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 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 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 Credit Finance AB, as borrower, and Alfa Laval Special Finance, as lender.                                                                                                                                                                                                                                                         
|4.5  |  | Intercreditor Agreement, dated April 29, 2002, among Alfa Laval Special Finance AB, Alfa Laval Credit Finance AB, SEB Merchant Banking, Debt Capital Markets, a unit within Skandinaviska Enskilda Banken AB as facility agent and the lenders listed
in Schedule 1 hereto.                                                                                                                                             
|*4.6 |  | Multicurrency Credit Facility, dated April 29, 2002, among Alfa Laval Treasury International AB and Alfa Laval US Treasury Inc, as borrowers, and Alfa Laval AB and certain subsidiaries, as guarantors, SEB Merchant Banking, Debt Capital Markets
and Svenska Handelsbanken AB (publ), as arrangers, the financial lenders named as lenders therein and SEB Merchant Banking, Debt Capital Markets, as facility agent.
|7.1  |  | Statements re: computation of earnings to fixed charges.                                                                                                                                                                                                                                                                                                                                                                
|8.1  |  | List of subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                   

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III-2

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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 17, 2003

| |  | ALFA LAVAL SPECIAL FINANCE AB                       
| |  | ----------------------------------------------------
| |  | By:                                                 
| |  |                                                     
| |  | Name: Sigge Haraldsson
Title:Chief Executive Officer
| |  | By:                                                 
| |  |                                                     
| |  | Name: Thomas Thuresson
Title:Chief Financial Officer

---

CERTIFICATIONS

I,
Sigge Haraldsson, certify that:





Date:
April 17, 2003

| | /s/SIGGE HARALDSSONChief Executive Officer
| | ------------------------------------------

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I,
Thomas Thuresson, certify that:





Date:
April 17, 2003

| | /s/THOMAS THURESSONChief Financial Officer
| | ------------------------------------------

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