contents = Waste to value 2012 in brief 3

Transcription

1 annual report 2012

2 contents OPCON GROUP IN BRIEF 2012 in brief 3 Calendar CEO s statement 5 Opcon's organization 6 Opcon Group in Svenska Rotor Maskiner, SRM 9 Opcon Powerbox & Waste Heat Recovery 10 Bioenergy 13 OPCON GROUP IN BRIEF Opcon is an energy and environmental technology Group that develops, produces and markets systems and products for eco-friendly, efficient and resource-effective use of energy. Opcon has activities in Sweden, Germany and the UK. There are around 150 employees. The company s shares are listed on Nasdaq OMX Stockholm. The Group s Renewable Energy business area focuses on the following areas: electricity generation based on waste heat, bioenergy-powered heating and CHP plants, pellets plants, handling systems for biomass, sludge and natural gas, industrial cooling, flue gas condensation, treatment of flue gases and air systems for fuel cells. Material handling 14 Opcon in 2013 and beyond 15 History of Opcon 18 Corporate governance report 19 Board of Directors 23 Senior executives and auditors 24 Auditor s statement on corporate governance 25 Directors report 26 Consolidated profit/loss statements 30 WASTE HEAT RECOVERY & WASTE TO ENERGY = Waste to value Consolidated balance sheets 31 Changes in consolidated shareholders equity 33 Consolidated cash flow statements 34 Notes, Group 35 The Opcon share 53 Parent company s profit/loss statements 56 Parent company s balance sheet 57 Changes in shareholders equity of parent company 58 Parent company s cash flow statements 59 Notes, Parent company 60 Signatures of the Board and President 66 Auditors report 67 5-year summary 68 Definitions 70 Addresses 71 WASTE HEAT RECOVERY. Opcon Powerbox is Opcon s system for production of carbon-free electricity from waste and surplus heat in energy-intensive industry, the power sector, off-grid electricity generation and shipping. OPCON S BUSINESS CONCEPT Opcon is an energy and environmental technology Group that develops, produces and markets products and systems for eco-friendly, efficient and resource-effective use of energy for customers active in the process industry, electricity and power generation, timber and forest industry, greenhouse cultivation and shipping. OPCON S OBJECTIVES The Group shall generate good and sustainable profitability and aim for growth in order to create long-term growth in value for shareholders, create value for customers and provide a workplace where employees can develop. OPCON S VISION Opcon s vision is to be actively involved in building a society beyond oil dependency. With high-technology products and services Opcon will actively contribute to global development towards a more energy-effective and ecofriendly society. 2 OPCON ANNUAL REPORT 2012

3 2012 in brief & important events after the end of the period calendar summary of 2012 Net sales for remaining business (i.e. not including the Engine Efficiency business area, which was sold during the year) amounted to SEK million (367.4 m). The operating loss (EBIT) for remaining business was SEK million ( 84.4 m). The loss after tax for remaining business was SEK million ( 69.9 m). Earnings per share attributable to parent company shareholders and for remaining business were SEK 1.89 ( 1.73). Results for Q4 were affected by one-off costs totalling SEK million, of which SEK 71.8 million were for the impairment of intangible assets following the decision to wind up the low-temperature driers which have consumed significant resources over several years, and SEK 57.6 million for an impairment of deferred tax. The remaining SEK 35.4 million is attributable to the impairment of inventory, other costs and project revisions in connection with the winding up of the drier business and the restructuring of the Swedish bioenergy activity, as well as individual projects in the UK. Opcon s Center of Excellence for compressor technology, Svenska Rotor Maskiner (SRM), signed two further extensive agreements in China with a leading Chinese company active in refrigeration technology, based on SRM s leading compressor technology. Overall, the agreements signed in 2011 and 2012 will generate income of at least SEK 80 million, of which SEK 65 million covers development. Depending on the customer s sales development, income can be much greater over time, with royalty income during the period up to 2024 expected to be above SEK 100 million in total. Saxlund International GmbH, a fully-owned subsidiary of Opcon, was given responsibility for the delivery of state-of-the-art handling equipment for biofuel ahead of the conversion of two coalpowered power plants for co-incineration in Berlin, Germany. The overall value of the order is EUR 5.7 million and deliveries will continue up to the end of Opcon Marine s first reference installation of its technology for generation of electricity from waste heat onboard marine vessels, Opcon Powerbox ORC and Opcon Powerbox WST, received official approval from Lloyd s Register. Both the equipment and the installation on board the Wallenius ship, M/S Figaro, received approval. Opcon issued new shares with preferential rights for existing shareholders. The issue achieved a subscription level of 92% and raised around SEK 83.9 million before costs. Opcon s main owner, B.O. Intressenter, further increased its shareholding. Opcon sold off its subsidiary, SEM AB in Åmål, and SEM s subsidiary, SEM Technology Suzhou Co. Ltd. in China, which together formed the Engine Efficiency business area. The purchase sum was SEK million debt-free along with a performance-based component that may increase or reduce the final purchase amount by a maximum of SEK 10 million. The buyer was the private equity firm Perusa Partner Fund 2. Opcon s UK subsidiary, Saxlund International Ltd., won two new orders for its innovative handling equipment from two additional treatment plants operated by Anglian Water, the largest water and wastewater company in England and Wales, with over 1,200 plants and serving over 6 million households and businesses in eastern England. Opcon acquired the remaining shareholding in Saxlund International Ltd. in the UK, where sales have almost doubled in two years, and now owns 100% of both Saxlund International Ltd. in the UK and Saxlund International GmbH in Germany. important events after the end of the period Opcon carried out a directed issue of 12,087,454 new shares for GEM Global Yield Fund Ltd. The price was set at SEK 0.59 per share. After the registration of the new shares, the total number of issued shares in Opcon Aktiebolag (publ) amounts to 309,972,730. As part of its work in developing and launching a new strategy for bioenergy, the Board of Opcon has decided to wind up the lowtemperature driers for biomass that have for several years required extensive resources and suffered considerable profitability problems. As a consequence of this decision, the Group is reporting an impairment of assets amounting to SEK 82.4 million, of which SEK 71.8 million was for intangible assets with the remainder covering inventory. In accordance with IAS 10.7 this decision means that the year-end accounts for 2012 have been adjusted, and operating earnings for 2012 have been impacted by SEK 82.4 million. SRM has signed several extensive agreements for cooling technology with a leading Chinese company. Saxlund in Germany won two large orders in Berlin in 2012 for state-of-the-art technology. Opcon Powerbox ORC and Opcon Powerbox WST have been officially approved for marine use by Lloyd s Register. Calendar 2013 The Annual General Meeting will be held at 4 p.m. on 2 May 2013 at Citykonferensen, Malmskillnadsgatan 46, Stockholm, Sweden. Information about the conditions for participation at the meeting can be found at under Finansiell information / Stämmor / Årsstämma The Q1 report for 2013 will be published on 2 May 2013 The Q2 report for 2013 will be published on 23 August 2013 OPCON ANNUAL REPORT

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5 CEO's comments Despite the economic situation there is still great interest in our products and systems After we had worked hard to implement extensive measures, 2012 started much better than 2011, with considerable profitability improvements in the first six months. However, a drastic deterioration of the macroeconomic climate in the summer had a severe impact on sales and earnings in Q3 and Q4, with customer uncertainty reflected in delayed projects and investment decisions being postponed until later. To turn the business around the Group has therefore started working to achieve financial and operational refinement, restructuring and renewal. Following the sale of Engine Efficiency, the preferential rights issue completed in Q4 and other measures, the Group is largely free of interest-bearing liabilities. This means that financial items will improve significantly. We are meanwhile continuing to work on the Group s financing of operating capital going forward to secure an appropriate capital structure and the resources for continued expansion within energy and environmental technology. As profitability continues to strengthen, the cash flow in current activities will also improve. Opcon is also reorganising its management structure. A new organisation has been put in place for the bioenergy activities in Sweden with a much lower cost structure than previously. Within Waste Heat Recovery, the management team has been replaced and immediate savings of around SEK 5 million have been achieved. The organisation for Waste Heat Recovery will be further adapted for market The applications for applications with a clear small-scale combined power and focus on increased sales. In addition, the Group s heating plants has finance department will generated great be coordinated under new interest and the leadership at Group level. number of inquiries This will enable better has increased. control and a sharper focus on follow-up. In total we expect to reduce our costs by SEK million on an annual basis. To ensure additional focus on profitable products and projects, the Board has taken a decision to wind up the business unit for low-temperature driers which has struggled with major profitability problems. In the continuing concentration on growth areas that the Group is currently making, this business does not match the strategy for the future. The closure means that capitalised development costs linked to the business are being written off in the year-end accounts for This will improve future earnings by around SEK 5-10 million per year. Despite the difficult macroeconomic situation in the short term, the outlook for the long term remains positive. We are noting growing interest in our products within both Waste Heat Recovery and compressor technology, with large, concrete opportunities for growth. The development of Opcon s compressor technology within the framework of the Svenska Rotor Maskiner subsidiary continues to be positive with China as the main focus market. Major development assignments in China will contribute to growth and profitability for a long period in the future. Within Waste Heat Recovery we are refocusing market efforts from Sweden to other markets with higher electricity prices and thus greater customer benefit. Customers in virtually all our segments are continuing to express great interest despite the difficult economic conditions which are impacting on decision-making by customers. The applications for small-scale combined power and heating plants, developed in collaboration between the Swedish bioenergy organisation and the Waste Heat Recovery organisation has generated great interest and the number of inquiries has increased during the year. In general the volume of outstanding tenders and inquiries also rose in The number of tenders that have been submitted with a verdict expected in the near future has increased, despite uncertainty affecting customers decision making. For the Swedish bioenergy business, the prospects for profitability have improved for flue gas condensation and for handling systems, with a rationalisation of the production structure already completed. Through a licensing agreement linked to a production contract, the bioenergy activities have delivered both profitability and secured competitive production of key components. Market efforts outside Sweden within flue gas condensation are expected to achieve breakthrough in Together with the strong positions we have built up within bioenergy in Germany and the UK this creates a stable platform for profitability and future growth. Stockholm 10 April 2013 Rolf Hasselström President and CEO, board member OPCON ANNUAL REPORT

6 OPCON GROUP ORGANIZATION COMPANIES AND BRANDS OPCON AB Stockholm RENEWABLE ENERGY BUSINESS AREA WASTE HEAT RECOVERY Primary business companies BIOENERGY Primary business companies SRM Svenska Rotor Maskiner AB Stockholm SRE Svensk Rökgasenergi AB Stockholm OES Opcon Energy Systems AB Stockholm Saxlund AB Stockholm Boxpower AB Stockholm Saxlund International GmbH Germany Saxlund International Ltd. UK Opcon Bioenergy AB Stockholm OPCON Opcon has businesses in Sweden, Germany, the UK and France. 6 OPCON ANNUAL REPORT 2012

7 OPCON GROUP IN 2012 Turn-around and restructuring implemented Greater focus on faster-expanding markets Net sales for remaining business for January-December 2012 amounted to SEK million (367.4 m). The operating loss (EBIT) was SEK million ( 84.4 m). The loss after tax was SEK million ( 69.9 m). Earnings per share attributable to parent company shareholders and for remaining business were SEK 1.89 ( 1.73). Earnings after tax of SEK 12.1 million from the Engine Efficiency business area up to the time of its sale as well as capital gains of SEK 83.5 million from the sale are reported under divested business. The operating loss (EBIT) of SEK million includes one-off costs in Q4 totalling SEK million, mainly attributable to the restructuring carried out in order to turn the business back into profit. One-off costs included SEK 71.8 million for the impairment of intangible assets following the Board s decision to wind up the lowtemperature driers which have consumed significant resources over several years and suffered considerable profitability problems. This also included SEK 57.6 million for an impairment of deferred tax. The remaining SEK 35.4 million is attributable to the impairment of inventory, other costs and project revisions in connection with the winding up of the drier business and the restructuring of the Swedish bioenergy activity, as well as individual projects in the UK. Following the profitability improvement in the first half of the year, the macro-economic climate deteriorated drastically during the summer and early autumn, which impacted strongly on sales and earnings in Q3 with a further slow-down in Q4. This was felt throughout the Group. The situation worsened further due to delivery difficulties related to a shortage of operating capital and organizational problems following on from restructuring. To a greater extent than previously, sales came from major bioenergy projects in which significant revaluations reduced earnings at several stages. Meanwhile, customer uncertainty was also reflected in project delays and postponements in investment decisions. Back to basics for bioenergy business Within bioenergy the Swedish activity has been severely affected and the Opcon Board has now decided on a more thorough restructuring of the integration that has been carried out in the Swedish bioenergy business after several years of big losses. The motto will be back to basics with a focus on the core business in bioenergy at old Saxlund and SRE, where a new strategy is now being planned that will be launched in the spring of Marine approval For Opcon Powerbox, low electricity prices in Sweden and a weak industrial cycle have meant that the market breakthrough has taken longer than expected. Enerji s drawn-out installation of its first installation in Australia has caused significant delays and disruptions. Meanwhile, significant progress has been made in the work on industrialization, internationalization and development, including the The extension of Skara Energi s Uddetorp bioenergy plant. The expanded 8 MW section of the plant is being equipped, like the older plant, with Opcon s flue gas condensation of around 2 MW. Flue gas condensation means an improvement in energy efficiency by up to 25% as instead of being sent out of the chimney, a large part of waste heat can be recycled and the flue gas treated. Following the rebuild, bioenergy capacity in Uddetorp will be doubled. OPCON ANNUAL REPORT

8 OPCON GROUP IN 2012 extensive and resource-intensive efforts to adapt Opcon Powerbox for marine applications with a first reference installation on board a Wallenius ship. The approval by Lloyd s Register of the two installations of Opcon Powerbox for generation of electricity from waste heat on board Wallenius vessels has been of great importance. On the Chinese market, the extensive development assignment within compressor technology that has been initiated for a major Chinese business has continued. Overall, SRM has signed development and licensing agreements in 2011 and 2012 where the contracted income is worth close to SEK 80 million with this one customer alone. The customer is currently building a completely new production plant in China for production of the cooling compressors now being developed within Opcon. The plant is expected to be ready later this year. Licensing revenues from this customer alone are expected to reach over SEK 100 million over the 10-year period Major turn-around Opcon is now implementing an extensive financial and operational turn-around in order to concentrate the business on Waste Heat Recovery and the compressor technology which is also at the heart of Opcon Powerbox, as well as more focused efforts within bioenergy. The aim is to terminate expensive credit, with net financial items alone in 2012 amounting to SEK 20.7 million, and to make the business profitable as soon as possible. One stage in this restructuring was the divestment of the Engine Efficiency business area, which was sold in November 2012 for a capital gain of SEK 83.5 million. Together with the preferential rights issue worth SEK 83.9 million before costs in 2012 this has meant a significant reinforcement of the Group s financial position, with 5-13 Available Waste Heat Waste heat available from U.S. industry and renewable energy sources in U.S ,10 Solar/PV 0,35 Geothermal 0,55 Wind interest-bearing liabilities of around SEK 160 million settled during Q After the end of the period, an additional SEK 7.1 million has been settled through an issue of new shares for GEM Global Yield Fund. Meanwhile an extensive restructuring of the business is being carried out following the sale of the Engine Efficiency business area. For the Swedish bioenergy business, weak economic conditions continued during the start of To achieve a turnaround, the Board has decided to carry out a fundamental restructuring of the integrated operations that have been established for the Swedish bioenergy business. During the spring a new strategy is being established and implemented with a focus on a return to the core bioenergy business in the old Saxlund and Svensk Rökgasenergi operations. A decision has also been taken to wind up the lowtemperature driers that have been developed to focus on areas and markets that the company considers to have a better chance of development in future. To strengthen the offer to smaller bioenergy plants, Opcon in Q4 took over OptiEnergi s product portfolio and some of its staff. Sharper focus on faster-growing markets It is clear that the restructuring will mean a reduced focus on the Swedish market and increased focus on faster-growing markets, with Saxlund in Germany and the UK forming the cornerstones of development. During Q4 Opcon also acquired the remaining shareholding in the UK, where sales have almost doubled in two years, and now owns 100% of both Saxlund International Ltd. in the UK and Saxlund International GmbH in Germany. Some of the resources previously directed towards the Swedish market are being reallocated to support further growth in the UK market. A further phase of the international expansion and restructuring will involve licensing of some of the Group s technology for bioenergy, with agreements already signed with Axis in Lithuania concerning the Baltic states, Belarus and Ukraine. This agreement signals the return of Opcon to the Baltic markets that were previously a large market for SRE s condensers. The Board has established a target that the restructuring of the Swedish bioenergy business along with the changes being made within the remaining part of the Renewable Energy business area and in Opcon AB after the sale of Engine Efficiency shall reduce the cost base by SEK million per year. This will be implemented gradually with full effect in the second half of The winding up of the drier business alone is expected to improve operating earnings in future by SEK 5-10 million per year. 2,50 Hydroelectric 3,85 Biomass Left column: Estimated available waste heat in U.S. industry (quadrillion Btu) Right column: U.S. renewable energy production by source (quadrillion Btu) Source: U.S. EIA/Annual Energy Review OPCON ANNUAL REPORT 2012

9 OPCON S PRODUCTS AND SYSTEMS waste heat recovery SVENSKA ROTOR MASKINER (SRM) OPCON S CENTER OF EXCELLENCE markets WORLD-LEADING DEVELOPMENT CENTER FOR SCREW COMPRESSOR TECHNOLOGY Svenska Rotor Maskiner (SRM) is the world s leading technology development centre for screw compressors and screw expanders. The product range includes: Leading development and production, prototype production, advanced test activity and global licence production Unique energy and gas handling systems A broad range of technical industrial service for compressors and gas handling systems SRM s solutions increase efficiency for industrial processes and often mean less environmental impact. Oil & gas Petrochemicals chemicals & plastics Industrial cooling air supply for fuel cells For 105 years since 1908 SRM has played a crucial role in the Swedish and international development of a series of famous industrial products, especially twin-rotating steam turbines, air pre-heaters, screw compressors and screw expanders. Around 90% of all screw compressors produced today across the world are made by companies that have received technology licences from Svenska Rotor Maskiner, SRM. OPCON ANNUAL REPORT

10 OPCON S PRODUCTS AND SYSTEMS WASTE HEAT RECOVERY OPCON POWERBOX GENERATING ELECTRICITY FROM WASTE HEAT COMPLETE PROPRIETARY SYSTEM FOR CARBON-FREE ELECTRICITY PRODUCTION FROM LOW-VALUE WASTE HEAT The energy for industrial processes, a large part of global electricity generation and incineration of waste, among other sectors, is not fully used. Instead a lot of energy becomes waste or surplus heat, which is not always recycled. In addition to energy losses and reduced system efficiency, additional electricity energy is required to cool down surplus heat. In process industries as much as 20-50% of the energy used is wasted. There are significant economic and environmental benefits if energy can be used more efficiently and waste heat can be recycled. In the US, it is calculated that available waste heat in industrial processes more than matches total electricity production from all renewable energy sources in the country. When discussing recycling of waste heat it is common to classify the heat by temperature, with high temperatures given higher value due to more energy being involved. Waste heat below around 230 C is usually seen in this context as low-value waste heat, because it cannot be converted to the same extent into electrical or mechanical energy. The base for Opcon s growth platform within energy and environmental technology has primarily been based on improved energy efficiency with a focus on technology that utilizes low-value waste heat. Complete systems with several alternatives Opcon offers its customers complete systems with several alternatives for exploiting waste heat. This can include district heating, drying of biomass, production of electricity or a combination, depending on what best suits the customer Based on its proprietary Lysholm turbine, Opcon develops, industrializes and commercializes two different systems for generating electricity: Opcon Powerbox ORC (Organic Rankine Cycle), which produces electricity from water at temperatures as low as 55 C, and Opcon Powerbox WST (Wet Steam Turbine), which produces electricity from saturated steam with no overheating, providing clear advantages compared with traditional turbines. Opcon Powerbox ORC has been developed for production of carbon-free electricity primarily from waste and surplus heat in energyintensive industries, the power generation industry, off-grid electricity production and in shipping. Simple installation, high operational reliability Opcon Powerbox ORC is an easy-to-install, stand-alone power plant. Robust industrial components together with microprocessor controllers and remote operation ensure a high level of operational reliability. Opcon Powerbox WST, which produces electricity from wet steam, is much smaller than Opcon Powerbox ORC, which means even simpler installation and greater flexibility due to its relatively low weight and limited size. Meanwhile, its robust design means high availability and limited maintenance. This eco-friendly technology has aroused great interest internationally. The system is being continuously developed and today there are applications for industry, power supply and shipping following the approval by Lloyd s Register in 2012 of Opcon s reference installation of two marine-adapted Opcon Powerboxes aboard a ship operated by Wallenius. Commercially, Opcon has high hopes for these products in the future, especially on markets where electricity prices are high and the value of the energy efficiency and the production of new electricity are greater. Applications such as off-grid electricity supplies, i.e. electricity generated outside the established grid, and marine applications, where electricity production is currently very expensive, are of special interest. 10 OPCON ANNUAL REPORT 2012

11 OPCON S PRODUCTS AND SYSTEMS WASTE HEAT RECOVERY OPCON POWERBOX GENERATING ELECTRICITY FROM WASTE HEAT ENERGY EFFICIENCY AND REDUCED EMISSIONS FOR INTERNATIONAL SHIPPING One area where energy efficiency and electricity generation using Opcon Powerbox is of special interest is the international shipping sector, which today accounts for around 90% of world trade. Opcon is currently concentrating efforts on the development and adaptation of its technology for electricity generation based on waste heat for marine applications, where the aim is to offer fuel savings of 5-10% and corresponding reductions in emissions. On top of its collaboration with Wallenius Marine, which included approval from Lloyd s Register in 2012 of the reference and test installations of two Opcon Powerboxes (one ORC and one WST), Opcon has also begun collaborating with MAN Diesel & Turbo SE, which has around 12,700 employees, regarding marine applications of Opcon Powerbox technology. This collaboration aims at exploiting opportunities to combine Opcon technology for increased energy efficiency and production of electricity from waste heat with MAN Diesel & Turbo s market-leading diesel engines that reduce fuel consumption while cutting emissions. TWO TYPES OF OPCON POWERBOX Opcon Powerbox ORC (Organic Rankine Cycle) produces electricity from water at temperatures as low as 55 C. Opcon Powerbox WST (Wet Steam Turbine) produces electricity from saturated steam with no overheating, which provides clear advantages compared with traditional turbines. markets for Opcon powerbox The primary markets are industrial sites that produce waste heat, power production and shipping. The technology can also be used in other areas such as geothermal applications. DIESEL GENERATORS & OFF-GRID ELECTRICITY PROCESS INDUSTRY & HEAVY INDUSTRY HEAT AND POWER PRODUCTION FOREST INDUSTRY & BIOFUEL INTERNATIONAL SHIPPING OPCON ANNUAL REPORT

12 OPCON S PRODUCTS AND SYSTEMS bioenergy FLUE GAS CONDENSATION & TREATMENT OF FLUE GASES SYSTEM RENERGI COMPLETE SOLUTIONS FOR IMPROVED ENERGY EFFICIENCY & FLUE GAS TREATMENT In all incineration some of the energy content is lost as heat. This applies at biofuel power plants where the smoke emitted from the chimney often reaches temperatures of up to 230 C. Svensk Rökgasenergi, SRE, is a leader in energy efficiency and treatment of flue gases. Opcon markets a series of modules under the SRE brand that together form complete systems for improved energy efficiency and treatment of very dirty, aggressive gases from industrial processes. The Renergi GK flue gas condenser is at the heart of System Renergi. This simple technology has crucial features that enable profitable operation. The product range contains a standardised range of boiler outputs from 1.5 MW to 30 MW that have so far been sold for boilers ranging from 1 MW up to 63 MW in 13 countries. Customers are district heating plants, sawmills, pellets manufacturers and various types of industrial users including greenhouses in Sweden, the Nordic region and the rest of Europe. MARKETS FOR FLUE GAS CONDENSATION DISTRICT HEATING & CO-GENERATION PLANTS GREENHOUSES SAWMILLS & PELLETS INDUSTRY 12 OPCON ANNUAL REPORT 2012

13 OPCON S PRODUCTS AND SYSTEMS bioenergy CO-GENERATION & BIOFUEL PLANTS SAXLUND INCINERATION TECHNOLOGY & BIOENERGY PLANTS Opcon s business in bioenergy covers a wide range of product portfolios, activities in Sweden, Germany and the UK, as well as a sales office in France. Saxlund offers everything from design of complete co-generation (combined power and heat) plants, to proprietary handling systems and incineration plants. Plants that convert biofuel into energy must meet strict technical, environmental and economic requirements. Saxlund has extensive knowledge within the bioenergy industry and owns several patents for system designs. The incineration chamber is at the heart of an energy system. Saxlund produces the most efficient and eco-friendly incineration system on the market. The market for pellets is expanding strongly across the globe. Sax- lund is a leading supplier within pellets production, supplying everything from individual machines to Turn-Key plants. MARKETS FOR CO-GENERATION & BIOFUEL PLANTS BIOMASS & PELLETS INDUSTRY TIMBER INDUSTRY & SAWMILLS CO-GENERATION PLANTS OPCON ANNUAL REPORT

14 OPCON S PRODUCTS AND SYSTEMS bioenergy MATERIAL HANDLING COMPLETE SYSTEMS AND BROAD PRODUCT RANGE FOR RECYCLING AND MATERIAL HANDLING Saxlund has a broad range of products within material handling for bioenergy plants as well as recycling of ash, sludge and slag handling. Waste handling is a growing sector internationally, partly due to the reduced amount of waste being sent as landfill, with recycling and incineration preferred instead. Within Opcon s bioenergy business the company markets leading handling systems under the Saxlund brand. Since it banned landfill at the start of the 21st century, Germany has led development of Waste to Energy solutions and Saxlund has established itself as the technology leader in sludge handling. Waste sludge is dried and used as biofuel for production of renewable energy. Saxlund is also a prominent supplier in material handling and pellets production. MARKETS FOR MATERIAL HANDLING BIOMASS & PELLETS INDUSTRY WASTE TREATMENT RECYCLING & OTHER INDUSTRY 14 OPCON ANNUAL REPORT 2012

15 OPCON in 2013 and beyond Turn-around and restructuring taking place Greater focus on faster growing markets Over the past couple of years Opcon has been performing a strategic transformation of its business to focus on energy and environmental technology. The background for this has been Opcon s competence and history in technology for resource-efficient and energy-effective development and Opcon s view of the market, where increased demand for energy due to population growth and economic development and the supply problems of meeting this demand with clean, safe energy are expected to result in strong market growth. Greater demand means higher energy prices Opcon s strategy has been based on what Opcon perceives as longterm market trends linked to rising energy prices. The International Energy Agency, IEA, forecasts that average energy prices will increase by 15% to 2035, with the highest prices expected in the EU and Japan. Meanwhile the immediate situation is uncertain with global economic development unstable, which also adds volatility to energy prices. This is specially true in Europe, which is Opcon s main market. Opcon s exposure to other markets is also increasing. For example, Opcon s business has expanded considerably in China, where growth and investment needs are significantly larger. Global demand for energy is rising markedly. The United Nations (UN Population Division, 2008) estimates that the world s population will grow from over 6.7 billion in 2008 to around 8.5 billion in This is a major increase, even though the rate of increase towards the end of the period is expected to be just half as high as it has been over the past 20 years. Meanwhile, living standards are increasing rapidly, not least in former developing countries, with China and India in the lead. China the largest energy consumer As recently as 2000, China's energy consumption was not more than half that of the US. Today the International Energy Agency considers that China has already overtaken the US as the world's largest energy user while China continues to sharply increase its demand, especially for electricity. During the next years, the IEA expects that China will add further capacity to generate electricity equivalent to more than the US s and Japan's electricity production combined. Overall, China alone is expected to account for more than half of the total increase in CO 2 emissions in the world up to Stricter measures necessary concerning carbon Extensive measures are considered to be necessary to succeed in reducing greenhouse gas emissions to the atmosphere and limit global warming. The IEA estimates that the actions and commitments that governments worldwide so far taken are not sufficient to reach the target of an increase in global average temperature of 2 C. Significantly stronger measures will be required. Today China consumes more energy than the US and demand continues to grow strongly. The price of energy vital The trend has also been that global energy prices have risen sharply in the 2000s. The financial crisis and consequent widespread recession led to a considerable fall from peak levels in the summer of Energy prices have partially recovered, with the price of Brent oil above 100 USD/barrel once more. Electricity prices vary greatly, with large differences between countries. In Sweden, which has internationally low prices, we have seen considerable volatility in recent years due to the weather, reservoir levels, disruptions in nuclear power and the business cycle, etc. Notwithstanding the short-term price fluctuations due to economic crises, reservoir levels, concerns about oil production or similar, it is Opcon's assessment that energy prices will increase over time. This assessment is based on expectations that the combination of increased demand, supply disruptions and difficulties in swift expansion of clean, safe energy will push prices up. For Opcon, which focuses on energy efficiency and bioenergy, higher energy prices generally lead to increased demand for the World Population ,000,000,000 9,000,000,000 8,000,000,000 7,000,000,000 6,000,000,000 5,000,000,000 4,000,000,000 3,000,000,000 2,000,000,000 1,000,000, Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2008 Revision. OPCON ANNUAL REPORT

16 OPCON in 2013 and beyond company's technology. This also means that markets outside Sweden, which traditionally has low energy prices, are of great interest. Increased energy efficiency is the decisive factor in meeting higher demand for energy with solutions that are both economically and environmentally sustainable. The IEA estimates that as much as two thirds of the economic potential in improved energy efficiency up to 2035 remains unutilized now, and that economically justifiable measures could reduce energy demand equivalent to all of the current oil production in Russia and Norway. Nordpool, electricity prices in Sweden, annual average, EUR/MWh Source: Nordpool Jan-Feb Price development for coal, oil and natural gas (Index 1996=100, USD) Source: Svensk Energi 700 Crude Petro Average 600 Coal Average 500 Natural gas, US Natural gas, Europe 400 LNG, Japan Europe Brent Spot Price, USD/barrel (May 1987 February 2013) Source: U.S. Energy Information Administration Bunkerworldindex Source: Bunkerworld Energy efficiency the core of Opcon s offer In industrial processes and in a large part of the world s production of electricity the energy involved is not being used to the full. Instead, large amounts of Two thirds of the energy content in all global electricity production becomes waste heat. energy are wasted. According to the IEA only one third of the energy content becomes electricity, with the rest becoming heat. Opcon offers its customers complete systems with several alternatives for exploiting waste heat. This can include district heating, drying of biomass, production of electricity or a combination, depending on what best suits the customer. Opcon has concentrated its products on the section of the market normally described as low-value waste heat at temperatures below 230 C. Several of Opcon s systems, such as Opcon Powerbox ORC and WST, have global potential both on land at sea. A key component at the heart of Opcon Powerbox is the Lysholm turbine, which was developed at Opcon s Center of Excellence for screw compressor technology, Svenska Rotor Maskiner, SRM. One of Opcon Powerbox ORC s competitive advantages is its efficiency at low temperatures, which enables electricity production for a large number of applications. New records have also been set for electricity production at over 800 kw from industrial waste heat at just 83 C. Good prospects for bioenergy exports Sweden has a special position globally because more than 60% of its energy for production of heat comes from renewable energy sources, with biomass the largest single source. Co-generation plants, producing both heat and electricity from biomass, continue to increase in number and in many cases they are as competitive as plants burning fossil fuels. Opcon has a broad product portfolio within bioenergy. The technology and know how that has been developed in Sweden has great potential for exports. In 2012, most of Opcon s bioenergy sales took place on markets outside Sweden. Of major importance for the expected growth in Europe is the targets set up by both the EU and individual nations regarding an increased share of renewable energy. Perhaps the greatest increase in the production of electricity from biomass is expected to occur in the UK, where Opcon currently has its own subsidiary. According to the EU Commission and the National Renewable Energy Action Plan for the UK, electricity generation from solid biomass in the UK is expected to increase by over 270% from 2010 to According to the European Biomass Association, the strongest increase in the use of biomass for heating in Europe will occur in France, Italy, the UK, Germany, Finland and Sweden. Opcon is now represented on most of those markets. International shipping a big consumer of energy Opcon is now focusing major resources on developing its technology for electricity generation from waste heat for marine applications, where the aim is to offer over 10% in increased efficiency, with fuel savings and corresponding reductions in emissions. International shipping now accounts for around 90 percent of the growth in world trade and is a major consumer of oil. Meanwhile, bunker fuel prices have risen sharply over the past decade and are considered to be on a long-term upward trend due to constantly increasing demand. 16 OPCON ANNUAL REPORT 2012

17 OPCON in 2013 and beyond Stricter requirements for emissions and greater interest for improved energy efficiency in the shipping industry. Maritime rules for emissions of substances such as NOx, sulfur and particles are also being tightened up. Escalating demands from the authorities mean greater demand for higher quality fuel, which is more expensive. In 2010 the permitted sulfur content of fuel in the ECA (Emission Control Areas) was reduced to 1 percent from 1.5 percent previously. The 2008 amendments to Marpol Annex VI also mean that the permitted sulfur content in fuel in the ECA is being lowered to 0.1 percent in 2015 compared with 1 percent now. Higher energy prices, stricter requirements for emissions from the authorities and greater commitment from various players regarding emission levels from ships all mean a much more marked interest in improving energy efficiency. One of the key benefits of Opcon s Waste Heat Recovery is that all emissions fall in direct relation to bunker savings. OPCON ANNUAL REPORT

18 HISTORY OF THE OPCON GROUP Opcon s compressor technology a leader for 105 years Focus on energy and environmental technology in 21st century Up to the end of 2012, when the Engine Efficiency business area was sold, the Opcon Group rested on three industrial bases, of which compressor technology and ignition systems both have a history with roots going back to the early 20th century. Svenska Rotor Maskiner (SRM) was formed in 1908 as AB Ljungströms Ångturbin to develop the twin-rotating steam turbine invented by Birger Ljungström and which was later sold to the current turbine producer, Siemens Industrial Turbo Machinery AB. In 2008 SRM, Opcon s development centre for compressor technology, celebrated 100 years of industrial development of technology for efficient and resource-effective use of energy. Over the past century, Svenska Rotor Maskiner has developed a series of products for the global market, including Ljungström s air preheater from the 1920s, which in the 1990s was selected as a landmark invention by the American Society of Mechanical Engineers. It made a major contribution to increasing the efficiency of large power stations. Since the 1930s compressor technology has been continually developed and major licensees include Atlas Copco, Hitachi, IR, Carrier, York, Trane, Kobelco, etc. Today, SRM is a key part of Opcon s Renewable Energy business area s focus on recycling waste heat using Opcon Powerbox. Up until the acquisition of SRM, the core of Opon s business was based on almost 100 years of experience of producing ignition systems, transformers and electro-magnets. The foundations were laid in connection with the First World War when imports of ignition systems for cars and boats were stopped. Production of these systems started in Åmål in 1915 at Aktiebolaget Svenska Elektromagneter, later called SEM AB. Since then, electronic ignition systems for vehicles and small motors have dominated production at SEM. These systems, with their innovative technology and high ignition voltage were a key factor in enabling Saab s ethanol engines to be among the first to start in freezing conditions. SEM s innovative capability and its flexibility explain why the company was chosen to develop and produce core components for the Scania-Cummins XPI system for new diesel engines Opcon specialises within renewable energy on waste heat and bioenergy. that meet stricter emissions targets. In 2012, SEM AB was sold in line with the Opcon Group s concentration on energy and environmental technology. Focus on energy and environmental technology Opcon AB was formed in In 1997 SEM AB was divided into two companies. SEM focused on ignition systems and formed the core of the now divested Engine Efficiency business area. The other SRM, Svenska Rotor Maskiner AB, which today is Opcon's Center of Excellence in compressor development, was formed back in 1908 to develop the newly invented double-rotation steam turbine. company was REAC AB, which produced electrical actuators, and this business formed the core of the Mobility Products business area, now phased out. Opcon was listed on the current Nasdaq OMX Stockholm (Small Cap) in From 2002 to 2005 Opcon reported major losses due to restructuring and decommissioning costs. Svenska Rotor Maskiner (SRM) AB was acquired in 2004 together with Lysholm Technologies AB. In Opcon performed a financial and strategic turnaround, implementing a new organizational structure. The business has focused on energy and environmental technology, and has expanded organically and through strategic acquisitions. In 2007 Opcon acquired Svensk Rökgasenergi (SRE), REF Tech and Mitec. In 2008 Värmlands Montage Teknik and Balle were acquired, and in 2009 Saxlund Holding AB was acquired while Lysholm Technologies AB was sold. The acquisitions contributed to the creation of a comprehensive product platform and an improved, global sales organisation. To further refine the Group s focus on energy and environmental technology the Mobility Products business area was wound up in 2010 and REAC and Balle were sold. Opcon increases holding in Saxlund International In 2011 Opcon acquired the remaining 25% of shares in Saxlund International GmbH, Germany, to give Opcon 100% ownership of the company. The acquisition also meant that Opcon increased its ownership in Saxlund International Ltd. of the UK, and Saxlund International Corp., USA, from 79.5% to 90%. During 2012 Opcon acquired the remaining shareholdings to taking its ownership up to 100%. In 2012 the approval by Lloyd s Register of the two reference installations of Opcon Powerbox for generation of electricity from waste heat on board Wallenius vessels marked a key stage in the continued commercialization of Opcon Powerbox for the marine market. In November 2012 Opcon sold off its subsidiary, SEM AB in Åmål, and SEM s subsidiary, SEM Technology Suzhou Co. Ltd. in China, which together formed the Engine Efficiency business area. Opcon has developed to become a refined energy and environmental technology Group, specialising in the development of technology within renewable energy such as waste heat and bioenergy. Opcon today energy and environmental technology With the sale of the Engine Efficiency business area in 2012, Opcon s development over several years to focus on technology for renewable energy and Waste to Value has been completed. Today s Opcon focuses with its Renewable Energy business area on two key activities: Waste Heat Recovery and Bioenergy. 18 OPCON ANNUAL REPORT 2012

19 corporate governance report Opcon s Corporate Governance Report for 2012 Opcon AB has its registered office in Stockholm, Sweden, and is a Swedish company listed publicly on Nasdaq OMX Stockholm. Opcon AB is the parent company of an energy and environmental technology Group. In addition to all regulations stated in law or other legal statute, the company applies the Swedish code of corporate governance. This Corporate Governance Report is not part of the formal reporting. Shares The total number of registered shares at the end of the period was 297,885,276 (130,171,135), an increase on the previous year of 167,714,141 shares. This increase, comprising the 167,714,141 shares from the new share issue in 2012, was registered at the Swedish Companies Registration Office just before the end of 2012, but the shares were not booked into owners accounts by Euroclear until the start of January, which is why the share register from the end of December 2012 shows only a total of 130,171,135 shares. The ownership figures from the share register do not therefore provide a complete picture as it does not indicate how many shares had been subscribed for in the share issue. All shares are of the same category and give the same right to voting and dividends. At the end of 2012 the company had around 6,500 shareholders, a fall of around 100 on the previous year. The largest individual shareholders in the share register as of 31 December 2012 were B.O. Intressenter (Mats Gabrielsson) with 16.4%. To strengthen the company s financial position and secure access to operating capital, Opcon performed during 2012 a preferential share issue for existing shareholders. The new shares, 167,714,141 in total, were issued at a price of SEK 0.50 per share. The new share issue raised around SEK 83.9 million for the company before costs. Shareholders Meeting The rights of shareholders to make decisions concerning the affairs of the Company are exerted at the Annual General Meeting, which is held within six months of the end of the financial year. A number of central matters are addressed at the Annual General Meeting, including the adoption of the Company s income statements and balance sheets for the past year, the dividend, election of board of directors and auditors, etc. The notification of the Annual General Meeting and extra general meetings at which the articles of association are to be addressed, and including information about application to participate, the agenda for the meeting and information about matters to be addressed, shall be produced six weeks before the general meeting at the earliest, and four weeks before it at the latest. Shareholders or their nominees may vote with their full amount of owned or represented shares Annual General Meeting At the Annual General Meeting of Opcon shareholders held on 3 May 2012 it was decided that the board of directors shall comprise six members without deputies. The meeting re-elected Ulf Ahlén, Kenneth Eriksson, Mats Gabrielsson, Rolf Hasselström, Bengt E Johnson and Bill Tunbrant. Maurizio D Agostino of IF Metall and Karin Hansen of Unionen were appointed as employee representatives. Mats Gabrielsson was re-elected chairman of the board. The Annual General Meeting authorised the board to reach a decision on whether to issue new shares or convertibles. The Board was authorised to take a decision on one or more occasions up until the next Annual General Meeting concerning the issue of new shares and/or issue of convertibles and/or subscription options. Using this authorisation the share capital could be increased by at most SEK 100,000,000 through the issue of at most 50,000,000 shares. The aim is to give the board freedom of action for company acquisitions and raising capital. At the Annual General Meeting decisions were made concerning two incentive schemes. None of the schemes have yet been utilised and no shares have yet been issued to executives. As part of an incentive scheme Opcon will issue a maximum of 1,000,000 subscription options, with each option giving entitlement to one share in Opcon AB, to key decision-makers in the Opcon Group. As part of an incentive scheme Opcon will issue a maximum of 500,000 subscription options, with each option giving entitlement to one share in Opcon AB, to current and new Board members of Opcon AB. Mats Gabrielsson and Rolf Hasselström are not included in this allocation. The options scheme for Board members represents a deviation from the Swedish Code of Corporate Governance. The launch of the scheme was proposed by the company s largest shareholder to further increase the shared commitment between Board members and the company s shareholders. These incentive schemes have not been utilized. Extra General Meeting To strengthen the company s financial position and secure access to working capital an Extra General Meeting of shareholders in Opcon on 9 November 2012 reached a decision on the issue of new shares with preferential rights for existing shareholders. It was decided to reduce the share capital by SEK 97,628, to SEK 162,713,918.75, which implies a nominal value of SEK 1.25 per share after the reduction. The issue increased the share capital by SEK 209,642, Following the reduction and the new share issue, the share capital now amounts to SEK 372,356,595. The total number of shares has increased by 167,714,141 and after the rights issue amounts to 297,885,276 shares. Work of the Board Opcon AB s Board of Directors has six members elected by the Annual General Meeting, none of whom are woman. A presentation of Board members appears on page 23 of this annual report. In addition to members elected by the Annual General Meeting, there are two employee representatives, and two deputies. Karin Hansen, employed by SEM AB, was an employee representative up to the sale of SEM AB in November Shiva Farahmandrad took over this position at the end of the year. The CEO was a member of the Board in A majority of the Board members elected by the Annual General Meeting (Mats Gabrielsson, Ulf Ahlén, Kenneth Eriksson, Bengt E Johnson and Bill Tunbrant) are independent in relation to the company and the executive Attendance at Board meetings, 2012/2013 Name Role Attendance Mats Gabrielsson Chairman 22 of 22 Ulf Ahlén Director 19 of 22 Kenneth Eriksson Director 22 of 22 Rolf Hasselström Director 22 of 22 Bengt E Johnson Director 22 of 22 Bill Tunbrant Director 21 of 22 Maurizio D Agostino Director 15 of 22 Karin Hansen Director 14 of 22 OPCON ANNUAL REPORT