CONTENTS. Consilium s interim reports are available at

Transcription

1 ANNUAL REPORT 2015

2 CONTENTS 03 The year in brief 04 overview 06 Consilium s value creation 10 Consilium s market organisation 12 CEO statement 15 Marine & Safety business area 19 Fire safety & Automation business area 22 Share information 24 Multi-year overview and glossary 25 Key figures and definitions 26 History 27 Board of Directors report 30 Financial statements, 34 Financial statements, Parent 38 Accounting policies 42 Notes 54 Auditor s report 55 Corporate governance 59 Auditor s statement 60 Consilium s Board 61 Consilium s Management 62 Addresses Consilium is a global niche company that develops, manufactures and markets products and systems that are used to protect people, material values and the environment. Consilium conducts its operations in two business areas Marine & Safety and Fire safety & Automation. Consilium s entire offering is based on delivering high-quality products and systems to customers who need to protect large and complex environments with high material values or large numbers of people. With a global market organisation, Consilium can offer its customers local service and support wherever in the world they are. The vision is for customers to make Consilium their choice when safety matters. Consilium s Annual Report is published in Swedish and English. The Annual Report is available for download at A printed version of the Report will be distributed to shareholders and other stakeholders who have registered their interest to the Company. The Annual Report can also be ordered from info@consilium.se. Consilium s interim reports are available at This annual report has been prepared in Swedish and translated into English. In the event of any discrepancies between the Swedish and the translation, the former shall have precedence.

3 THE YEAR IN BRIEF +25 % +59 % +3 % Consilium s net sales increased by 25 percent to SEK 1,565.5 (1,255.3) million. Operating profit (EBIT) increased by 59 percent to SEK (110.3) million. The order intake increased by 3 percent to SEK 1,497.7 (1,460.0) million. The Board proposes a cash dividend of SEK 2.00 (1.25) per share. OVERVIEW OF THE YEAR Q1 Q2 Q3 Q4 The order intake increased by 22 percent to SEK (333.8) million. Net sales increased by 54 percent to SEK (237.9) million. Operating profit (EBIT) increased by 160 percent to SEK 45.0 (17.3) million. Consilium acquired the Australian marine company Novamarine Instruments. Consilium called the previous corporate bond of SEK 400 million and issued a new corporate bond of SEK 600 million. The order intake declined by 7 percent to SEK (328.2) million. Net sales increased by 28 percent to SEK (300.0) million. Operating profit (EBIT) increased by 74 percent to SEK 48.9 (28.1) million. Consilium repaid the previously issued corporate bond of SEK 400 million early and issued a new corporate bond of SEK 600 million, with the right to issue a further SEK 300 million. This has resulted in a nonrecurring expense of SEK 17.5 million. Consilium continued to strengthen its product and market organisation through acquisitions of companies in the Netherlands and Finland, and through increased ownership in joint ventures in Sweden, Norway and India. The order intake declined by 2 percent to SEK (369.4) million. Net sales increased by 4 percent to SEK (334.7) million. Operating profit (EBIT) increased by 19 percent to SEK 38.5 (32.3) million. Consilium established new market companies in Malaysia and Morocco in the Fire safety & Automation business area. The order intake declined by 2 percent to SEK (428.6) million. Net sales increased by 22 percent to SEK (382.7) million. Operating profit (EBIT) increased by 31 percent to SEK 42.8 (32.6) million. Consilium opened an office in Stavanger for the marketing of fire alarms to the Norwegian offshore industry. Previously reported financial targets, which were set for the period , were achieved. Consilium therefore raised the targets and reported new financial targets to be achieved in the period

4 GROUP OVERVIEW FOCUS ON FIRE SAFETY Consilium s main focus is to develop and market products and systems in the area of fire safety. Operations are organised into two business areas. Marine & Safety focuses mainly on fire and gas detection products, while the Fire safety & Automation business area is mainly concentrated on larger firefighting systems. Proprietary and external complementary products and systems are offered within each business area, as well as service and support. TWO BUSINESS AREAS Marine & Safety is a product-selling business specialising in fire and gas detection for vessels, offshore facilities, trains and metros, and properties with high protection values. Fire safety & Automation is a system-selling business, with an offering focused on firefighting at facilities in the onshore oil and gas industry, the offshore industry and the power industry. Both business areas offer long experience, high product and system knowledge and expertise in selected areas of application. GLOBAL STRENGTH Consilium has about 800 employees at 55 offices in 25 countries. The Company s global reach allows a close relationship with customers and an opportunity to offer them products, systems, services and support wherever in the world they are. Consilium s two business areas have parallel market organisations which mainly work separately but also operate jointly in certain cases. Together, the market organisations are of a size and extent that facilitates the establishment of new offices using synergies from existing establishments in areas such as marketing and administration. SAFETY, QUALITY, A GLOBAL PRESENCE AND HIGH APPLICATION KNOWLEDGE IN SELECTED NICHES ARE CONCEPTS THAT SUMMARISE CONSILIUM WELL IN THE CURRENT SITUATION. 04

5 GROUP OVERVIEW CLEAR STRATEGY Consilium has an overall strategy to concentrate operations on niches where a world-leading position can be achieved. The Company s business development has been based on this strategy, with non-strategic operations having been gradually divested or discontinued over the years. The current focus is growth in existing market and application areas. UNDERLYING GLOBAL GROWTH There is underlying global growth in all Consilium s selected niches. Demand for energy is growing globally and investments in oil, gas and power plants is expected to expand in the foreseeable future. There is also strong demand for oil tankers and gas carriers. The number of vessels in the world has increased steadily over the last 25 years, as an effect of increasingly globalised trade, and the trend shows no sign of abating. The number of people in the world is showing a stable growth trend, and major investments in infrastructure connected with trains and other transport vehicles are in progress or in the planning stage around the world, particularly in emerging countries. The need for product and system maintenance, renovation and upgrading, and servicing and services is increasing in all areas. 1, Marine & Safety Order intake, SEK million Net sales, SEK million Operating margin, % Fire safety & Automation Consilium Order intake, SEK million 1, , ) Net sales, SEK million 1, , ) EBITDA, SEK million ) 82.2 EBIT (operating profit), SEK million ) 52.0 EBT, SEK million 3) ) 29.4 Operating margin, % ) 5.8 Profit margin, % 3) ) 3.3 Return on operating capital, % Return on equity, % 4) Equity/assets ratio, % Earnings per share, SEK 2) 5) ) 1.14 Comprehensive income per share, SEK 2) 5) Capital expenditure, SEK million Number of employees ) 529 Number of employees in associates ) ) Continuing operations. 2) Excl. non-controlling interests. 3) Excl. non-recurring costs of SEK 17.5 million for early redemption of corporate bond in ) Adverse effect of 3.4 percentage points due to non-recurring costs for early redemption of corporate bond in ) Adverse effect of SEK 1.17 per share due to non-recurring costs for early redemption of corporate bond in Order intake, SEK million Net sales, SEK million Operating margin, %

6 CONSILIUM S VALUE CREATION GOALS AND STRATEGIES Consilium has focused on concentrating its operations on areas where the Company can achieve a world-leading position. The strategic initiatives that have permeated the have created a global growth company. Consilium currently has operations that primarily offer fire safety products and fire safety systems areas in which the Company has long experience, advanced knowledge and in many cases a market-leading position. VISION To be the customer s first choice When Safety Matters BUSINESS CONCEPT Consilium s business concept is to develop and market products, systems and services that are used to protect lives, material values and the environment. The business concept is supported by the philosophy of global sales with a local presence and offering customers the best service and support on the market. 06

7 CONSILIUM S VALUE CREATION GOALS Background In its early years as a listed company, from 1994 onwards, Consilium developed a large number of different operations. In the period , the Company restructured its operations, with a focus on growth in selected areas. Between 2005 and 2008, Consilium showed average annual growth of more than 20 percent. From 2009 to 2012, Consilium s markets were affected by a weakened global economy, which required efficiency improvements and cost control. At the same time, Consilium invested time and capital in a number of business development projects, the results of which included an expanded market organisation and a new business area. During the period , Consilium returned to growth, with an average of more than 20 percent. The main focus for today and the future is to create continuing profitable growth in selected niche areas. CONSILIUM S OVERALL GOAL IS TO CREATE VALUE FOR SHAREHOLDERS This will be achieved by building on the s expertise, global market organisation, long experience and innovative ability, and by being a leader within selected market and product segments. CONSILIUM WILL OFFER THE BEST CUSTOMER VALUE ON THE MARKET This qualitative goal involves offering the best customer value on the market in terms of quality and function, a high delivery performance and global service and support. Growth, % Target >10% 10 0 Operating margin, % Return on operating capital, % Target 12.5% Target 17.5% CONSILIUM WILL GENERATE AVERAGE GROWTH OF OVER 10 PERCENT Consilium s goal is to increase net sales with average annual growth of over 10 percent during the period through a combination of organic growth, partnerships and acquisitions OPERATING MARGIN OF AT LEAST 12.5 PERCENT Consilium s goal is to achieve an operating margin of at least 12.5 percent before Xx RETURN ON OPERATING CAPITAL TO AVERAGE AT LEAST 17.5 PERCENT It is also Consilium s goal to achieve an average annual return on operating capital of at least 17.5 percent in the period by improving operating profit and reducing tied-up capital STRATEGIES Consilium has a strong base to grow on, with market-leading products and systems and a global market organisation. Profitable growth will be created organically and through acquisitions, partnerships and alliances. Growth initiatives will be focused on product and market areas where Consilium has a leading position or has the potential to take such a position. The strategies are to: stand for quality and reliability be an innovative supplier, at the forefront of technical development further develop and expand the global presence evaluate acquisitions and be an active part of structural changes in the market seek value-creating alliances and partnerships constantly strive to improve the Company s processes, productivity and efficiency be an attractive employer and continuously improve the s collective expertise. 07

8 CONSILIUM S VALUE CREATION STRATEGIES FOR ACQUISITIONS AND PARTNERSHIPS The majority of Consilium s growth is organic. In addition to organic growth, Consilium must also be able to grow through acquisitions and partnerships. Consilium primarily seeks acquisition candidates, or strategic partnerships, that meet one or more of the criteria listed below. In all acquisitions and partnerships, Consilium looks for opportunities to increase revenues and/or improve margins and profitability through synergies. Consilium prioritises companies with a turnover of between SEK 15 and 150 million when making acquisitions. 1. Offering products, systems or unique expertise that complement Consilium s offering in existing niche segments. 2. Market companies that can strengthen Consilium s global presence. CONSILIUM Product companies Backward integration Product and system organisation Market organisation Forward integration Local sales and service companies Acquisitions Partnerships Acquisitions Partnerships Consilium s strategy for acquisitions and partnerships is aimed at integrating operations, both forward and backward in the value chain. ACQUISITIONS IN 2015 In January 2015, Consilium acquired the Australian marine company Novamarine Instruments Pty Ltd. The company sells marine equipment and services for commercial and military vessels in Australia and New Zealand. The acquisition strengthens Consilium s global market organisation and represents an entry into a new continent with its own company. In April 2015, Consilium acquired the Dutch gas detection company Buveco Gasdetection BV. Buveco has been a supplier of gas detectors to Consilium for many years, and the acquisition strengthens Consilium s expertise in gas detection and provides greater influence over key components in the existing and future offering. In June 2015, Consilium acquired the remaining 50 percent of shares in the joint venture company CN System AB, with the subsidiary CN System Norge AS. The two companies are now wholly-owned subsidiaries. CN System AB sells fire alarm equipment in the segment of large properties with high protection values. The acquisition gives Consilium a strong base for its future expansion in the land market. Consilium has also further strengthened its global organisation with the acquisition of the Finnish marine company Oy Nauti-Electronics Ab and the acquisition of further shares in the jointly-owned fire safety company Consilium Fire Safety Pvt Ltd in India. 08

9 CONSILIUM S VALUE CREATION JOINT VENTURES AND ASSOCIATES Some of Consilium s operations are conducted in jointly-owned companies. Several of these are joint ventures or associates. Joint ownership may be a result of the former owner s wish to continue as a joint owner or Consilium s assessment that it made business sense to retain the local contractor in the company in an acquisition. The model has been successful so far and represents a strategic option for all potential acquisitions. Consilium s existing joint ventures and associates are, with one exception, local market companies. The exception is MicroData, which is a product company. All of these companies are part of the Consilium family and they function, and are managed, in the same way as other companies. Consilium s joint ventures and associates have total sales of over SEK 150 million and over 100 employees. Consilium s ownership of these companies is between 30 and 50 percent. In line with current financial reporting regulations, only the companies profit/loss after tax is reported in Consilium s financial statements. Consilium also has contractors as minority shareholders in some of its consolidated companies. BUSINESS DEVELOPMENT Business development is a priority area and an important factor for the Company s future growth. Consilium s business development is organised centrally, but is implemented using the s collective market and technology expertise. Consilium conducts active business development and uses its knowledge and experience to make ongoing investments in selected focus areas. Consilium normally works on a number of business development projects in parallel. Previous projects include investments in products and services for the onshore oil and gas industry, which are now a separate business area in Fire safety & Automation. Other examples include the development of a strong global market organisation, development of fire alarms for trains and other rolling stock, development of a common technical platform for Consilium s offering and work to certify safety functions for future systems according to the SIL 2 standard for the offshore industry and RAMS for the rail industry. RISKS AND UNCERTAINTIES In common with other companies, Consilium faces risks and uncertainties. The s main risks and uncertainties are business risks and financial risks. Business risks may be associated with large exposure to individual sectors or companies. Financial risks are mainly currency risks which arise due to the fact that more than 95 percent of sales are outside Sweden while about two-thirds of production is in Sweden. This results in a large proportion of costs in Swedish kronor, while revenue volumes are mainly generated in foreign currencies. Management of financial risks is described in Note 13. With regard to business risks, it is Consilium s assessment is that the has a balanced risk spread across countries, regions, sectors, segments and customers. Sales to the marine market have a good risk spread between new construction and the aftermarket, and between different types of vessels. Sales of safety systems to the oil, gas and power industries are increasing and in general are only affected to a minimal extent by the business cycle. However, the global economy is still a source of uncertainty for the s business areas and their selected segments. 09

10 CONSILIUM S MARKET ORGANISATION A GLOBAL COMPANY More than 95 percent of sales are to markets outside Sweden, and Consilium s global market organisation is one of the s strongest competitive advantages. The market organisation currently encompasses 55 offices in 25 countries around the world. The process of building a global presence with Consilium s own companies and offices has been one of the key strategies for a long time and is an important part of the s business development. GEOGRAPHICAL DISTRIBUTION OF NET SALES 2015 North America 9% Sweden 3% Other markets 3% Europe (excl. Sweden) 26% Asia 59% 10

11 CONSILIUM S MARKET ORGANISATION Consilium s market offices deal with marketing and customer development, and sales of products and systems, spare parts, services, project planning and local service and support. The market organisations have at their disposal the business areas product organisations, which serve the market with development, production, maintenance and purchasing of products and systems, and also Consilium s -wide administrative functions. GLOBAL OFFERING LOCAL PRESENCE Consilium is a global leader in several of its niche segments and the Company s offering extends to customers across the world. Global success is largely dependent on having representation in each local market, as business traditions, culture and market structure differ from one part of the world to another. Through its own offices, Consilium can offer high flexibility, short decision-making channels and a customer focus that is adapted to local conditions. Consilium works to expand its global reach as a key component of the s business development. The market organisation is now large enough to enable the establishment of new offices with the support of the existing organisation, which facilitates further organic expansion. Acquisitions may still take place when this is strategically appropriate and there is a clear business logic, such as entry into a new geographic market in a part of the world where Consilium is not established with its own company. Consilium also already has sales in markets where it does not yet have its own presence or has a limited presence through sales and service representatives. organisations. In some areas, there are synergies between the organisations, and although some business relationships can be shared, the business areas often have different customers, with separate marketing, sales and delivery. Marine & Safety s businesses are mainly geared towards shipyards and shipping companies, offshore companies, manufacturers of trains and metros and large property owners. Shipyard customers often prefer to work with a local partner and in some cases this may be a requirement. This is also very much the case in the rail industry and protection of property. For their part, shipping companies have vessels that are normally in constant employment on the ocean, and therefore have an interest in expanded global service and support. Customers of Fire safety & Automation s businesses are primarily engineering companies and contractors in the oil and gas industry, tank terminal owners, oil and gas companies and power companies. The engineering companies and contractors are international players and Consilium s global presence is therefore a strength. The other customers are often state-controlled companies where a local presence, and a local network, is a prerequisite for being able to deliver safety systems and supplementary products and services. Within the offshore oil and gas industry, customers may also include large shipyards in some cases customers where Consilium has already built up a relationship from its marine operations and where the business logic is similar. TWO MARKET ORGANISATIONS Consilium s global market organisation has been built up over a long period. Initially, work was concentrated on the Company s marine applications within the Marine & Safety business area. When Consilium established the Fire safety & Automation business area, Marine & Safety s organisation functioned as a base for the new business area s geographical expansion. Today, Consilium is investing in the development of two parallel market CONSILIUM HAS OPERATIONS IN EVERY TIME ZONE, 24 HOURS A DAY, 7 DAYS A WEEK. 11

12 CEO STATEMENT PROFITABLE GROWTH IN GLOBAL NICHE MARKETS Vision Today, Consilium is primarily a global safety company in niche markets with high protection values, offering our customers innovative solutions with a high level of quality, reliability and service. Our vision is for Consilium to be the customer s first choice when safety matters. Customer value It is our firm belief that the combination of innovative highquality products and systems developed and adapted for our niche markets, our advanced application knowledge in these areas and our strong global market organisation with local service and support creates value for customers. Clear strategy and business model Consilium s main focus is on providing and high-quality fire safety solutions to customers with high safety requirements. We focus on selected niche markets and strive for global growth with high market shares. Consilium works in a structured and long-term perspective to develop our technical expertise and produce more of our own products for our niche areas. We gradually integrate operations both forward and backward. We make complementary acquisitions of product companies and market companies. We continuously strengthen the global market organisation and improve our customer support. We work continuously to improve cost efficiency. Although the main focus is on safety systems, there is a need for complementary products and systems. Navigation products are an important complement that increases the base for our global marine market organisation. Emission systems to measure exhaust gas emissions are a natural complement to the detection of explosive gases. Instrumentation and automation systems for large industrial facilities and utility systems for offshore platforms represent an important additional offering. structure Operations within Consilium are divided into two business areas: Consilium Marine & Safety and Consilium Fire safety & Automation. The main markets for the Marine & Safety business area are large vessels, offshore, trains and metros and properties with high protection values. The main focus is on detection and alarms in high-risk areas, based on the detection of heat, smoke, gas, flames, oil mist, etc., with special systems designed for selected niche markets, and with special certification and approval for the relevant niche markets. The aim is to prevent and control fires through early detection, thereby saving lives and material values. The main markets for the Fire safety & Automation business area are the land-based and offshore oil and gas industry, and the power industry. The main focus is on extinguishing fires in highrisk areas, using extinguishing systems based on water, foam and gas, and special systems for fire protection of specific environments, and with special certification and approval for the relevant niche areas. The business area s sales of complete fire safety systems include detection and alarm systems. The aim is to prevent and control fires through risk analysis and early detection, and to limit the effects of fires by means of effective fire-extinguishing systems, thereby saving lives and material values. Technological innovation A high degree of innovation is a key factor in our long-term competitiveness and continuing growth, and Consilium makes significant investments in product development on an ongoing basis in its niche areas. In the Marine & Safety business area, with the main focus on detection and alarms, a major initiative in the development of SIL2- and RAMS-approved fire alarm systems for offshore and trains has been completed, and our first order for a SIL2 system has been received. A gas detection company in the Netherlands was acquired in 2015, which increased our technical competence in this area. In early 2016, Consilium has acquired a flame detection company in Scotland, which further strengthens our competence. Investments in product development continue, and several development projects for products and systems for detection and alarms to other niche areas are currently in progress. In the Fire safety & Automation business area, with the main focus on complete fire safety systems, a major investment in the development of more proprietary products and systems was implemented. We develop products and systems for extinguishing with water, foam and gas, and special products in high-value materials, as well as special systems for specific applications. Market investments Consilium is continuously strengthening its existing global market organisation for sales and after-sales support. Through training and recruitment, we are continuously increasing expertise within the market organisation. Consilium establishes new market offices and makes complementary acquisitions in its niche areas. In 2015, new market offices were established in Malaysia and Morocco, 12

13 CEO STATEMENT Order intake in relation to net sales 1,700 1,500 1,300 1, Order intake Net sales Xx THE AIM IS TO PREVENT AND CONTROL FIRES, THEREBY SAVING LIVES AND MATERIAL VALUES. and new market offices were acquired in Australia and Finland. Ownership of local companies in Sweden, Norway and India has been expanded. A new market company was established in Oman in early Consilium is currently a global company, with 97 percent of its sales in markets outside Sweden. We have 55 offices in 25 countries. We continuously adapt to global development. Europe and North America remain major markets for Consilium, but 59 percent of net sales in 2015 went to markets in Asia. We see potential for further growth in Asia. Africa is gradually becoming an important market. The acquisition in Australia strengthens us in that continent. Constant cost efficiency improvement Consilium constantly seeks to improve its cost structure through more efficient IT solutions and organisational solutions, and through increased production, assembly, project planning and development in low-cost countries. We are continuously looking to exploit the cost advantages that exist between our operations in different countries. Increased control over the entire value chain Consilium has its own global market organisation for sales and after-sales support. We develop several proprietary products, while also acquiring complementary products. We ensure quality through in-house final assembly and testing. At the beginning of 2016, Consilium acquired part of one of our electronics suppliers, thereby increasing our own control over key components, and allowing better cost control of costs and innovation. Organisational development The increased business volume has resulted in new recruitments. There are currently almost 800 employees within the Consilium and a further 100 or more employees in Consilium s joint ventures and associates. We see a continuing need for recruitment during Consilium has increased its commitment to training. It is important to develop cooperation between the different operations. With operations in 25 countries, encompassing many different cultures and languages, a common approach to strategy, goals and values is necessary. Staff are an important resource and success factor for a technical knowledge company like Consilium. Increased resources are invested in skills development within the global organisation. We have loyal employees and a low staff turnover. The strength of the global market organisation, with a large number of operations in many different countries, requires close daily interaction. We summarise our core values as follows: We are one global team, We take responsibility and We deliver. Profitable growth Increased market shares, technical innovation, acquisitions and successful investments in new market areas have brought strong 13

14 CEO STATEMENT global volume growth. Net sales increased by 25 percent to SEK 1,565.5 (1,255.3) million in Operating profit increased by 59 percent to SEK (110.3) million, corresponding to an operating margin of 11.2 (8.8) percent. Organic growth accounted for 57 percent of the increase in net sales and 66 percent of the increase in operating profit. The increased volume has meant that the operating margin has gradually improved through a more cost-effective organisation. The strengthening of the US dollar has had a positive impact on earnings. Net sales and profit per employee continued to increase in Consilium reports a high return on the operating capital required for operations and on shareholders equity. Return on operating capital was SEK 22.5 (18.8) percent in The return on equity in 2015 was 23.5 (20.9) percent, despite non-recurring expenses for early redemption of the corporate bond. Shareholder value Consilium continues to create shareholder value through its operations. Earnings per share increased by 68 percent in 2013, by 272 percent in 2014 and by 60 percent in The figures all relate to continuing operations and are exclusive of non-recurring expenses associated with early redemption of the corporate bond in Strong financial position Consilium has a strong financial position. Cash & cash equivalents and short-term investments amounted to SEK (118.3) million at 31 December In addition, there are pledged cash assets of SEK 39.5 (35.0) million for credit facilities and guarantees. Inventories and trade receivables have decreased relative to net sales, and cash flow from operating activities is good despite capital requirements associated with the large volume increase. Our large investments in product development and acquisitions of companies have had an adverse effect on cash flow in the short term. In March 2015, Consilium decided to repay the previously issued corporate bond of SEK 400 million early and to issue a new five-year corporate bond of SEK 600 million, with the right to issue a further SEK 300 million. In March 2016, Consilium exercised this right and issued SEK 150 million, with the aim of financing further growth and acquisitions. Market Net sales for the Marine & Safety business area increased by 23 percent in We have increased our market shares and built up a large order backlog for deliveries in 2016 and Sales to new shipbuilding are affected by growth in the global economy, which creates increased demand for seaborne transport. So far, offshore sales have represented a small part of the total volume and we therefore see growth potential despite a weak market. Sales to properties with high protection values are increasing year-on-year. Train and metro sales continue to grow. The majority of the world s freight is transported by sea. In an economy that is becoming more and more globalised, transportation by sea is increasing at a multiple of growth in the global economy. The global economy is expected to continue to grow. The total number of sailing vessels in the world and the volume transported have increased steadily over the last 25 years. One in every two large vessels in the world has a Consilium product on board. With an increasing global transport volume and number of sailing vessels there is more demand for service and support. Old systems are constantly being replaced and upgraded, which in turn increases demand for parts, servicing and services. With specialised vessels having a lifespan of 25 years or more, the aftermarket is of more value than the new construction market. Sales to the aftermarket provide a solid foundation, accounting for more than 55 percent of net sales, and are steadily increasing. Net sales for the Fire safety & Automation business area increased by 28 percent in Sales mainly consist of fire safety systems at refineries and chemical plants, tank terminals, offshore and power plants. Globally, there are large numbers of projects in the oil and gas industry, despite investments in several markets being adversely affected by low oil prices. Global demand for oil and gas continued to increase during Demand for energy and electricity continues to increase outside the OECD countries. Consilium has extensive knowledge of fire safety and technical solutions. We are broadening our offering to include everything from consultancy services to complete safety systems, with both fire detection and alarms as active fire protection, and special combinations of these. Consilium develops several proprietary products for fire safety, which are also sold to external customers. We are increasing our focus on the aftermarket. Globally, there is a major growth potential. We are continuing to expand the global market organisation in this business area. However, investments in new geographical markets have an adverse effect on earnings in the short term. Outlook for 2016 and new long-term financial goals Consilium has continued to report a strong order intake and net sales during the early part of We have a record order backlog and a strong financial position. We see growth potential in our niche areas and expect higher growth in 2016 than in Consilium continues to work in line with the long-term strategy that was defined for its operations, but the Board has revised the financial goals for the coming years. Consilium is increasing the target for annual growth in net sales to over 10 percent during the period (previous target: average of 10 percent). Consilium is increasing the operating margin target to at least 12.5 percent by 2020 (previous target: at least 10 percent). Consilium is increasing the target for return on operating capital to an average of over 17.5 percent during the period (previous target: at least 15 percent). Nacka, April 2016 Ove Hansson President and CEO 14

15 BUSINESS AREA MARINE & SAFETY In the Marine & Safety business area, Consilium develops, manufactures and markets products for fire and gas detection in high-risk environments. Operations are focused on niche markets with high safety requirements and high protection values, including the shipping industry, the offshore industry, the transport sector and large properties. The business area also includes a division that develops, manufactures and markets navigation products. 96 percent of sales are to markets outside Sweden. Marine & Safety Key figures and financial ratios SEK millions Order intake 1, ,016.0 Net sales 1, EBITDA EBIT (operating profit) Assets (of which non-current) (of which current) Share of 's net sales, % Share of 's operating profit, % Operating margin, % Return on operating capital, % Number of employees Number of employees in associates Equity and liabilities (of which equity) (of which liabilities) Operating capital

16 BUSINESS AREA MARINE & SAFETY OFFERING AND CUSTOMERS Consilium is one of the world s leading suppliers of fire alarms for marine environments. The offering includes a broad portfolio of products for all types of vessels from small commercial vessels to large cruise liners. In addition, Consilium is a world leader in the detection of toxic and explosive gases on board ships. Consilium s fire and gas alarms can be integrated into a complete solution for customers with very high security requirements. Consilium also develops, markets and services speed logs and marine voyage data recorders. Additionally, Consilium offers fire alarms for transport vehicles such as trains, metro cars, buses, trucks and large buildings with high protection values. Consilium concentrates its offering on four niche markets shipping, the offshore industry, the transport sector and large properties. Consilium s largest market segment is the shipping industry and the Company markets its products in both the newbuilding phase and the aftermarket. In newbuilding, shipyards traditionally made most of the investment decisions and it was therefore important to appear on a shipyard s makers list. This is still true to a large extent, but it is important to also have a good relationship with shipping companies in the new construction phase. Virtually all major shipyards and shipping companies can be found on Consilium s customer list and the Company estimates that at least one in every two large vessels in the world has a Consilium product on board. The aftermarket phase consists of replacement products, spare parts, servicing, support and other services. In this phase, the customer is the shipping company that owns the vessel or the management company that is responsible for the vessel. Commercial vessels have a lifespan of about 25 years and for certain types of vessels considerably longer. Increased Geographical distribution of net sales % transportation volumes, a higher number of vessels on the seas, technical development and regulatory requirements all mean that demand is increasing continuously and more than 55 percent of the business area s net sales are currently from aftermarket. MARKET 4% 4% 9% 32% Sweden Europe (excl. Sweden) North America Asia Other markets About 90 percent of world trade is transported by ship at some point. The need for effective maritime transport is increasing in pace with globalisation and increased trade between emerging countries and other parts of the world. There is a close correlation between growth in merchant shipping and growth in world trade. A reasonable estimate is that demand for transport increases about twice as quickly as world trade growth. There are about 100,000 commercial vessels in the world and 50,000 of them are part of the international merchant fleet, which is Consilium s main marine market. In addition to these, there CONSILIUM CONCENTRATES ITS OFFERING ON FOUR NICHE MARKETS Market segment Shipping Market segment Offshore industry Market segment Transport sector Applications Tankers Cruise ships Cargo vessels Military vessels Applications Supply and support vessels Floating oil rigs Production and accommodation platforms Accommodation vessels Applications Trains Metros Buses Trucks 16

17 BUSINESS AREA MARINE & SAFETY are many of other types of vessels, which include cruise ships and ferries, military vessels and specialised vessels, such as supply and support vessels in the offshore sector. The newbuilding market is mainly concentrated on shipyards in Asia, where China, South Korea and Japan are the dominant shipbuilding countries. In certain special segments there are also some important shipyards in Europe and the United States. The aftermarket is global in all respects. The shipping industry itself is local, but fleets of vessels are in constant motion on the oceans and a ship s needs for servicing and replacement products must be satisfied where the ship is located at a particular time. Through its global market organisation, Consilium has a presence with its own personnel in all important shipbuilding and ship-owning countries and in countries that have the largest ports and the most traffic. Other markets are serviced by servicing and sales representatives. The market for trains and other rolling stock is global and the customers are train manufacturers and train operators. The main market phase is new construction, but there is also a certain local aftermarket phase when vehicles undergo major upgrades. The market is driven primarily by the establishment of new train systems, notably in emerging markets, and the phasing out of older train systems for replacement by new ones. Oil and gas from offshore sources are an important part of global energy production. This is a growth area and Consilium has recently developed a SIL2-approved fire alarm that meets the industry s safety requirements and opens up a whole new market. POSITION Consilium is one of the world s leading suppliers of fire alarms, and the world leader in gas detection, in its selected niches. With a long history, stable products, recognised brands and unique solutions, Consilium has succeeded in creating high or very high market shares in several of its product areas. With its global market organisation, Consilium has built a unique position in the market which covers all market phases, from newbuilding to aftermarket sales, servicing and support across large parts of the world. To maintain sustainable competitiveness, the Marine & Safety business area focuses on a number of aspects of its business that are aimed at offering the best customer value on the market. The overall philosophy is helping customers to succeed. The main components are: 1. Innovation in existing and new offerings. 2. Quality zero error vision through quality-assured development and production. 3. Reliability of supply in terms of effective production and distribution. 4. Service and support first-time fix and local support on a global basis. SIGNIFICANT EVENTS DURING THE YEAR In January, Consilium acquired the Australian marine company Novamarine Instruments, which markets marine equipment for commercial and military vessels in Australia and New Zealand. The acquisition strengthens Consilium s global market organisation and establishes it in a new geographical market. In April, Consilium acquired the Dutch gas detection company Buveco Gasdetection. The acquisition of the company, which is a long-standing Consilium supplier, strengthens Consilium s expertise in the area of gas and provides backward integration in the supply chain, in line with the s acquisition strategy. In June, Consilium acquired the remaining 50 percent of shares in the joint venture company CN System AB, with the subsidiary CN System Norge. The two companies are now wholly-owned subsidiaries and provide a base for Consilium s future expansion in the land market. CN System sells fire alarms, primarily for large properties with high protection values. Consilium also strengthened its market organisation during the year through the acquisition of the Finnish Marine company Nauti-Electronics. Market segment Property Applications Hospitals and public spaces Large industrial properties Wind turbines SIL A NEW LEVEL OF RELIABILITY Several of Consilium niche markets, such as offshore, trains and certain types of industrial properties, currently have very high requirements for safety and reliability in the products and systems they use for risk reduction, such as fire alarms. In many cases they require these to be SIL-approved, which means that they have documented performance according to the international standard on functional safety of electronic systems, IEC SIL (Safety Integrity Level) is a measure of the availability of functional safety of electrical, electronic and programmable electronic products and systems throughout their life cycle, from risk analysis and software and hardware development to installation, commissioning and maintenance. Consilium is currently able to offer products and systems with a safety performance up to SIL2 level, which corresponds to an availability of up to 99.9 percent. The SIL project is the largest business development project in Consilium s history, involving a total of persons and about 75,000 working hours. The work has also generated 400 documents, which form the basis of Consilium s improved operational management system. In addition to the existing known areas of application, it is likely that other niche markets, such as the shipping industry, primarily cruise ships, LNG tankers and military vessels, will also demand SIL-approved systems in the future. 17

18 BUSINESS AREA MARINE & SAFETY WORLD-LEADING NAVIGATION PRODUCTS Consilium has long experience in developing, manufacturing, marketing and maintaining navigation products and the Company is one of the world s leading suppliers of speed logs and marine voyage data recorders. Consilium s navigation operations are a division in the Marine & Safety business area and the offering is focused on marine voyage data recorders and speed logs. The offering includes products for all types of vessels and environments from icebreakers and submarines to cruise ships and oil tankers. Consilium s products are developed with a focus on easy installation, high reliability and optimum cost efficiency and, if required, they can also be included with other supplier s products to form an integrated bridge system. Customers of Consilium s navigation products are international shipping companies and large shipyards, mainly in Asia and Europe. An important part of Consilium s offering is the sale of replacement products (retrofit), spare parts, servicing, support, and inspections. With its deep product knowledge, long experience and global market organisation, Consilium is able to offer both new sales and aftermarket services for its own and external products and systems virtually throughout the world. Over 100 years experience A log is used to measure a vessel s speed and calculate the distance travelled. Consilium s speed logs date back to 1912 when Svenska Aktiebolaget Logg (SAL) established its business. Consilium has a broad portfolio that covers all types of vessels, and the Company s logs are installed on over 20,000 vessels around the world. Over the years, the Company has consolidated its leading position with an offering that is characterised by high quality and innovative solutions. Consilium s solution is based on an acoustic pulse that is sent from the ship. The time taken for the pulse to return in the form of an echo is then measured. Echoes from the seabed give bottom-track speed and echoes from particles in the water give water-track speed the two speed indications that a ship uses. The acoustic solution also enables some of Consilium s logs to display the current bottom depth, and the Company was first in the world to introduce an approved combination log that met all regulations and requirements for both log and echo sounder functions. Consilium s solution also makes it possible for certain models to only require one hole in the hull which both increases cost-efficiency of installation and maintenance and provides greater freedom in the design of a ship. The vessel s black box A marine voyage data recorder (VDR) is the equivalent of the black box in an aircraft. International rules require ships of a certain size or ships employed for certain activities to be equipped with a VDR. The VDR records and saves important information on a ship s bridge, such as radar data, radio communication and commands on board. The saved data is then available if the ship is involved in an incident that requires investigation. The saved data can also be used for training purposes. Since 1996, Consilium has been one of the world s leading suppliers of marine voyage data recorders and offers two types of marine VDR, one for newly built ships and a simpler one (S-VDR, Simplified Voyage Data Recorder) which is mainly used for retrofits in the aftermarket. Consilium s voyage data recorders are structured in modules based on the same technical platform, which allows a high degree of flexibility for customer-specific solutions. Easy installation and operation, and low ongoing maintenance needs characterise Consilium s offering. Consilium s marine voyage data recorders can also be monitored remotely, which makes it possible to quickly access information in the event of an incident and to receive ongoing reports on the system status and maintenance needs. 18

19 BUSINESS AREA FIRE SAFETY & AUTOMATION Within the Fire safety & Automation business area, Consilium develops, manufactures and markets complete safety systems for active firefighting in high-risk environments. Operations are focused on niche markets with high safety requirements and high protection values, such as the oil and gas, power and offshore industries. 98 percent of sales are to countries other than Sweden. Fire safety & Automation Key figures and financial ratios SEK millions Order intake Net sales EBITDA EBIT (operating profit) Assets (of which non-current) (of which current) Share of 's net sales, % Share of 's operating profit, % Operating margin, % 8 8 Return on operating capital, % Number of employees Number of employees in associates 0 0 Equity and liabilities (of which equity) (of which liabilities) Operating capital

20 BUSINESS AREA FIRE SAFETY & AUTOMATION OFFERING AND CUSTOMERS Consilium is a leading supplier of complete security systems for active firefighting. Consilium s products and services covers everything from preventive solutions to detection, alarms, firefighting and support systems. Consulting services, such as technical calculations, design, risk analysis and training, and servicing and support are also offered in addition to fire safety systems. As a complement to the safety systems, Consilium can also supply automation solutions, instrumentation and electrical systems. Consilium concentrates its activities on the oil and gas industry, the power industry and the offshore industry. Within each industry, there are a number of different niche markets and areas of application. Consilium offers its systems and services during new construction, extension or conversion of various types of large facilities. In the area of new construction, Consilium normally targets its offering at international contractors with overall project responsibility. Several of the large contractors are global players represented by local companies. In the area of extensions, conversions and other services, the customers are often oil, gas or power and energy companies. The majority of these are state-owned. MARKET Global demand for oil, gas, energy and electricity is high and increasing, which is driving investments in infrastructure. Oil, gas and coal are the largest sources of energy, and around the world a large number of facilities are being planned and designed in the immediate future. Demand for alternative sources of energy is increasing and new projects are being planned in several countries. The offshore market is adversely affected by lower oil prices and Geographical distribution of net sales % 1% 2% 12% 7% Sweden Europe (excl. Sweden) North America Asia Other markets investments are declining, but this represents only a small part of Consilium s total market. Demand for safety systems for different types of facilities remains high, partly because of their high financial value but also as a result of increased safety requirements. Consilium s operations are concentrated on countries and regions that have well-established industries in the areas of oil, gas and other energy sources, or countries that are developing their industry. Most of the world s oil and natural gas reserves are in the Middle East, and that was also where Consilium began and still has a large part of its operations. India and China are planning major investments in power plants and Consilium services this segment from its Indian business. In the offshore segment, Consilium has a large operation based on extraction in the North Sea through its business in Norway and through its market companies in China and South Korea. 20

21 BUSINESS AREA FIRE SAFETY & AUTOMATION Market segment Oil and gas industry Market segment Power industry Market segment Offshore industry Applications Refineries, petrochemical plants and chemical plants Tank terminals and oil wharves Petrochemical storage and disposal facilities Applications Gas and oil power plants Coal power plants Nuclear power plants Solar, hydro and wind plants Substations and distribution plants Applications Production and exploration platforms Accommodation platforms Floating support units, FPSO/FLNG Helicopter platforms CONSILIUM CONCENTRATES ITS OFFERING ON THREE NICHE MARKETS Consilium has invested in building up its global market organisation in the business area for a number of years. These investments continue and new geographical markets are being added successively. In addition to expanding the presence in existing markets, the US and South American are interesting markets to be evaluated for the future. POSITION Consilium has strengthened its market position in recent years as the business has expanded. Through a combination of organic growth and acquisitions, Consilium has gained significant market shares in certain sub-segments. From being a small player, the Company has evolved into an established and respected player, even on a global basis, where Consilium s systems and expertise have a high reputation in the market. An increased market presence through the establishment of more offices is gradually generating increased business opportunities. The Fire safety & Automation business area focuses on a number of areas in order to further develop its sustainable competitiveness and offer the best customer value on the market: 3. Availability local presence combined with global reach. 4. Cost-efficiency through optimised system integration delivered by an efficient organisation. 5. Broad offering with a complete programme of safety systems and services. SIGNIFICANT EVENTS DURING THE YEAR In 2015, Consilium increased its investments in the development of proprietary products. Consilium also invested further in its global market organisation with the establishment of new offices in Malaysia and Morocco, and the acquisition of additional shares in the jointly-owned fire safety company Consilium Fire Safety Pvt Ltd in India. 1. Quality systems with premium products. 2. Reliability with qualified personnel who understand and can resolve customers challenges. 21

22 THE CONSILIUM SHARE Consilium s B shares were admitted to trading on the O list of the Stockholm Stock Exchange in May In 1995, the Company s shares were moved to the A list of the Stockholm Stock Exchange. The shares returned to the O list in spring Following the reorganisation of the Stockholm Stock Exchange, Consilium s shares are now quoted on the NASDAQ Stockholm Small Cap list. Consilium s share capital at 31 December 2015 amounted to SEK 58,511,015, divided into 11,702,203 shares (par value SEK 5). Class A shares (907,490) carry entitlement to 10 votes, while the entitlement for class B shares (10,794,713) is 1 vote. All shares carry equal entitlement to a share of the Company s assets and profits. Liquidity provider In 2008, Consilium signed an agreement with Remium Nordic AB for the purpose of improving the liquidity of the Consilium share. As liquidity provider, Remium ensures a specific spread the difference between the bid and ask price for the Company s shares. At the same time, liquidity is added to the order book by a guaranteed volume of trading in the shares. The aim of the guarantee is to minimise sharp price fluctuations caused by individual transactions and to stimulate trading. For the shareholders, this ultimately means better price information and a more accurate market valuation of the Consilium s shares. Under Nasdaq s regulations, liquidity providers are required to post bid and ask prices to ensure the spread does not exceed 4 percent. The rates must be posted during a minimum of 85 percent of regular trading hours. As the Company has a liquidity provider, the designation (LP) appears next to Consilium on stock exchange lists. The average closing spread was 0.92 percent in period, Consilium s indexes increased as follows: OMX Stockholm (PI) 6 percent, OMX Stockholm Small Cap (PI) 29 percent and OMX Stockholm Industrial Goods & Services (PI) 8 percent. The highest price paid for the Consilium share during the year was SEK and the lowest was SEK At the end of 2015, Consilium s market capitalisation was SEK 969 (685) million. Turnover There were 22,709 Consilium B transactions during the year. A total of 4,942,378 shares were traded at a value of SEK 402,889,735. The turnover rate was 45 percent. Shareholders The number of shareholders at 31 December 2015 was 2,371 (2,030). Dividend policy Consilium s Board has decided that a cautious dividend policy will be adopted during an anticipated growth phase. The dividend will ultimately correspond to one-quarter of profit after net financial items and tax. Proposed dividend. The Board proposes a dividend of SEK 2.00 (1.25) per share. Dividend yield The proposed dividend of SEK 2.00 per share corresponds to a yield of 2.2 (2.0) percent based on the price at year-end. Share price development The share increased by 41 percent during the year, starting on SEK and ending on SEK at 31 December In the same Share price development Share price development , ,100 1, JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 0 Consilium B OMX Stockholm Small Cap PI OMX Stockholm PI OMX Stockholm Industrial Goods & Services PI Number of shares Traded per week, thousands Source: 22

23 THE CONSILIUM SHARE Per-share data Share price Earnings, before and after dilution Comprehensive income, before and after dilution, SEK P/E ratio Equity, SEK Price/equity ratio Dividend, SEK Dividend yield, % P/S ratio Number of shares, listed 10,794,713 10,794,713 10,794,713 10,794,713 10,794,713 Number of shares, total 11,702,203 11,702,203 11,702,203 11,702,203 11,702,203 Largest shareholders A shares B shares Holding Votes Platanen Holding AB ,210, % 71.9% MCT Brattberg Aktiebolag 2,205, % 11.1% Magnus Vahlquist 550, % 2.8% Avanza Pension 107, % 0.5% Ove Hansson 100, % 0.5% Lott och Nils Rosenblads stiftelse 96, % 0.5% ABG Sundal Collier Norge ASA 95, % 0.5% Nordnet Pensionsförsäkring AB 84, % 0.4% Unionen 77, % 0.4% Sensor Sverige Select 71, % 0.4% Total 907,490 8,598, % 88.9% Share information Consilium B Listing, NASDAQ OMX Stockholm, Small Cap Short name, CONS B ISIN code, SE ICB code, 2700 Sector, Industrial Goods & Services Total number of listed shares, 10,794,713 Highest price paid in 2015, SEK Lowest price paid in 2015, SEK Closing price 31/12/2015, SEK Market cap 31/12/2015, SEK 969 million IR Contacts Ove Hansson, President and CEO Tel: +46 (0) ove.hansson@consilium.se Anna Holmgren, Finance Manager and Treasurer Tel: +46 (0) anna.holmgren@consilium.se Financial information 2016 Interim Report Jan-Mar, 23 May 2016 Interim Report Jan-Jun, 23 Aug 2016 Interim Report Jan-Sep, 23 Nov 2016 In addition, Consilium publishes monthly information about the s orders and sales. 23

24 MULTI-YEAR OVERVIEW / GLOSSARY MULTI-YEAR OVERVIEW Consolidated income statement Amounts in SEK millions Net sales 1, , Operating expenses -1, , Operating profit/loss Financial items 1) Profit/loss after financial items ) Incl. non-recurring costs of SEK million for early redemption of corporate bond. Consolidated balance sheet Amounts in SEK millions Assets Property, plant & equipment Intangible assets Financial assets Inventories Receivables Short-term investments Cash & cash equivalents Total assets 1, , Equity Liabilities Non-interest-bearing non-current provisions Non-interest-bearing non-current liabilities Interest-bearing non-current liabilities Non-interest-bearing current provisions Non-interest-bearing current liabilities Interest-bearing current liabilities Total liabilities 1, Total equity and liabilities 1, , GLOSSARY Business model A theoretical description of how a company or business is intended to work. LNG Liquefied natural gas. Makers list A shipyard s list of preferred suppliers. Project engineering The engineering design and supervision of a project. Retrofit Aftermarket for the sale of replacement products. SIL Safety Integrity Level. An international functional safety standard (IEC 61508) for the development of safety systems for machines. VDR Voyage Data Recorder. Equipment to facilitate the investigation of vessel accidents. A VDR registers a vessel s position and speed, heading, depth, radio traffic etc. and is the equivalent of the black box in an aircraft. RAMS Reliability, Availability, Maintainability and Safety. A European safety standard (EN 50126) for the rail industry. 24

25 KEY FIGURES AND FINANCIAL RATIOS / DEFINITIONS KEY FIGURES AND FINANCIAL RATIOS EBITDA, SEK million ) ) ) 83.7 EBIT (operating profit), SEK million ) ) ) 49.0 EBT, SEK million 3) ) ) ) 33.7 Operating margin, % ) 5.8 1) 4.9 1) 5.4 Profit margin, % 3) ) 3.3 1) 2.8 1) 3.7 Return on operating capital, % Return on equity, % 4) Dividend yield, % P/E ratio 2) Equity/assets ratio, % Risk-bearing capital, % Net debt/equity ratio, % Quick ratio, % Earnings per share, SEK 2) 5) ) ) ) 1.37 Comprehensive income per share, SEK 2) 5) Equity per share, SEK Capital expenditure, SEK million Dividend per share, SEK Number of employees ) 529 1) 521 1) 520 Number of employees in associates ) 78 1) 77 1) 76 1) Continuing operations. 2) Excl. non-controlling interests. 3) Excl. non-recurring costs of SEK 17.5 million for early redemption of corporate bond in ) Adverse effect of 3.4 percentage points due to non-recurring costs for early redemption of corporate bond in ) Adverse effect of SEK 1.17 per share due to non-recurring costs for early redemption of corporate bond in DEFINITIONS Return on equity Profit/loss after financial items, less current tax, divided by average equity. Return on operating capital Operating profit/loss divided by average operating capital. Dividend yield Dividend adopted by the AGM, or proposed by the Board and CEO, for the financial year divided by the share price. EBITDA Earnings before interest, taxes, depreciation and amortisation. EBIT Earnings before interest and taxes. EBT Earnings before taxes. Equity per share after dilution Equity, plus convertible note loans, divided by the total number of shares after conversion. Equity per share before dilution Equity divided by the number of shares at the reporting date. P/E ratio Share price divided by earnings per share. Earnings per share Profit after tax attributable to owners of the parent divided by the weighted average number of shares. Risk-bearing capital Equity and convertible note loans divided by total assets. Operating profit/loss Earnings before interest and taxes. Same as EBIT. Operating margin Operating profit divided by net sales. Equity/assets ratio Equity, including non-controlling interest, divided by total assets. Debt/equity ratio Interest-bearing liabilities (excl. convertible note loans and interest-bearing provisions), divided by equity. Profit margin Profit after financial items divided by net sales. Quick ratio Current assets (excl. inventories) divided by current liabilities. Operating capital Total assets, less cash & cash equivalents (cash, bank deposits and other financial assets) and non-interest bearing liabilities, calculated as an annual average. 25

26 HISTORY Consilium s brands have been on the market a long time and bear the hallmark of a long tradition and history. Consilium s marketed trademarks have been installed and used, and have gained respect over many decades. Consilium has developed many of the products and systems it offers, while others have been acquired. Consilium speed logs can be traced back to Early gas detection and fire alarm systems were developed in the 1950s and 1960s. These products and systems, along with many others, came to the Company through an acquisition in Below is a selection of events in Consilium s modern history after the 1994 stock exchange introduction Consilium s shares are admitted to trading on the O list of the Stockholm Stock Exchange on 11 May Consilium launches the world s first integrated fire alarm and gas detection system. In the same year, Consilium acquires a VDR development project Consilium acquires Japanese Nittan s marine fire alarm operations Consilium develops a fire alarm system customised for the rail market Consilium acquires the Norwegian competitor Servoteknikk (fire alarms) In response to new international regulations, Consilium launches a simplified voyage data recorder, Consilium S-VDR Consilium and Japanese company Nittan merge their Scandinavian fire alarm operations for the land market to form a new company, CN System AB As part of its efforts to establish a clearer focus on products and systems for safety and navigation, Consilium portions out Precomp Solutions AB (publ), formerly Consilium Components, to its shareholders Consilium establishes a new business area in response to increasing demand from the oil and gas industry, particularly in the Middle East. The Automation business area started life as a project within Consilium s business development Consilium merges the operations in the Fire & Gas and Navigation business areas to form a new business area: Consilium Marine & Safety As a result of the progressive increase in sales of fire safety systems to the land-based oil and gas industry, the name of the Automation business area is changed to Fire safety & Automation Consilium acquires a majority stake in the Swedish fire protection company Incendium. Consilium issues a bond of SEK million, making the Company financially independent of bank financing for its own growth and creating opportunities for active participation in the restructuring of the market during the current recession Consilium increases its focus on security and sells the radar operations. Major development resources are invested in the process of certifying future system safety functions in accordance with SIL2 and RAMS Consilium acquires a majority stake in the Indian fire safety company Sureland Fire & Security, strengthening its position in India and bringing core competency in applications for the power industry. Consilium acquires 60 percent of the shares in the Norwegian fire safety company JKK, with subsidiaries in Norway and China, strengthening the Company s position and offering to the offshore market. Consilium acquires a 40 percent shareholding in the Italian fire alarm company MicroData. The acquisition gives increased influence over a major supplier of fire alarm products Consilium ends a long period of streamlining its operations and concentrates fully on creating profitable growth. During the year, Consilium strengthens its product and market organisation through acquisitions of companies in Australia, Finland and the Netherlands, and increased ownership in joint ventures in Sweden, Norway and India. Two new market companies are established in the Fire safety & Automation business area in Malaysia and Morocco. Consilium also opens an office in Stavanger for the marketing of fire alarms to the Norwegian offshore industry. 26

27 BOARD OF DIRECTORS REPORT The Board of Directors and CEO of Consilium AB (publ), reg. no , registered office in Nacka, Stockholm County, herewith present the consolidated and Parent Company s annual financial statements for the financial year Consilium s main focus is to develop and market products and systems in the area of fire safety. With a stable base of proprietary products, complemented by high-quality external brands, and a global marketing organisation, Consilium ranks among the world s leading suppliers to international shipping and the oil, gas and power industries. The guiding principle behind Consilium s products and systems is to help protect people, the environment and material values. Consilium also markets products and systems for other industries with applications which are well-suited to the Company s products, systems and application expertise. Proprietary and external complementary products and systems are also offered, as well as service and support. Consilium s product companies are responsible for product development and have overall responsibility for global marketing and sales. The local market companies are responsible for local marketing, sales, project design and service and support to customers. For the full year 2015, net sales increased by 25 percent to SEK 1,565.5 (1,255.3) million, while operating profit (EBIT) increased by 59 percent to SEK (110.3) million, corresponding to an operating margin of 11.2 (8.8) percent. Organic growth accounted for 57 percent of the increase in net sales and 66 percent of the increase in operating profit. The increased volume has meant that the operating margin has gradually improved through a more cost-effective organisation. Net sales and profit per employee continue to increase. More than 95 percent of Consilium s sales are to markets outside Sweden, and a large percentage of these are invoiced in foreign currencies. In 2015, the strengthening of the USD in particular, which is a key invoicing currencies in Consilium s global operations, had a positive impact of just under SEK 30.0 million on operating income compared with the previous year. Due to shifting currency effects as a result of forward cover for the order backlog, a further positive impact of just under SEK 10.0 million at current exchange rates is expected in 2016 compared with Consilium has a large order backlog due to a good order intake in recent years. The order backlog was SEK million on 31 December The order backlog is mainly related to system deliveries, with long lead times, for new vessels and large facilities. The order backlog for the aftermarket is normally relatively small, with short lead times, although sales to the aftermarket have shown stable growth over 15 years. Consilium continues to create shareholder value through its operations. Earnings per share increased by 68 percent in 2013, by 272 percent in 2014 and by 60 percent in The figures all relate to continuing operations and are exclusive of non-recurring expenses associated with early redemption of the corporate bond. Consilium s strategy is to build up a strong position in selected global niche markets. Within these niche areas, Consilium stands for quality, reliability and a high level of service. Consilium is primarily a safety company today. Increased safety requirements in selected niches are contributing to growth. Consilium develops products and systems adapted to selected niche markets. The Company has developed unique application knowledge and invested in a global market organisation for sales and customer support in these niches. Consilium delivers tailored products and systems, and provides a high level of service based on its global market organisation, both for new sales and aftermarket support. Consilium is gradually strengthening its global market organisation, making complementary acquisitions and integrating both forward and backward. This niche strategy has enabled Consilium to gradually increase its market shares. Consilium expects the good growth to continue in 2016, despite existing uncertainty about the effect of low oil prices and development of the global economy. In the Marine & Safety business area, sales are focused on ships, trains and metros, properties with high protection values and offshore. Sales to new shipbuilding are affected by growth in the global economy, which creates increased demand for seaborne transport. Sales to the aftermarket provide a solid foundation, accounting for more than 55 percent of net sales, and are steadily increasing. Sales to properties with high protection values are increasing year-on-year. Train and metro sales continue to grow. Consilium has developed a new SIL 2-approved fire alarm system for offshore. So far, the business area s offshore sales have represented a small part of the total volume and Consilium therefore sees growth potential despite a weak market. Good growth is expected to continue in In the Fire safety & Automation business area, sales are focused on safety systems for refineries and chemical plants, tank terminals, offshore, power plants and buildings with high protection values. Consilium continues to expand its global market organisation in this business area. Globally, there are large numbers of projects in the oil and gas industry, despite investments in several markets being adversely affected by low oil prices. Global demand for oil and gas continued to increase during Demand for energy and electricity continues to increase outside the OECD countries. It is only in offshore that Consilium sees lower volumes for the business area in However, offshore is a small part of the business. Good growth is therefore expected to continue in Consilium currently has a global organisation of 55 offices in 25 countries. Further establishments are planned for Consilium s global niche strategy has created a strong market position, despite the fact that competitors are often considerably larger companies. The increased business volume has resulted in further new recruitments during Consilium currently has 793 (690) employees in the, an increase of 15 percent, and a further 106 (104) employees in joint ventures and associates. Consilium sees a continuing need for recruitment during Capital tied up in inventories and trade receivables has decreased relative to net sales compared with the previous year, while total working capital has, as expected, increased due to the strong volume growth (25 percent). Cash flow from operating activities has increased by 34 percent to SEK 77.9 (58.1) million. Consilium s large investments in product development and acquisitions of companies have had an adverse effect on total cash flow. Consilium reports a high return on the operating capital required for operations and on shareholders equity. Return on operating capital was SEK 22.5 (18.8) percent in The return on equity in 2015 was 23.5 (20.9) percent, despite non-recurring expenses for early redemption of the corporate bond. Marine & Safety business area Deliveries of safety products to vessels with high protection values, which is the Marine & Safety business area s main market, continue to be good. Consilium has gradually increased its market 27

28 BOARD OF DIRECTORS REPORT shares and built up a large order backlog for deliveries in 2016 and Deliveries of fire alarms for trains and metros continue to be good. Sales to the aftermarket continue represent more than 55 percent of total net sales. The order intake for the fourth quarter of 2015 was an all-time high. The majority of the world s freight is transported by sea. In an economy that is becoming more and more globalised, transportation by sea is increasing at a multiple of growth in the global economy. The total number of sailing vessels in the world and the volume transported have increased steadily over the last 25 years. The global economy is expected to continue to grow. The low price of oil is reducing orders from the offshore sector. One in every two large vessels in the world has a Consilium product on board. With an increasing global transport volume and number of sailing vessels there is more demand for service and support. Old systems are constantly being replaced and upgraded, which in turn increases demand for parts, servicing and services. With specialised vessels having a lifespan of 25 years or more, the aftermarket is of more value than the newbuilding market. The Marine & Safety business area is achieving long-term growth through its own product development and market initiatives, and through complementary acquisitions. The business area s net sales increased by 23 percent to SEK 1,100.8 (891.8) million in Operating profit (EBIT) increased by 56 percent to SEK (104.8) million. The order intake increased by 11 percent to SEK 1,127.3 (1,016.0) million. The order backlog remains strong. Fire safety & Automation business area Globally, large investments are being made in the land-based oil and gas industry, in chemical plants and in other facilities with high protection values. Demand for energy and electricity is increasing outside the OECD countries. However, demand in the offshore market is declining due to the low price of oil. The Fire safety & Automation business area focuses on sales and development of fire safety systems and related products for the oil and gas industry and the energy sector, and similar applications for facilities with high protection values. Increased resources have been invested in product development and new markets. The global economy continues to grow. Demand for oil and gas continues to increase, and there is a considerable need for increased energy production for many non-oecd countries. On the other hand, the low price of oil is having an adverse effect on investments in the offshore market and the uncertainty has also delayed many decisions in the land-based oil and gas industry. The business area s net sales continued to increase in 2015, despite the fact that the order intake and deliveries have been postponed for several major projects. Despite the instability arising from the low price of oil, Consilium expects good growth to continue in 2016, taking into account its market and product investments and the good spread of risk across market segments. Consilium combines extensive knowledge of fire safety with technical solutions containing high-quality proprietary and external products. Consilium s offering includes everything from consulting services to complete safety systems with both fire and gas detection and active firefighting. Consilium is developing several proprietary products, expanding the global market organisation, increasing the focus on offerings to the aftermarket and coordinating technical and marketing resources. The business area s net sales increased by 28 percent to SEK (363.5) million in Operating profit (EBIT) increased by 32 percent to SEK 37.0 (28.0) million. The order intake declined by 17 percent to SEK (444.0) million. The order backlog remains strong. Consilium in 2015 Net sales increased by 25 percent to SEK 1,565.5 (1,255.3) million. EBITDA increased by 43 percent to SEK (147.9) million. Operating profit (EBIT) increased by 59 percent to SEK (110.3) million. The operating margin was 11.2 (8.8) percent. Profit before tax (EBT), excluding non-recurring expenses for early redemption of the corporate bond, increased by 56 percent to SEK (82.2) million. The profit margin was 8.2 (6.5) percent. The order intake increased by 3 percent to SEK 1,497.7 (1,460.0) million. The return on operating capital was SEK 22.5 (18.8) percent. The return on equity was 23.5 (20.9) percent, despite non-recurring expenses for early redemption of the corporate bond. New financial goals Consilium continues to work in line with the long-term strategy that was defined for its operations, but the Board has revised the financial goals. Consilium is increasing the target for annual growth in net sales to over 10 percent during the period (previous target: average of 10 percent). Consilium is increasing the operating margin target to at least 12.5 percent by 2020 (previous target: at least 10 percent). Consilium is increasing the target for return on operating capital to an average of over 17.5 percent during the period (previous target: at least 15 percent). Personnel and training The number of employees at 31 December 2015 was 793 (690). In addition, there are 106 (104) employees in joint ventures and associates. Remuneration of the Board and key management personnel The 2015 annual general meeting adopted Board fees of SEK 800,000, distributed as follows: Chairman of the Board SEK 175,000, external Board members SEK 125,000 each. The meeting also adopted guidelines relating to the compensation of key management personnel, which are essentially in line with market salaries and other terms of employment. Key management personnel s compensation consists of the basic salary, including car allowance, and any bonuses earned. Pension is payable in accordance with the current ITP plan. Bonuses are linked to financial targets and may not exceed three monthly salaries. Financial position and cash flow The equity/assets ratio was 25 (28) percent. Cash & cash equivalents were SEK 69.3 (105.4) million at 31 December Interest-bearing liabilities amounted to SEK (518.3) million. Cash flow was SEK million at the end of the year. Investments Net investments in non-current assets during the year amounted to SEK 75.5 (60.0) million. In Marine & Safety, investments related mainly to SIL development. Research & development Consilium is a technical knowledge company which aspires to be at the forefront of technological development in selected niches. The development of products, systems and production techniques is therefore a priority area. The capitalises development expenses, with an amortisation period of 3-5 years. Quality All product companies are currently certified to ISO Environment Consilium will work to ensure its daily operations, products and manufacturing processes comply with national laws and international environmental regulations. The s product materials and manufacturing processes must have minimal 28

29 BOARD OF DIRECTORS REPORT environmental impacts. Residual and waste products will be dealt with in an environmentally responsible way. The does not engage in any operations which are subject to permit and notification requirements under the Swedish Environmental Code. Financial risk management In the course of its operations, the is exposed to a large number of different financial risks. The s overall risk management policy focuses on the unpredictability of the financial markets and aims to minimise unfavourable effects on the s financial results. The uses derivative instruments to cover some of its risk exposure. Risk management is dealt with by each product-owning subsidiary according to policies defined by the Board. The Board formulates written policies for overall risk management and also for specific areas such as currency risk, interest rate risk, credit risk, use of derivative and non-derivative financial instruments and investment of surplus cash. Risks and uncertainties The s material risks and uncertainties consist mainly of business risks and financial risks. Business risks may be associated with large customer exposure to individual sectors or companies. Financial risks are mainly currency risks which arise due to the fact that over 95 percent of sales are outside Sweden while a large proportion of production is in Sweden. Management of financial risks is described in Note 13. Corporate governance report The corporate governance report can be found on page 55. decision on initial recognition and reviews the decision at each reporting date. Statement by the Board pursuant to chapter 18, section 4, of the Swedish Companies Act After the proposed dividend, the equity/assets ratio for the Parent Company will be 19 percent and for the 24 percent. The equity/assets ratio is satisfactory considering that the Company and the continue to operate profitably. The liquidity of the Company and the is expected to be maintained at a satisfactory level. It is the Board s assessment that the proposed dividend will not prevent the Parent Company or other companies from discharging their obligations or making necessary investments. The proposed dividend can therefore be justified pursuant to the provisions of the Swedish Companies Act, Chapter 17, section 3, para. 2-3 (the precautionary principle). Proposed distribution of profits Amounts in SEK thousands The following amounts are at the disposal of the annual general meeting: Share premium reserve 130,435 Retained earnings -45,842 Profit/loss for the year 10,014 Total 94,607 The Board proposes that the profit be distributed as follows: Cash dividend of SEK 2.00 per share to shareholders -23,404 Carried forward 71,203 Outlook for 2016 Consilium expects a continuing increase in net sales in Events after the reporting date Consilium AB (publ) has issued bonds of SEK 150 million. The bonds expire on 25 March 2020 and are part of Bond loan 2015/2020 (ISIN: SE ) which now amounts to SEK 750 million. In April 2016, Consilium aquired 79 percent of the shares in Micropack (Engineering) Ltd. Parent Company Consilium AB, reg. no , is the Parent Company of the entities which make up Consilium, and encompasses -wide functions. The Parent Company s net sales amounted to SEK 1.7 (0.9) million and relate to time charged to companies. Operating expenses amounted to SEK (-23.4) million. Operating profit/loss was SEK (-22.5) million. Profit after financial items amounted to SEK 12.9 (38.4) million. Profit after tax was SEK 10.0 (30.2) million. Consilium s shareholders Consilium has approx. 2,300 (2,000) shareholders. The largest shareholder is the Rosenblad family s holding company Platanen Holding AB, which owns 52.3 percent of the capital and 71.9 percent of the votes. Other large shareholders are MCT Brattbergs AB with 18.8 percent of the capital and Magnus Vahlquist with 4.7 percent. Financial instruments Financial instruments recognised in the balance sheet include cash & cash equivalents, trade receivables, current and non-current receivables, trade payables, loans and other liabilities. The classifies financial assets into the following categories: cash & cash equivalents, loans and receivables and available-for-sale financial assets. Financial assets are classified on the basis of the purpose for which they were acquired. Management makes a classification 29

30 GROUP CONSOLIDATED INCOME STATEMENT AND OTHER COMPREHENSIVE INCOME SEK millions Note Sales revenue 1 1, ,255.3 Cost of sales 20-1, Gross profit Distribution and marketing costs 2,9, Administrative expenses 2,3,4,9, Research & development expenses 9,10, Profit/loss from investments in associates Operating profit/loss Finance income and exchange gains Finance costs and exchange losses Other finance costs Profit/loss after financial items Income tax Profit/loss for the year Other comprehensive income: Items that may be reclassified subsequently to profit or loss Cash flow hedges Deferred tax on cash flow hedges Exchange differences Total other comprehensive income for the year, net of tax Total comprehensive income Profit/loss for the year attributable to: Owners of the parent Non-controlling interests Total profit/loss for the year Earnings per share (EPS), owners of the Parent Earnings per share, before and after dilution, SEK Total earnings per share, SEK Total comprehensive income attributable to: Owners of the parent Non-controlling interests Total comprehensive income Proposed dividend per share, SEK

31 GROUP CONSOLIDATED BALANCE SHEET Assets, liabilities and equity at 31 December, SEK millions Note Non-current assets Property, plant & equipment Land and buildings, land improvements Plant and machinery Equipment, tools and fixtures & fittings Total property, plant & equipment Intangible assets Capitalised development expenditure Patents, licences and similar rights Goodwill Total intangible assets Financial assets Holdings reported according to equity method Non-current receivables Deferred tax assets Total financial assets (of which restricted funds in non-current receivables) 23 (36.3) (31.8) Total non-current assets Current assets Inventories Receivables Trade receivables Prepayments and accrued income Other receivables Short-term investments Cash & cash equivalents Total current assets (of which restricted funds in other receivables) 23 (3.2) (3.2) Total assets 1, ,180.0 Equity and liabilities Equity Share capital Other paid-in capital Other reserves Retained earnings, incl. profit for the year Capital and reserves attributable to owners of the Parent Non-controlling interests Total equity Liabilities Non-current liabilities Liabilities to credit institutions Bond issues Retirement benefit obligations Other provisions Total non-current liabilities Current liabilities Trade payables Current tax liabilities Liabilities to credit institutions Other liabilities Accruals and deferred income Total current liabilities Total equity and liabilities 1, ,180.0 Pledged assets Contingent liabilities

32 GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital Other paid-in capital Other reserves Retained earnings, incl. profit for the year Total Noncontrolling interests Opening balance, 1 Jan Effect of transition to equity method of accounting (IFRS 11) Adjusted opening balance, 1 Jan Profit/loss for the period Other comprehensive income Comprehensive income for the period Dividends Acquisitions/disposals NCI share of equity Closing balance, 31 Dec Total equity Opening balance, 1 Jan Profit/loss for the period Other comprehensive income Comprehensive income for the period Dividends Acquisitions/disposals NCI share of equity Change in value, option Closing balance, 31 Dec

33 GROUP CONSOLIDATED CASH FLOW STATEMENT Note Operating activities Operating profit before financial items Depreciation/amortisation 9, Other non-cash items Interest received Other financial items Interest paid Income taxes paid Cash flow from operating activities before changes in working capital Increase/decrease in inventories Increase/decrease in trade receivables Increase/decrease in other current receivables Increase/decrease in trade payables Increase/decrease in other current operating liabilities Cash flow from operating activities Investing activities Investments in property, plant & equipment Investments in intangible assets Restricted funds Increase/decrease in other short-term investments Investments in associates Acquisitions of subsidiaries and other business units, net of cash acquired Cash flow from investing activities Financing activities Corporate bond issue and increase in other loans Issue of corporate bond and increase in other loans Non-recurring expenses for early redemption of corporate bond Dividend to investors in joint ventures and NCI Dividend to shareholders Cash flow from financing activities Cash flow for the year Cash & cash equivalents at beginning of year Exchange gains/losses in cash & cash equivalents Cash & cash equivalents at end of year

34 PARENT COMPANY INCOME STATEMENT, PARENT SEK millions Note Other operating income Gross profit Administrative expenses 2, 3, Operating profit/loss Other interest and similar income Profit/loss from investments in companies Interest and similar expense Other finance costs Profit/loss before tax Tax on profit/loss for the year 7, Profit/loss and comprehensive income for the year

35 PARENT COMPANY BALANCE SHEET, PARENT Assets, liabilities and equity at 31 December, SEK millions Note Non-current assets Property, plant & equipment Equipment, tools and fixtures & fittings Total property, plant & equipment Financial assets Investments in companies Deferred tax assets Total financial assets Total non-current assets Current assets Receivables Receivables from companies Prepayments and accrued income Short-term investments Other current receivables Cash & cash equivalents Total current assets Total assets Equity and liabilities Equity Restricted equity Share capital Statutory reserve Total Unrestricted equity Share premium reserve Retained earnings Profit/loss for the year Total Total equity Liabilities Non-current liabilities Corporate bond issue Liabilities to companies Total non-current liabilities Current liabilities Trade payables Liabilities to credit institutions Liabilities to companies Other liabilities Accruals and deferred income Total current liabilities Total equity and liabilities Pledged assets Contingent liabilities

36 PARENT COMPANY STATEMENT OF CHANGES IN EQUITY, PARENT Share capital Statutory reserve Share premium reserve Retained earnings Total equity Opening balance, 1 Jan Dividend paid Profit/loss for the year Closing balance, 31 Dec Opening balance, 1 Jan Dividend paid Profit/loss for the year Closing balance, 31 Dec

37 PARENT COMPANY CASH FLOW STATEMENT, PARENT Note Operating activities Operating profit before financial items Other non-cash items Interest received Interest paid Increase/decrease in other current receivables Increase/decrease in trade payables Increase/decrease in other current operating liabilities Cash flow from operating activities Investing activities Shareholder contributions Increase/decrease in other short-term investments Cash flow from investing activities Financing activities Corporate bond issues Repayment of corporate bond Increase/decrease in other loans Dividend paid Non-recurring expenses for early redemption of corporate bond Cash flow from financing activities Cash flow for the year Cash & cash equivalents at beginning of year Cash & cash equivalents at end of year

38 ACCOUNTING POLICIES All amounts are in SEK millions unless otherwise stated. Summary of significant accounting policies The most important accounting policies applied in preparing the consolidated financial statements are described below. These policies have been applied consistently for all presented years unless otherwise stated. Basis of preparation The consolidated financial statements for the Consilium have been prepared in accordance with the Swedish Annual Accounts Act, RFR 1 Supplementary Accounting Rules for s, International Financial Reporting Standards (IFRS) and IFRIC interpretations as adopted by the EU. They have been prepared using the cost method, apart from the revaluation of land and buildings, available-for-sale financial assets and financial assets and liabilities (including derivatives) at fair value through profit or loss. Preparation of financial statements in accordance with IFRS requires use of critical accounting estimates. In addition, management is required to make certain judgements when applying the s accounting policies. Amendments to accounting policies and disclosures A number of new standards and interpretations effective for annual periods beginning on or after 1 January 2015 have been applied in preparing the financial statements. New standards and interpretations adopted by the A number of new standards and amendments to interpretations and existing standards effective for annual periods beginning on or after 1 January 2015 have been applied in preparing the consolidated financial statements. New standards and interpretations not yet adopted by the A number of new standards and interpretations effective for annual periods beginning on or after 1 January 2015 have not been applied in the preparation of this annual report. These are not expected to have a material impact on the consolidated financial statements, with the following exceptions: IFRS 9 Financial Instruments deals with the classification, measurement and reporting of financial assets and liabilities. The full version of IFRS 9 was issued in July This replaces the parts of IAS 39 dealing with the classification and measurement of financial instruments. IFRS 9 retains a mixed measurement approach but simplifies this approach in certain respects. There will be three measurement categories for financial assets amortised cost, fair value through other comprehensive income and fair value through profit or loss. An instrument s classification depends on the Company s business model and the instrument s characteristics. Investments in equity instruments are recognised at fair value through profit or loss but there is also an option to measure an instrument at fair value through other comprehensive income at initial recognition. There will then be no reclassification to profit or loss on disposal of the instrument. IFRS 9 also introduces a new model for calculating a loss allowance based on expected credit losses. There is no change to the classification and measurement of financial liabilities, apart from where a liability is recognised at fair value through profit or loss based on the fair value option. Fair value changes attributable to changes in credit risk are then reported in other comprehensive income. IFRS 9 reduces the requirements for application of hedge accounting by replacing the rule with a requirement for an economic relationship between the hedged item and the hedging instrument and for the hedge ratio of the hedging relationship to be the same as that used in risk management. There is also little change to hedging documentation compared with the requirements in IAS 39. The standard is effective for annual periods commencing on or after 1 January Earlier application is permitted. The has not yet evaluated the effects of introducing the standard. IFRS 15 Revenue from Contracts with Customers regulates the accounting of revenue. The principles on which IFRS 15 is based ensure that an entity reports useful information about its revenue to users of financial statements. The expanded disclosure requirements mean that information about the nature of revenue, the timing of settlement, uncertainty of revenue recognition and cash flow arising from a contract with a customer contract must be provided. IFRS 15 requires revenue to be recognised when the customer obtains control of the sold goods or services and has the ability to use and obtain the benefits of the product or service. IFRS 15 replaces IAS 18 Revenue and IAS 11 Construction Contracts and the related SIC and IFRIC. IFRS 15 is effective for annual periods beginning on or after 1 January Early application is permitted. The has not yet evaluated the effects of introducing the standard. IFRS 16 Leases. In January 2016, the IASB published a new lease standard that will replace IAS 17 Leases and the associated interpretations IFRIC 4, SIC-15 and SIC-27. The standard requires assets and liabilities attributable to all leases, with certain exceptions, to be recognised in the balance sheet. This reporting of leases is based on the approach that the lessee has a right to use an asset for a specific period of time and at the same time an obligation to pay for that right. Reporting for lessors is essentially unchanged. The standard is effective for annual periods commencing on or after 1 January Early application is permitted. The EU has not yet adopted the standard. The has not yet evaluated the impact of IFRS 16. None of the other IFRS and IFRIC interpretations that are not yet effective is expected to have a significant impact on the. Significant accounting estimates and assumptions Preparation of the financial statements in accordance with IFRS requires use of critical accounting estimates. In addition, management is required to make certain judgements when applying the s accounting policies. Areas involving a significant amount of judgement, which are complex or require use of critical accounting estimates are as follows: Assumptions used in goodwill impairment testing The tests goodwill for impairment in accordance with the principles described under intangible assets. The assumptions and accounting estimates regarding projected cash flows and the discount rate using a weighted average capital cost are described in Note 10. Cash flow projections are based on the best estimate of future income and operating expenses. Impairment testing has not identified any goodwill impairment and the margin used in the testing was such that company management does not believe any changes in individual variables will cause the value in use to fall below the carrying amount. Management also believes that even a certain amount of movement in the most critical variables will still not result in impairment losses. Assumptions used in impairment testing of capitalised development expenditure The tests capitalised development expenditure for impairment in accordance with the principles described under intangible assets. Cash flow projections are based on the best estimate of future income and operating expenses. Impairment testing has not identified any impairment of capitalised development expenditure. The margin used in the testing was such that company management does not believe any changes in individual variables will cause the value in use to fall below the carrying amount. Management also believes that even a certain amount of movement in the most critical variables will still not result in impairment losses. Assumptions used in impairment testing of deferred tax assets A deferred tax asset is recognised in the balance sheet for the carryforward of unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused losses can be utilised. The s forecasts are used as a basis for defining future profit. The carrying amount of a deferred tax asset is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the deferred tax asset to be utilised. Uncertainty regarding the future economic situation or other difficulties in the assessment of future profit may result in a lower taxable profit in subsidiaries which have unused tax losses. The probability of the being able to utilise unused tax losses is based on factors such as estimates and recent years results. All unused tax losses have been recognised as deferred tax assets. Put/call option JKK AS A put/call option was signed in connection with the acquisition of JKK AS in The estimated value of the option is initially recognised as a non-current liability. The option was remeasured in 2015, and the change in value of the liability has been recognised in equity. Trade receivables Receivables are recognised at net amounts due less any provision for doubtful debts, which are assessed on an individual basis. The net value reflects the amounts expected to be received based on the known circumstances at the reporting date. Changed circumstances, such as an increased number of defaults or a change in an existing customer s financial position, may result in deviations in the net value measurement. The current market situation has resulted in an increased focus on customer credit ratings and monitoring of trade receivables. Disputes Consilium is involved in disputes in the course of its normal business operations. Disputes may concern product liability, alleged errors in deliveries of goods and other issues connected with Consilium s operations. Disputes may prove costly, 38

39 ACCOUNTING POLICIES time-consuming and disruptive to normal business operations. At present, there are not considered to be any disputes of significance in progress. Cash flow The cash flow statement is prepared using the indirect method. Reported cash flows only concern transactions that involve cash inflows and outflows. Cash & cash equivalents comprise cash and bank deposits. Basis of consolidation The consolidated financial statements incorporate the financial statements of the parent company and entities controlled by the parent company (subsidiaries). Control is achieved where the parent company owns, directly or indirectly, more than half of the voting power and has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The consolidated financial statements have been prepared in accordance with the acquisition method. The cost of an acquisition comprises the fair value of assets transferred, equity instruments issued and liabilities incurred or assumed at the transfer date. The acquiree s equity is defined as the difference between the fair values of identifiable assets, and assumed liabilities and contingent liabilities based on a market valuation conducted at the date of acquisition. The subsidiary s equity is eliminated in its entirety, which means the s equity only includes the portion of equity arising after the business combination. Goodwill represents the excess of the cost of acquisition over the s interest in the net fair value of the identifiable assets of the subsidiary recognised at the date of acquisition. Business combinations during the year are consolidated from the date on which the gains control at amounts relating to the period after the acquisition. Subsidiaries which have been disposed of are deconsolidated from the date on which control ceases. Subsidiaries which have been portioned out to shareholders are deconsolidated from the distribution date. Internal transactions, balances and gains are eliminated in their entirety. Subsidiaries are all companies (including structured entities) over which the has control. The has control when it has exposure or rights to variable returns from its holding in an entity and the ability to affect those returns through power over the entity. Subsidiaries are consolidated from the date on which the obtains control. Subsidiaries which have been disposed of are deconsolidated from the date on which control ceases. Associates An associate is an entity over which the Parent Company has significant influence and is not a subsidiary. Holdings in associates are normally between 20% and 50%. Investments in associates are recognised in the consolidated financial statements using the equity method of accounting, and are initially measured at cost. The s share of the profit or loss of an associate after its acquisition is recognised in the income statement, and its share of changes in reserves is recognised under Reserves. Accumulated post-acquisition changes are reported as a change in the holding s carrying amount. When the s share of the losses of an associate amounts to or exceeds its holding, the does not recognise any subsequent losses. Any unrealised internal gains are eliminated to the extent of the s share of the gain. Unrealised losses are also eliminated. The share of profit or loss of associates is reported on separate lines in the consolidated income statement and balance sheet. The s share of the profit or loss of associates is recognised after tax. Foreign currency translation The individual financial statements of each entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). The consolidated financial statements are presented in Swedish kronor, which is the parent company s functional and presentation currency. The subsidiaries balance sheets are translated at the rates prevailing at the reporting date and the income statements are translated at the average rate for the year. Exchange differences are recognised directly in consolidated equity. Exchange differences attributable to the translation of foreign subsidiaries are recognised in other comprehensive income. Closing rate, 31 December Significant exchange rates USD EUR GBP Average rate Significant exchange rates USD EUR GBP Foreign currency assets and liabilities are measured at the closing rate. Exchange gains and losses on transaction payments and translation of monetary assets and liabilities are reported under net sales or cost of sales. Transactions entered into to hedge certain foreign currency risks are recognised in profit or loss until the hedging instrument expires. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities in the entity and are translated at the closing rate. Intra-group extended equity transactions in foreign currency are not translated at the closing rate, but at the transaction date rate. Business areas Consilium has two business areas Marine & Safety and Fire safety & Automation. The business areas are monitored internally by the chief operating decision maker, namely the President and CEO. Units within each business area have a similar risk profile and development. Consequently, the classifies the business areas as cash generating units when conducting goodwill impairment testing. Revenue recognition Revenue comprises the fair value of the sale of goods and services, net of value-added tax and rebates, after elimination of intra-group sales. Revenue is recognised as follows. Sale of goods The s net sales comprise the fair value of the sale of goods. Consilium recognises revenue when the risks associated with the goods have been transferred to the customer under the terms of delivery and it is probable that payment of the trade receivable that arises from the sale will flow to the. Sales are recognised net of VAT, discounts, returns and exchange differences on foreign currency sales, and after elimination of internal sales. Rendering of services and construction contracts Revenue and costs relating to the provision of services and construction contracts are recognised by reference to the stage of completion at the reporting date, often referred to as the percentage of completion method. The stage of completion is measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs. Where the outcome of a contract to provide services or a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of the contract costs incurred that are likely to be recoverable. An expected loss is recognised as an expense immediately. Interest income Interest income is recognised over the relevant period using the effective interest method. Dividend income Dividend income is recognised when the dividend has been adopted and the shareholders rights to receive payment have been established. Government grants Government grants are recognised at fair value when there is reasonable assurance that the grant will be received and the will comply with the conditions attaching to it. Government grants related to expense items are deferred and recognised over the periods necessary to match them with the related costs which they are intended to compensate. Borrowing costs Borrowing costs are recognised in profit or loss in the period in which they are incurred. Consilium does not have any loans that are directly attributable to the Company s development expenditure. Taxes Deferred tax is recognised on all temporary differences between the carrying amounts of assets and liabilities and their corresponding tax bases, and is accounted for using the balance-sheet liability method. Unused tax losses are recognised as deferred tax assets to the extent that it is probable that taxable profits will be available against which they can be utilised. Unused tax losses include accumulated losses at the date of acquisition and subsequently arising losses. Deferred tax assets and liabilities are measured using tax rates that have been enacted by the reporting date, and are reported as financial assets or non-current liabilities in the balance sheet. Income tax for the year consists of current tax and deferred tax. If the outcome differs from the amounts initially recognised, these differences will affect the provisions for current and deferred tax and profit for the year. Deferred tax liabilities are recognised for temporary differences arising on investments in subsidiaries and associates, except where the is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Intangible assets The s intangible assets comprise capitalised development expenses, goodwill and patents, licences and similar rights. Goodwill Goodwill represents the difference between the cost of the shares in an acquired subsidiary and the acquisition-date fair value of the subsidiary s net assets. Goodwill arising on the acquisition of an associate is included in the carrying amount of the investment and is assessed for impairment as part of the total investment. Goodwill 39

40 ACCOUNTING POLICIES is reported separately and tested for impairment annually. Goodwill impairment is not reversed. A gain or loss on the disposal of an entity includes the residual carrying amount of the goodwill that relates to the entity. Goodwill is allocated at the date of acquisition to the cash generating units which are expected to benefit from the business combination that gave rise to the goodwill item. For a description of the methods and assumptions used for impairment testing, see Note 10. Product development and research Expenditure relating to development projects for the construction and testing of new or improved products is capitalised under intangible assets to the extent that such expenditure is expected to generate future economic benefits. Other development expenditure is recognised as an expense in the period in which it is incurred. Development costs previously recognised as an expense are not capitalised in subsequent periods. Capitalised development costs are amortised using the straight-line method over 3-5 years (the period in which future economic benefits are expected to flow to the company) from the date on which commercial production begins. In accordance with the IFRS transitional provisions in 2005, Consilium has reclassified the previously recognised goodwill arising from the acquisition of the net assets of Nittan and Servoteknikk in 2003 and The reclassification of the acquired net assets of Nittan and Servoteknikk means that Consilium s consolidated financial statements now show product development acquisitions. At the acquisition date, the estimated useful lives and amortisation schedules were defined as 20 and 10 years, respectively. As these amortisation schedules are the same as those for previously recognised goodwill, there is no difference in amortisation charges compared with previously. Amortisation is included in the income statement item Research & development expenses Expenditure on research activities is recognised as incurred. Research in the strict sense of the word is not conducted to any great extent in the, but is an ongoing process which forms an integral part of day-to-day operations. This type of expenditure can be difficult to distinguish as research, and does not in any case represent any significant amounts. Patents, trademarks and licences Patents, trademarks and licences are recognised at cost. Patents, trademarks and licences have finite useful lives, and are recognised at cost less accumulated amortisation. Amortisation is applied to patents, trademarks and licences using the straight-line method over their estimated useful lives (5-10 years). Property, plant & equipment Items of property, plant & equipment, including land and industrial buildings, are stated at cost less subsequent depreciation. Cost includes costs directly related to the acquisition of the asset. Expenditure on improving an asset s performance from its original level increases the asset s carrying amount. Repair and maintenance costs are recognised as an expense. Depreciation is charged to operating profit in the income statement and is applied using the straight-line method over the assets useful lives, based on the difference between their cost and residual value. Consilium applies the following useful lives: Industrial buildings used in the course of business Plant and machinery Equipment, tools and fixtures & fittings 25 years 5-7 years 5 years The residual values and useful lives of assets are reviewed annually and adjusted if necessary. If an asset s carrying amount exceeds its estimated recoverable amount, it is written down to the recoverable amount immediately. Depreciation is not applied to land. Capital gains and losses are determined by comparing the selling price and the carrying amount. Capital gains and losses are recognised in profit or loss. Leases Lease contracts for non-current assets where the essentially has the same risks and rewards as those incidental to direct ownership are classified as finance leases. Assets held under finance leases are recognised at their fair value at the inception of the lease, or, if lower, at the present value of the minimum lease payments. Finance leases are reported under non-current assets and financial liabilities in the balance sheet. Future lease payments are apportioned between reduction of the lease obligation and finance charges so as to achieve a constant rate of interest on the remaining balance of the liability for each period. Depreciation of leased assets is on a basis consistent with the normal depreciation policy for similar assets. Costs of leases are reported under depreciation and interest in the income statement. The did hold any assets under finance leases in 2015 or in A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards of ownership. Lease payments are recognised as an expense on a straight-line basis over the term of the lease. Operating leases are reported under operating expenses in the income statement. Leased cars, computers and premises are normally classified as operating leases. Impairment Depreciation/amortisation is not applied to assets with an indefinite useful life, such as goodwill; instead, they are tested annually for impairment. The reviews the carrying amounts of assets whenever there is an indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount is reduced to the asset s recoverable amount. The recoverable amount is the higher of the asset s fair value less costs to sell and its value in use. Impairment losses are recognised by cash-generating unit. Assets, other than financial assets and goodwill, for which impairment losses have previously been recognised are tested at each reporting date to determine whether there is any need for reversal of the previous impairment. Inventories Inventories consist of finished and semi-finished products and raw materials. Inventories are measured on a first-in first-out basis at the lower of cost and net realisable value at the reporting date. Finished and semi-finished products are measured at the manufacturing cost, including raw materials, direct labour, other direct overheads and production-related costs based on normal production. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated variable costs necessary to make the sale. Collective measurement is used for groups of products with similar characteristics. Inventory measurement does not include interest costs. A deduction is made for internal gains arising from intra-group deliveries. An obsolescence provision has been recognised. Financial instruments Financial instruments recognised in the balance sheet include cash & cash equivalents, trade receivables, current and non-current receivables, trade payables, loans, other liabilities and derivatives. The classifies financial assets into the following categories: cash & cash equivalents, loans and receivables, available-for-sale financial assets and derivatives. Financial assets are classified on the basis of the purpose for which they were acquired. Management makes a classification decision on initial recognition and reviews the decision at each reporting date. Derivative instruments Derivatives are recognised in the balance sheet on the contract date and are measured at fair value, both initially and in subsequent revaluations. The method of recognising the gain or loss arising on revaluation depends on whether the derivative is designated as a hedging instrument, and if so, on the nature of the hedged item. The recognises financial instruments that are forward exchange contracts as hedging instruments in cash flow hedges used to minimise the currency risk on future orders that have been signed. Changes in the fair value of derivatives used as cash flow hedges are recognised in other comprehensive income. Changes in the fair value of derivatives not used as cash flow hedges are recognised in profit or loss. The acquisition of shares with a put/call option is measured at fair value and results in a long-term liability and an increase in goodwill. Further information about this type of instrument can be found in Notes 19 and 31. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are reported under current assets unless the settlement date is more than 12 months after the reporting date, in which case they are classified as non-current assets. Loans and receivables are reported under trade receivables and other current and non-current receivables in the balance sheet. Loan receivables are recognised at amortised cost using the effective interest method. Trade receivables are initially measured at fair value and thereafter at amortised cost using the effective interest method less any provision for impairment losses. A provision for impairment losses is recognised when there is objective evidence that the carrying amount of receivables will not be recovered, and an impairment loss is recognised when the loss is actually identified. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that have been designated as available for sale or have not been classified in any of the other categories. They are reported under non-current assets if management does not intend to dispose of them within 12 months of the reporting date. The assets are measured at fair value and any changes in fair value are recognised directly in other comprehensive income. An impairment loss is recognised if there is objective evidence of impairment. On disposal of the asset, the cumulative gain previously recognised in other comprehensive income is reclassified to profit or loss. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. Purchases and sales of financial assets are recognised at the trade date, i.e., the date on which the commits itself to purchase or sell the asset. Financial assets are derecognised when the right to receive cash flows from the instrument has expired or been transferred, and the has transferred substantially all the risks and rewards of ownership. Cash & cash equivalents Cash & cash equivalents comprise cash on hand, bank deposits and short-term investments with an original maturity of three months or less. Cash & cash equivalents are initially recognised at fair value and thereafter at amortised cost. 40

41 ACCOUNTING POLICIES Hedge accounting Consilium uses derivative financial instruments to cover risks associated with foreign currency exposure. Consilium designates certain derivatives as hedges of commercial foreign currency exposure in the form of highly probable forecast transactions (cash flow exposure) within the framework of the financial policy defined by the Board. Consilium applies hedge accounting for contracts which qualify for hedge accounting under IAS 39 Financial Instruments. At the inception of the hedge and on an ongoing basis, the documents whether the hedging instrument used is highly effective. Unrealised gains and losses arising on the market valuation of hedging instruments and which meet the criteria for hedge accounting are recognised in comprehensive income. See also Note 13. The entire fair value of a derivative which is a hedging instrument is reported under non-current assets or liabilities when the hedged item has a term to maturity of more than 12 months, and is reported under current assets or liabilities when it has a term to maturity of less than 12 months. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is reported in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss as finance income or expense. Amounts deferred in equity are recycled in profit or loss in the periods in which the hedged item affects profit or loss (e.g. when the forecast transaction occurs). Hedge accounting is discontinued when the hedging instrument expires or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is released to the income statement when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss as finance income or expense. Share capital Ordinary shares are classified as equity. Transaction costs directly attributable to the issue of new shares or options are recognised in equity, net of tax, as a deduction from the issue proceeds. Trade payables Trade payables are initially carried at fair value and thereafter at amortised cost using the effective interest method. Borrowing Borrowing costs are initially recognised at fair value, net of transaction costs. Borrowing costs are subsequently measured at amortised cost, and any difference between the amount received and the repayment amount is recognised in profit or loss over the term of the loan using the effective interest method. Provisions Provisions are recognised as current and non-current liabilities in the balance sheet when the has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Restructuring provisions are recognised when a detailed formal plan is in place and a valid expectation that the plan will be implemented has been raised in those affected. Provisions for future warranty claims concern the next two years and are based on historical warranty claim information and any trends indicating that future claims may deviate from the historical pattern. No provisions are recognised for future operating losses. Repurchase of treasury shares In the case of repurchase of treasury shares, the purchase consideration, including any directly attributable transaction costs (net of tax), i.e. the capitalised gain, is reduced until the shares are cancelled or sold. In the event of subsequent disposal of these shares, the proceeds (net of directly attributable transaction costs and tax effects) are recognised in retained earnings. and term consistent with the currency and term of the retirement benefit obligation. Unrecognised actuarial gains and losses exceeding the greater of 10 percent of the present value of the obligation or the fair value of plan assets are distributed over the estimated average length of service. For defined contribution pension plans, the pays contributions into publicly or privately managed pension insurance plans on a mandatory, contractual or voluntary basis. The has no additional payment obligations once the contributions have been paid. The contributions are recognised as personnel expenses when due for payment. Dividends Dividends are recognised as a liability when they have been adopted by the annual general meeting. Accounting policies Parent Company The Parent Company s annual financial statements have been prepared in accordance with the Swedish Annual Accounts Act and the Swedish Financial Reporting Board s recommendation RFR 2 Accounting for Legal Entities. RFR 2 requires the Parent Company to prepare separate financial statements in accordance with the International Financial Reporting Standards (IFRS) and statements adopted by the EU to the extent allowed within the framework of the Swedish Annual Accounts Act, and taking into account the relationship between tax expense and accounting profit. The recommendation also specifies exceptions from and additions to IFRS. Differences between the accounting policies of the and the Parent Company are described below. Financial instruments Financial instruments recognised in the balance sheet include cash & cash equivalents, trade receivables, current and non-current receivables, trade payables, loans and other liabilities. The classifies financial assets into the following categories: cash & cash equivalents, loans and receivables and available-for-sale financial assets. Financial assets are classified on the basis of the purpose for which they were acquired. Management makes a classification decision on initial recognition and reviews the decision at each reporting date. Leased assets In the Parent Company, all leases are reported as operating leases. contributions and shareholder contributions for legal entities contributions received are recognised in accordance with RFR 2 as finance income in the income statement. Investments in subsidiaries Shares in subsidiaries are recognised at cost less impairment losses. If there is an indication that shares and interests in a subsidiary or associate may be impaired, the recoverable amount is calculated. If this is lower than the carrying amount, an impairment loss is recognised. Impairment losses are recognised under financial items in the income statement. Investments in associates In the Parent Company s annual financial statements, investments in associates are recognised at cost less impairment losses. The Parent Company recognises income only to the extent that it receives distributions from the profits of the associate arising subsequent to the date of acquisition. Employee benefits Employee benefits are accounted for in accordance with IFRS 19, Employee Benefits. companies have different types of pension plans. The plans are normally funded by payments to insurance companies. The provides defined benefit and defined contribution pension plans. A defined benefit pension plan is a plan which defines the post-retirement benefit an employee receives, normally based on one or more factors such as age, length of service or salary. Under defined contribution plans, the pays fixed contributions into a separate entity (a fund). The pension plans are funded by payments from companies and employees. The defined benefit pension plans in Sweden relate to ITP plans, which are insured with Alecta. These are reported as defined contribution plans as Alecta is unable to provide sufficient information to allow them to be reported as a defined benefit plans. See also Note 19. The s payments to retirement benefit plans are recognised as an expense in the period when employees have rendered service entitling them to the contributions. Defined benefit liabilities recognised in the balance sheet represent the present value of the defined benefit obligation at the reporting date less the fair value of plan assets. The defined benefit pension obligation is calculated annually by an independent actuary in accordance with the projected unit credit method. The present value of the defined benefit obligation is determined by discounting expected future cash flows by reference to market yields on high quality corporate bonds of a currency 41

42 NOTES Note 1 Business areas The is organised in two business areas: Marine & Safety develops and markets fire alarm, gas detection and emission systems, marine voyage data recorders and speed logs for international shipping. Fire safety & Automation provides complete fire protection systems for the oil, gas and power industry. Other operations encompass -wide functions. Transfers or transactions between segments are conducted under normal market terms and conditions. This also applies to external parties. Operating segment assets attributable to the business areas consist mainly of intangible assets, property, plant & equipment, inventories, receivables and operating cash. Each business area reports an equity that corresponds to the s equity ratio. Operating segment liabilities attributable to the business areas consist of operating liabilities, but not items such as tax and certain company borrowing. Investments consist of purchasing of property, plant & equipment and intangible assets. The business areas accounts for 2015 and 2014 are shown below. SEK millions Financial year 2015 Marine & Safety Fire safety & Automation Other Elimination Net sales 1, ,565.5 Operating profit/loss Operating margin 15% 8% 11% Operating profit includes Depreciation/amortisation Assets Property, plant & equipment Intangible assets Intra- receivables Restricted cash Other financial assets Total non-current assets Inventories Receivables Cash and cash equivalents. restricted cash and investments Total current assets Total assets ,481.0 Equity and liabilities Equity Bond issues Liabilities to credit institutions Intra- liabilities Other non-current liabilities Other current liabilities Total liabilities ,104.7 Total equity and liabilities ,481.0 Operating capital Return on average operating capital 39% 12% 23% 42

43 NOTES SEK millions Financial year 2014 Marine & Safety Fire safety & Automation Other Elimination Net sales ,255.3 Operating profit/loss Operating margin 12% 8% 9% Operating profit includes Depreciation/amortisation Assets Property, plant & equipment Intangible assets Intra- receivables Restricted cash Other financial assets Total non-current assets Inventories Receivables Cash and cash equivalents, restricted cash and investments Total current assets Total assets ,180.0 Equity and liabilities Equity Bond issues Liabilities to credit institutions Intra- liabilities Other non-current liabilities Other current liabilities Total liabilities Total equity and liabilities ,180.0 Operating capital Return on average operating capital 32% 14% 19% Net sales by geographical market Sweden 3% 4% Europe (excl. Sweden) 26% 29% North America 9% 9% Asia 59% 57% Other markets 3% 1% Reconciliation with profit before tax SEK millions Operating profit as above Finance income and exchange gains Finance costs and exchange losses Other finance costs Profit/loss before tax Net sales includes revenues from Goods 60.3% 61.3% Services 13.6% 11.7% Construction contracts 26.1% 27.0% 100.0% 100.0% Note 2 Salaries, other employee benefits and social security contributions Salaries and other remuneration Social security contributions (of which pension costs) Salaries and other remuneration Social security contributions (of which pension costs) Parent Company (1.6) (1.7) Subsidiaries (16.8) (17.2) (18.4) (18.9) 43

44 NOTES Note 2 Salaries, other employee benefits and social security contributions, cont d Salaries and employee benefits (Board, CEO and other employees) by country Board and CEO Other employees Board and CEO Other employees Parent Company Subsidiaries, Sweden Foreign subsidiaries Australia United Arab Emirates India Italy China Netherlands Norway Oman Qatar Saudi Arabia Singapore Spain South Korea Germany USA Total, subsidiaries Total, Parent Personnel Swedish operations Parent Company Subsidiaries, Sweden Total, Sweden Foreign operations, subsidiaries Australia 10 0 Belgium 2 2 United Arab Emirates India Italy Hong Kong 1 1 China Netherlands Norway Oman 6 3 Qatar Saudi Arabia 5 4 Singapore Spain 3 6 UK 4 4 South Korea Germany USA Total Total, (19) percent of the s employees in 2015 were female. The Parent Company has 5 (4) employees, 1 (1) of whom is female. Employees in Sweden are distributed as follows: Parent Gothenburg Stockholm Total

45 NOTES Note 3 Remuneration of auditors Administrative expenses include the following fees paid to auditors. Parent PWC Audit Other auditing assistance 0.1 Other services Total Other auditing firms Audit Other services Total Total PWC has not provided any tax advisory or other services. Other auditing firms have not provided any tax advisory services. Note 4 Operating leases The nominal value of future minimum lease payments under non-cancellable operating leases due for payment in the following periods: Parent Within one year Between one and five years After five years Total Present value Operating lease costs and revenues for the year Parent Lease costs Of which minimum lease payments contingent rents Apart from normal premises rental and car leasing contracts, the has no other operating leases of significance. Note 5 Finance income Parent Interest Interest income from subsidiaries Exchange differences Total Note 6 Finance costs Parent Interest expenses Exchange differences Other 1) ) Total ) IIncluding one-time expense of SEK 17.5 million in 2015 for early redemption of corporate bond. Note 7 Tax on profit/loss for the year Parent Current tax for the year Deferred tax expense from tax loss carryforwards utilised Current tax attributable to prior years Total Difference between tax expense and 22 percent tax Profit/loss before tax percent tax Tax on profit/loss for the year Difference Specification of difference Effect of Foreign tax, prior years Foreign tax rates Non-taxable income Non-deductible expenses Other Total Note 8 Deferred tax Deferred tax assets relate to unused tax losses and deferred tax on cash flow hedges. There are no other taxable temporary differences. Parent Tax effect of Cash flow hedges Unused tax losses in Swedish operations Unused tax losses in foreign operations Through acquisition of subsidiaries Total No deferred tax assets have expired. Reported in the consolidated income statement: Deferred tax attributable to cash flow hedges SEK -4.7 (7.1) million, tax loss carryforwards SEK -0.8 (-18.0) million Reported in the Parent Company s income statement: Deferred tax attributable to tax loss carryforwards SEK -2.9 (-8.6) million. 45

46 NOTES Note 9 Property, plant & equipment Note 10 Intangible assets, Land and buildings Machinery Equipment Total At 1 January 2014 Cost of acquisition Accumulated depreciation Carrying amount January 31 December 2014 Opening balance Exchange differences Investments Disposals Depreciation Closing balance At 31 December 2014 Cost of acquisition Accumulated depreciation Carrying amount At 1 January 2015 Cost of acquisition Accumulated depreciation Carrying amount January 31 December 2015 Opening balance Exchange differences Investments Acquisitions Disposals Depreciation Closing balance At 31 December 2015 Cost of acquisition Accumulated depreciation Carrying amount Parent Equipment Opening cost Investments Disposals Closing cost Opening depreciation Depreciation for the year Closing depreciation Carrying amount Depreciation of buildings is divided equally (25 percent) between cost of sales, distribution costs, administrative expenses and research & development expenses. Depreciation of machinery is charged to cost of sales. The measurement of each cash generating unit is based on the calculation of value in use. The value in use is obtained from projected cash flows, with the forecast for first year being based on the budget defined by the Board. Three-year forecasts based on business plans for each cashgenerating unit are then used. Growth for subsequent years is expected to be in line with the long-term level of inflation (2%). Budgeted operating margins are defined on the basis of previous results and expectations of future market development. Goodwill Capitalised development Patents, trademarks and licences Total At 1 January 2014 Cost of acquisition Accumulated amortisation Carrying amount Carrying amount 1 January 31 December 2014 Opening balance Exchange differences Acquisitions Disposals Amortisation Closing balance At 31 December 2014 Cost of acquisition Accumulated amortisation Carrying amount At 1 January 2015 Cost of acquisition Accumulated amortisation Carrying amount Carrying amount 1 January 31 December 2015 Opening balance Exchange differences Investments Acquisitions Disposals Amortisation Closing balance At 31 December 2015 Cost of acquisition Accumulated amortisation Carrying amount Goodwill impairment testing Distribution of goodwill in the at market area level: Marine & Safety Fire safety & Automation Units in Consilium s two business areas have a similar risk profile and development. Consequently, the classifies the business areas as cash-generating units for goodwill allocation and impairment testing. Goodwill is allocated to the two cash-generating units based on goodwill identified according to acquisition analyses for the companies in each of the units. The pre-tax discount rate used is percent. The measurement of each cash generating unit is based on the calculation of value in use. The value in use is obtained from projected cash flows, with the forecast for first year being based on the budget defined by the Board. Three-year forecasts based on business plans for each cash-generating unit are then used. Growth for subsequent years is expected to be in the range of 5-10 percent with an inflation rate of 2-5 percent. Budgeted operating margins are defined on the basis of previous results and expectations of future market development. It is the Company s assessment that the effects of reasonable changes in annual growth, the operating margin, the pre-tax discount rate and other assumptions would not be sufficient to cause the value in use to fall below the carrying amount. Annual impairment testing did not identify any impairment losses. 46

47 NOTES Note 11 Investments in subsidiaries Parent Opening cost Shareholder contributions 50.0 Acquisition of shares Internal disposal/acquisition of shares Carrying amount Share of capital Share of votes Number of shares Carrying amount Consilium Marine AB 100% 100% 500, Consilium Marine & Safety AB 100% 100% 220, Company/reg. no. Swedish subsidiaries Consilium Building Safety AB Reg d office Number of shares/ interests Share of capital/ votes, % Västra Frölunda 2, China Marine Techtrade AB Nacka 1, Consilium Incendium AB Kungälv Consilium Marine AB Nacka 500, Consilium Marine & Safety AB Nacka 30, Consilium Marine & Safety AB Gothenburg 220, Consilium Security AB Nacka 10, Consilium Navigation AB Nacka 1, Consilium Research & Development AB Nacka 1, Consilium Marine Safety & Sales & Support AB Gothenburg 1, Markground Industri AB Nacka 2, Storm & Co. Skeppsradio AB Gothenburg 2, Foreign subsidiaries Buveco Gasdetection B.V. Bleiswijk/Netherlands 100 Consilium Building Safety AS Oslo/Norway 100 Consilium JKK AS Kristiansand/Norway 60 Consilium Marine Aps Copenhagen/Denmark 100 Consilium Hongkong Ltd Hong Kong/China 100 Consilium GmbH Hamburg/Germany 100 Consilium Italy Srl Florence/Italy 100 Consilium Shanghai Co. Ltd Shanghai/China 100 Consilium Trading Co. Ltd Shanghai/China 100 Consilium Norway AS Oslo/Norway 100 Consilium BV Schonhoven/Netherlands 100 Consilium Marine US Inc. Fort Lauderdale/USA 100 Consilium Marine Korea Ltd Pusan/South Korea 100 Consilium Novamarine Pty Ltd Newcastle/Australia 100 Consilium Marine Singapore Ltd Singapore 75 Consilium Middle East (FZC) Dubai/United Arab Emirates 70 Consilium Qatar LLC Doha/Qatar 70 Consilium Marine India Pvt Ltd Mumbai/India 70 Consilium RMI Spain SA Bilbao/Spain 51 Consilium Fire & Security Pvt Ltd New Delhi/India 51 Note 12 Holdings reported according to the equity method Opening cost Reclassification Acquisitions Change in equity shares for the year after dividend Closing cost The amount recognised as reclassification in 2015 relates to the carrying amount of the 50-percent holding in the joint-venture company CN System AB. In June 2015, Consilium acquired the remaining 50 percent of the shares in CN System AB. The company now becomes a wholly-owned subsidiary. The cost of 50 percent of the shares in the newly established company CN System Scandinavia AB is recognised as an acquisition. Dividends from equity accounted holdings amounted to SEK 3.9 (3.4) million in Company Share of capital/ votes, % Carrying Carrying amount amount of share of shares of capital CN System Scandinavia AB Consilium Säkerhet Väst AB Consilium Säkerhet Öst AB Consilium Säkerhet Syd AB Consilium Marine Oy Oy Nauti-Electronics Ab Microdata Due Srl Consilium Marine Hellas Ltd Consilium Marine Cyprus Ltd Consilium Vietnam J.S.C Consilium Nittan Marine Ltd The associates do not have any liabilities, contingent liabilities or commitments for which the may have a pecuniary obligation. Note 13 Financial risk management Financial risk management Consilium is exposed to various types of financial risk in the course of its operations. policies defined by the Board form the basis of management of these risks at different levels in the. The policies are designed to provide an integrated picture of the risk situation, minimise negative impacts on earnings and clarify responsibility and authority in the. Defined policies are monitored regularly at local and central level, with reporting back to the Board. Currency risk Transaction exposure As the s companies have revenues and expenses in different currencies, it is exposed to risks associated with currency fluctuations. This risk, which affects operating profit, is referred to as transaction exposure. Net currency exposure converted to SEK millions (net exposure refers to revenues less costs) 2015 USD EUR NOK GBP Other currencies Total foreign currencies SEK Totalt The s operating profit The aim of currency risk management is to minimise the effects of exchange rate movements on the s results in the short term. Each subsidiary manages its transaction risks locally. Consilium applies hedge accounting using cash flow hedges where forward exchange contracts are used as hedging instruments and agreed future orders in foreign currency are used as hedged items. Consilium regularly hedges all foreign currency orders apart from regular servicing and spare parts sales. The hedges are designated as highly effective, as only signed contracts are hedged and not expected orders. 47

48 NOTES The table below shows foreign exchange contracts at the reporting date translated to SEK millions. All amounts are due within 24 months Forward exchange contracts cash flow hedges EUR USD GBP YEN Due within 12 months The effect of cash flow hedges on comprehensive income after tax is SEK 15.7 (-23.9) million. Gains and losses on forward exchange contracts at 31 December 2015 will be transferred from equity to the income statement at various dates between 3 months and 2 years after the reporting date Average prices of forward contracts EUR USD GBP YEN The applies IAS 39 with effect from 1 January It is Consilium s assessment that all derivative instruments, hedging instruments and hedging relationships fulfil the requirements for hedge accounting and are highly effective. Changes in the fair value of the s derivative instruments are therefore reported in other comprehensive income under Items that may be reclassified subsequently to profit or loss. At 31 December 2015, there was a negative change of SEK 7.6 million in the fair value of the derivative instruments. At the end of 2014, the instruments had a negative change in value of SEK 28.3 million. Values relating to cash flow hedge reported in other comprehensive income at 31 December 2015 will be transferred to the income statement at various dates between 3 months and 2 years after the reporting date. Sensitivity analysis Net exposure is highest in USD. Factor Change, +/- Effect on operating profit, SEK million Net sales 1% +/ Interest expenses 1% +/- 0.5 Personnel expenses 1% +/- 3.0 Depreciation/amortisation 1% +/- 0.4 Exchange rate movements, USD 1% +/- 2.2 Exchange rate movements, EUR 1% +/- 1.0 The forward contracts move the earnings effect forward in time, as the majority of the forecast flows for the coming twelve-month period are covered by signed contracts. During that time, measures can be taken to minimise the effects. Translation exposure Consilium presents its income statements and balance sheets in SEK. Several companies have a different presentation currency. This means the s earnings and equity are exposed during consolidation when foreign currencies are translated to SEK. This exposure, referred to as translation exposure, mainly affects the s equity and is not normally hedged. Price risk Consilium is exposed to price risk associated with the purchase of components. Purchases of components amounted to SEK (646.6) million and consist of a wide variety of inputs with differing price trends over time. For lasting material changes, companies can in most cases obtain compensation in the price, although clauses allowing such compensation are an exception. Interest rate risk As Consilium does not have any significant interest-bearing assets, the s revenues and cash flow from operating activities are essentially unaffected by changes in market rates. Consilium s net financial items and earnings are affected by fluctuations in borrowing interest rates. The is also indirectly affected by the effects of interest rates on the overall economy. It is Consilium s opinion that short-term fixed interest bears a risk which is commensurate with the s industrial operations. Consequently, borrowings normally have a fixed-interest period of between up to 12 months and 5 years. Short-term interest rates have also been lower than long-term rates over the last decade, which has had a positive effect on the s results. Outstanding loans and overdraft facilities are listed below. Borrowing Liabilities to credit institutions consist of a few small borrowing facilities in different currencies with different terms and conditions. Interest rates vary between 2.0 percent and 5.75 percent. The average interest on overdrafts is 1.5 percent. There is an additional limit charge on the granted borrowing facilities. The average for this charge is 0.2 percent. The Company is currently using a derivative instrument of approx. SEK 40 million. All loans carry variable interest rates with fixed-interest periods of up to 90 days. See also note 21. Net debt at the end of the year amounted to approx. SEK (400.0) million. A one-percent change in interest rates would affect earnings by SEK 7.3 (4.0) million. Credit risk Credit risk is the risk that receivables due from customers will not be settled. The size of each customer s credit is assessed individually. All new customers undergo a credit check. The idea is that the credit limits will reflect the customer s ability to pay. The has a good risk spread, with sales encompassing different sectors and companies. In general, the economic decline has had an adverse effect on companies financial situation, with the risk of customer defaults increasing. Consilium s customer defaults have historically been low. Losses on receivables arise when customers are declared bankrupt or are unable to fulfil their payment commitments for some other reason. Consilium does not believe there to be any significant credit risk associated with any particular customer, counter-party or geographical region. Cash & cash equivalents consist entirely of cash and bank deposits and were SEK 69.3 (105.4) million. In the subsidiaries, SEK 39.5 (35.0) million of cash & cash equivalents are pledged as collateral for bank guarantees and letters of credit. Liquidity risk Consilium has loans which mature at various dates. A large proportion of the liabilities are overdraft facilities with contractual terms of one year. Refinancing risk is the risk that Consilium will be unable to fulfil its commitments due to cancellation of loans and difficulties in setting up new loans. Consilium manages this risk by ensuring it has good cash preparedness. In order to monitor liquidity development, Consilium prepares quarterly liquidity forecasts. Parent Available cash Overdraft facilities Utilised overdraft facilities Current liquidity Maturity analysis of liabilities, including interest due for each period under the loan agreement. At 31 December months 6 months -1 year 1-2 year 2-5 year Borrowing Trade and other payables Forward exchange contracts Management of capital risk The s goal for capital structure is to continue to expand operations so that they generate a return to shareholders, while keeping capital costs at a reasonable level. The capital structure can be changed by raising or lowering the dividend, issuing new shares, repurchasing shares and selling assets. Capital risk is expressed as the net/debt equity ratio, which is interest-bearing liabilities less cash & cash equivalents divided by equity. The aim is to create manoeuvrability by having a low debt/equity ratio. The net debt/equity ratio at the last two year-ends was as follows: Interest-bearing liabilities Cash and short-term investments Net debt Equity Net debt/equity ratio, % Financial assets per category within the At 31 December 2015 Receivables Derivatives designated as hedging instruments Availablefor-sale financial assets Total Other non-current receivables Trade and other receivables Short-term investments Cash & cash equivalents

49 NOTES Note 13 Financial risk management, cont d The amounts are for customers who do not have payment defaults. Financial assets per category within the At 31 December 2014 Note 14 Inventories Receivables Raw materials Products in progress Finished products Advances from customers Impairment of inventories Carrying amount Note 15 Trade receivables Derivatives designated as hedging instruments Availablefor-sale financial assets Total Other non-current receivables Trade and other receivables Short-term investments Forward exchange contracts Cash & cash equivalents Trade receivables Provision for doubtful debts Carrying amount Maturity structure of trade receivables Not past due Past due 1-30 days Past due days Past due over 90 days Provision for doubtful debts Opening balance Reversal of previous provisions Transfers during the year Closing balance Note 16 Contract work in progress Contract revenue recognised during the period Accumulated contract costs and recognised profit less recognised losses Advances received Retentions Amounts due from client for contracts in progress Amounts due to client for contracts in progress Note 17 Prepayments and accrued income Parent Prepaid rents Prepaid lease payments Prepaid insurance premiums Derivative instruments Percentage of completion, projects in progress Bond expenses Other Total Note 18 Share capital development Date Transaction Increase in share capital, SEK Total share capital, SEK Number of shares 1993 Establishment of Company 50,000 10, New share issue 20,575,000 20,625,000 4,125, New share issue 4,375,000 25,000,000 5,000, Conversion 7,500 25,007,500 5,001, Conversion 60,900 25,068,400 5,013, Conversion 5,000 25,073,400 5,014, New share issue 5,500,000 30,573,400 6,114, Conversion 2,100 30,575,500 6,115, Conversion ,576,050 6,115, Conversion 4,915,805 34,491,855 6,898, Warrants 12,160 35,504,015 7,100, New share issue 11,834,665 47,338,680 9,467, Conversion 266,660 47,605,340 9,521, Conversion 4,905,675 52,511,015 10,502, Non-cash issue 1,500,000 54,011,015 10,802, New share issue (registered 03/01/2008) 500,000 54,511,015 10,902, New share issue 4,000,000 58,511,015 11,702,203 The par value of the share is SEK 5. The shares comprise class A and class B shares. Votes A shares 907, votes 9,074,900 B shares 10,794,713 1 vote 10,794,713 11,702,203 19,869,613 49

50 NOTES Note 19 Provisions Provisions Provisions for pensions etc Provision for warranty obligations Provisions for additional purchase consideration Provision for call and put option in Consilium JKK AS Other provisions Total The subsidiaries provide a certain type of warranty service and undertake to repair or replace parts not performing satisfactorily. A provision of SEK 7.8 (4.3) million for expected warranty claims was recognised on the reporting date, based on previous experience of the level of repairs and replacement parts Warranty obligations are normally valid for two years. A change in the value of the option relating to JKK AS has been recognised in equity. Provisions for pensions etc Provisions at beginning of period Provisions during the period Repayments Provisions at end of period Pensions Provisions for pensions and similar obligations: Italy South Korea Total The main actuarial assumptions used Discount rate 1.5% 1.5% Future salary increases 1.5% 1.5% Inflation 2.0% 2.0% Amounts recognised in the income statement Current service cost Interest expenses Actuarial losses Total Amounts recognised in the balance sheet, calculated by reference to: Present value of unfunded obligations Fair value of plan assets Total Pension provisions Opening balance, 1 Jan Provisions during the year Sale of operations Reversals during the year Translation differences Closing balance, 31 Dec Defined benefit pension plans The has defined benefit pension plans, under which employees are entitled to post-employment benefits based on the final salary and length of service. The pension plans are in Italy and South Korea At 31 December Present value of defined-benefit obligations Fair value of plan assets Deficit/surplus in the plan Experience adjustments of defined-benefit obligations Pension expenses Total pension expenses recognised in the consolidated income statement are as follows: Total cost of defined benefit plans Total cost of defined contribution plans Total pension expenses Pension expenses Allocation of pension costs in the consolidated income statement: Cost of sales Distribution costs Administrative expenses Total Pension insurance with Alecta For salaried employees in Sweden, the ITP 2 plan s defined-benefit retirement and family pension obligations are covered by insurance with Alecta. According to the Swedish Financial Reporting Board s statement UFR 10, Classification of ITP Plans Financed by Insurance in Alecta, this is a multi-employer defined-benefit pension plan. The Company did not have access to sufficient information for the 2015 fiscal year to report its proportionate share of the plan s obligations, plan assets and costs, which meant that it was not possible to report the plan as a defined-benefit plan. Consequently, the ITP 2 pension plan insured through Alecta is reported as a defined contribution plan. The premium for the defined-benefit retirement and family pension is calculated individually and is dependent on factors that include salary, previously earned pension and expected remaining service. Expected contributions in the next reporting period for ITP 2 insurance covered by Alecta are SEK 7.9 (4.3) million. The collective consolidation level is the market value of Alecta s assets as a percentage of its insurance obligations calculated by reference to Alecta s actuarial methods and assumptions. This is not consistent with IAS 19. The collective consolidation level is normally allowed to vary between 125 and 155 percent. If Alecta s collective consolidation level falls below 125 percent or exceeds 155 percent, measures must be taken to create the right conditions for the level to return to the normal range. If the consolidation level is too low, an appropriate measure could be to increase the agreed price for new insurance and extension of existing benefits. If the consolidation level is too high, premium reductions could be introduced. Post-employment medical benefits. The s employees do not have any post-employment medical benefits. Note 20 Costs by nature of expense Raw materials and consumables used Changes in inventories of finished goods and products in progress Personnel expenses Marketing expenses Rental costs Transport and travel expenses Depreciation/amortisation Other external services Other costs Total 1, ,

51 NOTES Note 21 Borrowing Note 22 Accruals and deferred income Parent Non-current Bank loans Bond issues Current Bank loans Overdraft/project loans Parent Accrued interest expense Holiday pay Accrued social security contributions Warranty provisions Other items Total Unutilised borrowing facilities at the end of the year amounted to SEK 33.0 (5.6) million. The carrying amount is the same as the fair value. Consilium AB (publ) fulfilled all loan covenants during the 2015 and 2014 reporting periods. Contractual renegotiation dates Within 6 months 6-12 months 1-5 years After 5 years Total At 31 December 2015 Total borrowing At 31 December 2014 Total borrowing Maturity of long-term borrowing Parent years years After 5 years Effective interest at reporting date Parent Percent Overdraft facilities Bank loans Other loans Corporate bond On 1 November 2012, Consilium AB (publ) issued a 5-year unsecured bond totalling SEK 325 million. Consilium exercised the right to issue a further SEK 75 million in On 24 April 2015, the bond of SEK 400 million was repaid early. A new 5-year unsecured bond of SEK 600 million was issued on 25 March 2015, with an option to issue a further SEK 300 million. Interest is paid quarterly and is subject to three months STIBOR exceeding 0 percent plus 5.75 percent. The maturity structure of Consilium s total borrowing at the end of the year is as follows Maturity structure of Consilium s borrowing The table shows the s financial assets and liabilities measured at fair value at 31 December 2015 Level 1 Level 2 Level 3 Total Assets Short-term investments Derivatives used for hedging Total assets Liabilities Derivatives used for hedging Total liabilities Note 23 Pledged assets Parent Own liabilities and provisions Floating charges Property mortgages Investments in subsidiaries 16.0 Pledged net assets in subsidiaries 0.2 Cash & cash equivalents Total own liabilities and provisions Note 24 Contingencies and guarantee commitments Parent Guarantee commitments on behalf of other companies Bank guarantees Sureties for associates Total contingencies The rents a number of office premises. The also holds various types of plant and machinery and cars under leases. The rental contracts and leases are subject to different terms and conditions and include a renewal option. in any significant liabilities. Note 25 Related party transactions Intra-group purchases and sales 100 (100) percent of the Parent Company s sales for the year were to its subsidiaries. Intra-group purchases and sales are subject to the same pricing principles as transactions with external parties. No goods or services were purchased from associates during the year. Purchase of goods and services from related parties Parent Platanen AB, management and administrative services Management services Administrative services Fastighetsbolag Henriksborg HB, rent Total Management services relate to the Chairman of the Board. Purchased administrative and inventory services. Services purchased from Platanen AB and its subsidiary Fastighetsbolaget Henriksborg HB are charged at standard market terms. Management services and rent from related parties are charged at standard market terms. 51

52 NOTES Note 26 Board members and senior executives Number at reporting date Of which male Number at reporting date Of which male (with subsidiaries) Board members 60 (97%) 56 (96%) CEOs and other senior executives 28 (95%) 25 (91%) Parent Company Board members 7 (71%) 7 (71%) CEO and other Senior executives 4 (75%) 4 (75%) Board fees are defined at the annual general meeting of shareholders. No other special fees are paid to the Board. No fees are paid to the s employees for board assignments in the subsidiaries. Remuneration of the CEO and management group comprises the basic salary, including car allowance, and bonuses. Pension is payable in accordance with the current ITP plan. The management group consists of the President & CEO, the managers of the two business areas, the managers of the market companies and the Parent Company s Finance Manager and Treasurer and Controller. Bonuses are linked to financial targets and may not exceed three monthly salaries. The remuneration arrangements for the CEO are determined by the Board. The remuneration arrangements for senior executives are determined by the Chairman of the Board and the CEO. Remuneration of the Board of Directors was SEK 650 (550) thousand in line with the decision of the 2014 AGM. SEK 150 (150) thousand of this amount was paid to the Chairman. Payment for management services is described in note 25. There are no pension obligations to the Board. There are no pension obligations to the Chairman for 2014 or The CEO received an annual salary of SEK 2,567 (2,440) thousand. Bonuses of SEK 630 (600) thousand were paid, plus car allowances. Pension is payable in accordance with the current ITP plan. The retirement age for the President & CEO and the CEOs of the subsidiaries is 65 years, while the period of notice is 12 months. No special termination or retirement benefits are paid. Senior management in Consilium AB and its subsidiaries have normal salary agreements without any special retirement benefits in the event of termination. In the event of involuntary termination, members of senior management receive up to one annual salary, including normal pension costs. Board fees/ 2014 basic salary Bonus Pension costs Car allowance Total Board Chairman, Carl Rosenblad Board Member, Fredrik Nygren Board Member, Peter Carlberg Board Member, Ann-Marie Åström Board Member, Thomasine Rosenblad Nomination committee Chairman, Lennart Norling Rasmus Palmqvist 0.0 Management (of which CEO) (2.4) (0.6) (0.5) (0.1) (3.6) Total Note 28 Adjustments for non-cash items Parent Provisions Other Total Note 29 Earnings per share Calculation is based on Profit/loss for the year attributable to owners of the Parent Average number of shares 11,702,203 11,702,203 Note 27 Remuneration and benefits during the year Note 30 Non-current receivables Board fees/ 2015 basic salary Bonus Pension costs Car allowance Total Board Chairman, Carl Rosenblad Board Member, Fredrik Nygren Board Member, Peter Carlberg Board Member, Ann-Marie Åström Board Member, Erik Lindborg Board Member, Thomasine Rosenblad Nomination committee Chairman, Lennart Norling Rasmus Palmqvist Management (of which CEO) (2.6) (0.6) (0.9) (0.1) (4.2) Total Consilium has no past-due non-current receivables at 31/12/2015. Note 31 Business acquisitions In January 2015, Consilium acquired the Australian marine company Novamarine Instruments Pty Ltd. The company has net sales of approx. SEK 25 million and sells marine equipment and services for commercial and military vessels in Australia and New Zealand. The company has 12 employees. The acquisition is in line with Consilium s strategy and further strengthens the global market organisation. The acquisition provides a stronger presence and opportunities for continuing development in Australia and New Zealand. The cost of acquisition of 100 percent of the shares was SEK 11.9 million. The value of recognised goodwill arising from the acquisition is SEK 12.6 million. In April 2015, Consilium acquired the Dutch gas detection company Buveco Gasdetection BV. The company has net sales of approx. SEK 25 million and has been a supplier of gas detection products to Consilium for many years. The company has 13 employees. The acquisition is in line with Consilium s strategy of forward and backward integration within its niche areas and brings Consilium increased expertise in gas detection. The cost of acquisition of 100 percent of the shares was SEK 38.9 million. The value of recognised goodwill arising from the acquisition is SEK 29.2 million. In June 2015, Consilium acquired the remaining 50 percent of shares in the joint venture company CN System AB, with the subsidiary CN System Norge AS. The two companies are now wholly-owned subsidiaries. CN System AB has net sales of approx. SEK 50 million and sells fire alarm equipment in the segment of large properties with high protection values. The company has 10 employees. The acquisition gives Consilium a base for its future expansion in the land market. The cost of acquisition for the remaining 50 percent of the shares was SEK 7.3 million. The value of goodwill arising from the acquisition amounts to SEK 1.6 million, after fair value recognition of the previously owned 50-percent share. The acquired companies have had an effect of SEK 51.0 million on the Consilium s revenue during the period January to December 2015, and a positive effect of SEK 4.0 million on profit after tax for the same period. 52

53 NOTES Note 31 Business acquisitions, cont d Note 32 Events after the reporting period Assets and liabilities related to the acquired operations at the acquisition date were as follows (SEK millions) Novamarine Instruments Pty Ltd Buveco Gasdetection B.V. CN System AB Property, plant & equipment Inventories Current receivables Cash & cash equivalents Non-current liabilities Current liabilities Fair value of acquired net assets Consilium AB (publ) has issued bonds of SEK 150 million. The bonds expire on 25 March 2020 and are part of Bond loan 2015/2020 (ISIN: SE ) which now amounts to SEK 750 million. In April 2016, Consilium aquired 79 percent of the shares in Micropack (Engineering) Ltd. Not 33 The income statements and balance sheets for the Parent Company and will be presented for adoption at the annual meeting on 23 May No deferred tax has arisen in connection with the calculation of acquisition balance sheets. The prepared acquisition balance sheets are preliminary. In addition to the above acquisitions, Consilium also acquired shares in the Finnish marine company Oy Nauti-Electronics Ab (an associate and therefore not consolidated) in May 2015 and strengthened its ownership by acquiring additional shares in the Indian fire safety company Consilium Fire Safety Pvt Ltd, resulting in an equity reduction with reverse proportionality between the NCI and majority ownership. The Board and CEO confirm that the consolidated annual financial statements have been prepared in accordance with international financial reporting standards (IFRS), as adopted by the EU, and provide a true and fair view of the s financial performance and position. The Parent Company s annual financial statements have been prepared in accordance with generally accepted accounting principles in Sweden and provide a true and fair view of the Company s financial performance and position. The Board of Directors report presents the operations, financial position and performance of the and Parent Company, and describes material risks and uncertainties to which the Parent Company and companies are exposed. Stockholm, 22 April 2016 Carl Rosenblad Chairman of the Board Peter Carlberg Erik Lindborg Fredrik Nygren Board Member Board Member Board Member Carl Adam Rosenblad Ann-Marie Åström Thomasine Rosenblad Board Member Board Member Board Member Ove Hansson Chief Executive Officer Our audit report was submitted in Stockholm on 25 April 2016 Sten Håkansson Chief Auditor Öhrlings PricewaterhouseCoopers AB 53

54 AUDITOR S REPORT To the annual meeting of the shareholders of Consilium AB (publ), corporate identity number Report on the annual accounts and consolidated accounts We have audited the annual accounts and consolidated accounts of Consilium AB (pibl) for the year The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages Responsibilities of the Board of Directors and the Managing Director for the annual accounts and consolidated accounts The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts in accordance with the Annual Accounts Act and of the consolidated accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company s preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2015 and of its financial performance and its cash flows for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2015 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the group. Report on other legal and regulatory requirements In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company s profit or loss and the administration of the Board of Directors and the Managing Director of Consilium AB (publ) for the year Responsibilities of the Board of Directors and the Managing Director The Board of Directors is responsible for the proposal for appropriations of the company s profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act. Auditor s responsibility Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company s profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden. As a basis for our opinion on the Board of Directors proposed appropriations of the company s profit or loss, we examined the Board of Directors reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act. As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Opinions We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year Stockholm 25 april 2016 Öhrlings PricewaterhouseCoopers AB Sten Håkansson Authorized Public Accountant 54

55 CORPORATE GOVERNANCE Consilium s shares are listed on NASDAQ Stockholm. Consilium adopted the Swedish Corporate Governance Code (the Code) on 1 July 2008 in accordance with the stock exchange rules. This corporate governance report constitutes part of the formal annual report and has been reviewed by the Company s auditor. The Board s internal control report can be found at the end of this corporate governance report. The main purpose of the corporate governance report is to describe the bodies, control & management resources and principles Consilium applies in order to achieve the s overall goal of creating value for shareholders. Consilium did not derogate from the Code during General Meeting of Shareholders Shareholders influence in the Company is exercised at the shareholders meeting, which is Consilium s highest decisionmaking body. Shareholders wishing to participate in a shareholders meeting and vote their shares must be listed in the register of shareholders no later than 5 working days before the meeting, and must notify the Company of their intention to participate in the meeting, indicating any advisors attending, as instructed in the notice of the meeting. Shareholders unable to attend may exercise their rights through a proxy, in accordance with the Swedish Companies Act. Annual General Meeting The annual general meeting of shareholders is held within six months of the end of the financial year. The annual general meeting deals with the election and remuneration of Board members and auditors, establishment of guidelines for remuneration of key management personnel, adoption of the income statement and balance sheet, allocation of profit and the discharging of Board members and the CEO from liability for the financial year. If there is reason to convene a shareholders meeting before the next annual general meeting, the shareholders are called to an extraordinary general meeting. Consilium did not hold any extraordinary general meetings in AGM The annual general meeting of the shareholders of Consilium for the 2014 financial year was held in Nacka on 19 May In addition to the business described above, the meeting adopted resolutions as follows: payment of a dividend of SEK 1.25 per share to shareholders and a Board mandate to issue new shares or convertible bonds (with a derogation from preferential rights for shareholders) for financing of possible acquisitions. All sitting Board members were re-elected. Carl Rosenblad was re-elected as Chairman. Shareholders present at the meeting represented 84 percent of the votes and 72 percent of the capital. Nomination Committee The task of the nomination committee is to propose candidates for election to the Board prior to the annual general meeting. In 2015, the nomination committee consisted of Lennart Norling (Chairman, independent of the Company and major shareholders), Chairman of the Board Carl Rosenblad and Rasmus Palmqvist (independent of the Company and major shareholders). The nomination committee held one (1) meeting in The nomination committee is also responsible for evaluating the Board s composition and work, and receives the Board s internal evaluation to use as a basis for its work. A presentation of the nomination committee s work was given at the 2015 AGM. The Corporate Governance Model Nomination Committee Marine & Safety business area General Meeting of Shareholders Board President & CEO Management Auditor Fire safety & Automation business area External regulations Swedish Companies Act Swedish Accounting Act Swedish Annual Accounts Act Rules for Issuers Swedish Corporate Governance Code Internal Controls Articles of Association Board s Work Plan CEO s Instructions policies and instructions Business plan, goals and strategies Elected/appointed by Informs/reports to 55

56 CORPORATE GOVERNANCE committee s independent members have received compensation of SEK 12,000 per person, and reimbursement for expenses, in accordance with the decision of the annual general meeting. Board Consilium s Board has ultimate responsibility for managing the Company s affairs between the annual general meetings. The Board appoints the President and CEO, and makes decisions on issues concerning the strategic direction of the business and the Company s overall organisation. Since the annual general meeting in May 2015, Consilium s Board has consisted of seven members. The Board is composed of persons representing the Company s major shareholders and persons who are independent of the major shareholders. The CEO does not serve on the Board, but is always present at Board meetings. The Finance Manager and Treasurer also normally attends the meetings and acts as the Board s Secretary. Other employees in the may also attend Board meetings in a reporting capacity. In 2015, the Board held six meetings at which minutes were taken. Matters dealt with at the meetings included the year-end report, interim financial reports, the market situation and outlook, business plans, goals and strategies, financial risk management, budgets, long-term financing, investments, and strategic cooperation and acquisitions. The attendance and independence of the Board and co-opted members is shown in the table below. Chairman of the Board The Chairman is responsible for ensuring the work of the Board is conducted efficiently and that the Board performs its tasks. The Chairman organises and leads the work with the aim of creating the best possible conditions for the Board s members. The Chairman also remains in regular contact with the Company s CEO in order to ensure the Board has access to sufficient information to allow it to follow the Company s performance and financial position, and to plan accordingly. Carl Rosenblad is Chairman of the Board. Work of the Board The Board of Directors has adopted a formal work plan which defines the division of work between the Board and CEO. The formal work plan also regulates the Board s areas of responsibility, duties and decision-making powers. The main duties involve making decisions on strategic issues, assuming responsibility for the Company s capitalisation and capital structure, ensuring the Company is efficiently managed and making decisions on other matters of importance such as large investments and acquisitions. The Board s formal work plan also contains rules on information management and on evaluation of the work of the Board and the CEO. A written set of instructions for the CEO defines the division of work between the Board and CEO, and regulates the powers of the CEO. The Board conducts an annual evaluation of its work and the results are reported to the nomination committee. An important task is to ensure correct and timely reporting in the Company, and to the Board and share market. Accordingly, the Board receives regular reports detailing significant events, order intake trends, invoicing, results, cash flow, financial position and the number of employees in the and its companies. During the year, the Board has at least one meeting with the chief auditor who also maintains regular contact with the Chairman of the Board. Committees The Board of Consilium has decided that the size of the Company does not warrant the appointment of an audit committee. Audit matters are dealt with by the full Board. On at least one occasion during the year, Consilium s auditors report in person to the Board on their observations from the audit and their evaluation of the s internal control. Matters concerning exchange rate movements, investments, acquisitions and strategic direction are also dealt with. For the reason mentioned above, Consilium has decided the full Board will also deal with remuneration matters rather than establishing a special remuneration committee. The main work involves defining the CEO s employee benefits, and preparing share-based payment programmes, such as option schemes, for adoption by the annual general meeting. President and management The President and Chief Executive Officer of Consilium is Ove Hansson. The division of work between the CEO and Board and the CEO s powers are regulated in the instructions to the CEO, which are defined and revised on an annual basis. In addition to the President and CEO, management consisted of the Company s Finance Manager and Treasurer and Controller and the managers of Consilium s business areas at the end of the year. More information about management can be found on page 61. Operational control Consilium s operations are organised into a number of divisions in the two business areas, Marine & Safety and Fire safety & Automation, which are responsible for Consilium s offering and global market organisation. The operations are organised into a clear functional structure, allowing leveraging of synergies and economies of scale in development, production, purchasing, marketing and sales, and are led by the two business area managers. The s business organisation is structured according to the principle of decentralised responsibility and authority. Each business area has its own subsidiary board of which the President is chairman. Like the Parent Company, the subsidiaries have a formal work plan for their board and written instructions for their managing director. The subsidiaries also have a number of policies and instructions governing operations, including the business areas divisions. These areas include IT, environment, quality, equality, authorisation procedures, financing and currency hedging. The President has overall responsibility for day-to-day operations and their control, and the managers of the subsidiaries Board members attendance, relationship and fees: Elected Attendance 2015 Relationship Consilium Relationship major shareholder Fees Carl Rosenblad, Chairman (6) Non-independent Non-independent 150,000 Carl Adam Rosenblad (6) Non-independent Non-independent Fredrik Nygren (6) Independent Independent 100,000 Peter Carlberg (6) Independent Independent 100,000 Ann-Marie Åström (6) Independent Independent 100,000 Erik Lindborg (6) Independent Non-independent 100,000 Thomasine Rosenblad (6) Independent Non-independent 100,000 Ove Hansson, CEO 6(6) Anna Holmgren, Secretary 6(6) Information about Board members can be found on page

57 CORPORATE GOVERNANCE Interest model Best customer value on the market Global supplier base Customers Strengthening our organisation Suppliers Partners Consilium AB Community Employees Responsibility, consideration and respect Shareholders Attracting and motivating staff Creating and delivering value report on weekly order intake, invoicing and order backlog for each profit centre. Monthly financial statements are also prepared for each profit centre. These are analysed at different levels and consolidated at level. Reporting Internal reporting takes place within the same system used for preparation of the consolidated financial statements and their quarterly presentation to the market. In addition to the income statements and balance sheets, the closing financial reports contain key financial ratios and other relevant information. Analyses are made of inventory levels and movements, trade receivables and customer credit periods. The fundamental principle of the s reporting and follow-up systems is that they are characterised by transparency and decentralisation. The management of each subsidiary is strongly committed to developing and rationalising these processes. A key to success is having access to relevant and correct information, which is measured and followed up. Much effort has been devoted to the implementation and development of business systems for measuring the profitability of individual transactions, customers, sectors and geographical markets. Individual costs are monitored and measured at critical stages in production, administration and sales. These are then compared with previous results and targets. Remuneration of the Board and key management personnel The 2015 annual general meeting adopted Board fees of SEK 800,000, distributed as follows: Chairman of the Board SEK 175,000, external Board members SEK 125,000 each. The meeting also adopted guidelines relating to the compensation of key management personnel, which are essentially in line with market salaries and other terms of employment. Key management personnel s remuneration consists of the basic salary, annual variable compensation, any long-term share-based incentive schemes, retirement benefits, other benefits and conditions for termination and severance pay. The annual variable compensation is always capped at a maximum of 3 monthly salaries. None of the key management personnel has a period of notice exceeding 12 months. Annual variable compensation and long-term share-based incentive schemes must primarily be linked to the earnings and value development of the Company/. Retirement benefits are always contribution-based. Auditor The auditor s task is to examine Consilium s financial statements and accounting records and the administration of the Board and CEO. The chief auditor also submits an audit report to the annual general meeting. Shareholders have the opportunity to put questions to the auditor at the meeting. Consilium s auditor is elected by the annual general meeting. The 2014 annual general meeting elected Öhrlings PricewaterhouseCoopers AB as auditor for a period of four years, with Sten Håkansson as chief auditor. At the 2015 annual general meeting, it was decided that auditors would be paid against invoice in accordance with approved purchasing principles. Fees paid to Öhrlings PricewaterhouseCoopers AB in 2015 amounted to SEK 2.1 million (auditing services SEK 2.1 million, other services SEK 0.0 million). Consilium s stakeholders Consilium is dependent on a large number of external parties. Cooperation and contacts with these parties may take the form of contractual and informal relationships or partnerships. The Company s stakeholders are parties who affect or can be affected by Consilium s actions. The simplified stakeholder model above does not show fragmented stakeholders such as competitors with whom the Company does not have any clear relationship. Added to the model are phrases expressing values which are inherent in the relationships or which Consilium seeks to establish. Responsibility It is Consilium s ambition to conduct responsible operations based on sustainable development. Consilium sees sustainable development as development that meets the needs of the present without compromising the ability of future generations to meet their own needs (UN 1987). The s sustainable development work will also focus on The Natural Step s four sustainability principles and the environmental quality objectives adopted by the Swedish parliament. It is Consilium s goal that all product companies and production units will have an environmental management system according to ISO It is important that the Company s operations are planned, implemented, monitored and improved according to 57

58 CORPORATE GOVERNANCE this standard in order to reduce adverse environmental impacts. Consilium sees this work as a natural part of its commitment to the Company s stakeholders. In addition, it is Consilium s firm belief that a successful environmental programme also generates economic benefits, both in the short and long term. Environmental policy Based on the Company s own requirements and the expectations of the outside world, Consilium works for a better environment and endeavours to offer environmentally-friendly products and solutions that promote sustainable development. Consilium regards legislation and regulations as a minimum requirement and, as in all its operations, aims for constant improvement and reduction of the s environmental impacts. In order to achieve this, Consilium will: allocate sufficient resources for environmental work integrate environmental issues into its quality management system in an overall perspective, treat environmental measures as a long-term investment encourage and develop environmental awareness among employees cooperate with environmentally-aware suppliers and partners. THE BOARD S INTERNAL CONTROL REPORT FOR THE 2015 FINANCIAL YEAR Consilium s Board is responsible for ensuring internal control is conducted in accordance with the Swedish Companies Act and the Swedish Corporate Governance Code. Consilium s financial reporting follows the legislation and regulations for companies listed on NASDAQ Stockholm and the local regulations in the Company s countries of operation. Consilium s financial reporting will: be correct and complete, and prepared in accordance with current laws, standards and recommendations; provide a true and fair description of the Company s operations support a rational and well-informed valuation of the Company s operations. In addition to these goals, internal financial reporting must support correct business decisions at all levels in the. The Board s description of internal control is based on the structure of COSO s (Committee of Sponsoring Organisations of the Treadway Commission) framework for internal control. Control environment In order to create and maintain a functioning control environment, the Board has adopted a number of fundamental documents of key importance to financial reporting. These include the Board s formal work plan and the instructions for the CEO. The CEO is primarily responsible for ensuring the control environment adopted by the Board is upheld in the day-to-day operations and reports regularly to the Board in accordance with defined procedures. Reports are also submitted by the Company s auditor. The internal control structure is also based on a management system which reflects the company s organisation and method of operating, with clearly defined roles, areas of responsibility and delegation of authority. The s control documents, such as policies, guidelines and code of business ethics, also play an important role in the control structure. Control documents dealing with financial reporting are the most important components of the financial reporting control environment. These documents are regularly updated to reflect amendments to reporting standards, legislation and listing regulations. Risk assessment The carries out regular risk assessment in order to identify significant risks associated with financial reporting. The main risk associated with financial reporting relates to material misstatements and insufficient disclosure in the financial statements, which can occur during recognition and measurement of assets, liabilities, income and expense. Other risks include fraud, loss or embezzlement of assets. Risk management is incorporated into each process, and different methods are used to assess and limit risks and to ensure the risks to which Consilium is exposed are managed in accordance with adopted policies, instructions and established monitoring procedures, and that these minimise potential risks and support correct accounting, reporting and disclosure. Control activities Control activities are designed to manage what the Board and management consider to be significant risks, and in doing so to prevent, identify and correct any errors in financial reporting. These control activities may be clear decision-making procedures and processes for important decisions such as acquisitions, other major investments, disposals, agreements and analytical monitoring. An important task for Consilium s staff functions is to implement, develop and maintain the s control routines and carry out internal controls focusing on business-critical areas. Process managers at different levels are responsible for carrying out the necessary controls relating to financial reporting. Accounting and reporting processes have controls relating to measurement, accounting policies and accounting estimates. All entities in the have their own controllers/financial managers who participate in the evaluation of their own reporting. Continuous analysis of financial reporting at both entity and level represents an important way of ensuring financial reports do not contain material misstatements. The s control organisation plays a key part in the internal control process and is responsible for ensuring each entity submits correct, complete and timely financial reports. Information and communication Consilium has internal information and communication paths which support complete and correct financial reporting. These include control documents such as internal directives, guidelines and policies on financial reporting. Regular updates and briefings about changes in accounting policies and reporting and disclosure requirements are communicated and made available to all employees concerned. The s intranet gives the organisation access to policies and guidelines. The Board receives regular financial reports. External information and communication is governed by the Company s information policy which describes Consilium s general principles for information-sharing. Monitoring The s compliance with adopted policies and guidelines is monitored by the Board and Company management. The Company s financial situation is dealt with at each Board meeting. Consilium s management monitors the financial results on a monthly basis by analysing deviations from the budget, forecast and previous year. All monthly accounts are discussed with the management of each business area. Financial reporting is reviewed by the Board prior to publication of quarterly and annual reports. The auditors also examine internal control in the as part of their annual audit. The Board meets the auditors in order to review internal control and, if applicable, to give the auditors special internal control assignments. It is the auditors opinion that internal control is good. 58

59 CORPORATE GOVERNANCE Internal control in Consilium Control environment Risk assessment Control structure Monitoring Information Internal control Consilium has an internal risk assessment function which reports directly to the President & CEO. Where control measures include visits to subsidiaries or their divisions, the activity is carried out in accordance with a specially created control process. This process has been developed in order to optimise working methods and delivery of value-creating reports. Internal control has also developed a uniform risk management process for areas such as customer credit policy and insurance solutions, which will further strengthen corporate governance in the. Consilium does not have a special internal audit function as it is the Board s opinion that there are no special circumstances in the Company or its operations which warrant the establishment of such a function. Stockholm, 22 April 2016 Carl Rosenblad Chairman of the Board Peter Carlberg Erik Lindborg Fredrik Nygren Board Member Board Member Board Member Carl Adam Rosenblad Ann-Marie Åström Thomasine Rosenblad Board Member Board Member Board Member Ove Hansson Chief Executive Officer AUDITOR S REPORT ON THE CORPORATE GOVERNANCE STATEMENT To the annual meeting of the shareholders of Consilium AB (publ), corporate identity number It is the Board of Directors who is responsible for the Corporate Governance Statement for the year 2015 on pages and that it has been prepared in accordance with the Annual Accounts Act. We have read the corporate governance statement and based on that reading and our knowledge of the company and the group we believe that we have a sufficient basis for our opinions. This means that our statutory examination of the Corporate Governance Statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. In our opinion, the Corporate Governance Statement has been prepared and its statutory content is consistent with the annual accounts and the consolidated accounts. Stockholm, 25 April 2016 Öhrlings PricewaterhouseCoopers AB Sten Håkansson Authorised Public Accountant 59

60 CONSILIUM S BOARD Carl Rosenblad Carl Adam Rosenblad Fredrik Nygren Peter Carlberg b LL.B. M.Sc Business and Economics. Elected to the Board in Chairman since Other directorships: Chairman of the Board of Platanen Holding AB with subsidiaries, Tessin Fastighets AB, Svenska Bostadsfonden Management AB 1-2, Svenska Bostadsfonden Instutition AB 1-2. b M.Sc Business and Economics. Elected to the Board in Manager Marine & Safety business area. Other directorships: Consilium companies and Platanen AB. Shareholding in Consilium: 24,000. b B.Sc. (Econ). Elected to the Board in Chairman of the Board of ExeoTech Invest AB (publ) with subsidiaries. Other directorships: Chairman of the Board of Twinblade Technologies Holding Sweden AB (publ) and Swedish Lloyd Ltd, Director of La Petite Epicerie International Pte Ltd. b Graduate engineer. Elected to the Board in CEO Framo AS. Other directorships: Chairman of the Board of Framo Nippon, Director of Framo AS. Shareholding in Consilium: 2,500. Shareholding in Consilium, see page 23. Shareholding in Consilium: 0. Ann-Marie Åström Erik Lindborg Thomasine Rosenblad b LL.B. Elected to the Board in Chairman of the Board of Gotland Tankers AB. Other directorships: Vice-chairman of the Board of Rederi AB Gotland, Member of SKULD s Committee and member of Intertanko s Swedish Council. b M.Eng. Elected to the Board in CEO MTC Brattberg AB. Other directorships: Director of MCT Brattberg AB, Fururitas AB and MCT Capital AB. Shareholding in Consilium: 0. b B.Sc. HR. Elected to the Board in CEO Career Planet AB. Other directorships: Director of Career Planet AB. Shareholding in Consilium: 9,723. Shareholding in Consilium: 1,000. All directorships are correct at 31 December

61 CONSILIUM S MANAGEMENT Ove Hansson b LL.B. M.Sc Business and Economics. Present position: President & CEO of Consilium AB. Manager Fire safety & Automation. Chairman of the Board in Consilium s subsidiaries. Previous positions and directorships: Director of Consilium AB during Shareholding in Consilium: 100,086. Carl Adam Rosenblad b M.Sc Business and Economics. Present position: Manager Marine & Safety business area. Director of Consilium AB, Consilium companies and Platanen AB. Previous positions and directorships: Manager Marine & Safety Navigation division. Shareholding in Consilium: 24,000. Anna Holmgren b Diploma in Economics. Present position: Finance Manager and Treasurer of Consilium AB. Previous positions and directorships: CFO of Consilium s subsidiaries. Shareholding in Consilium: 0. Roger Orreteg b M.Sc Business and Economics. Present position: controller of Consilium AB. Previous positions and directorships: CFO of Consilium s subsidiaries. Shareholding in Consilium: 2,000. Sten Håkansson Auditor Chief Auditor, appointed in Öhrlings PricewaterhouseCoopers AB S Stockholm 61