Earnings call transcript: Alfa Laval Q1 2025 shows revenue growth but misses EPS forecast

Alfa Laval reported its Q1 2025 earnings, revealing an earnings per share (EPS) of SEK 4.82, falling short of the forecasted SEK 4.93. Revenue for the quarter reached SEK 16.47 billion, slightly below expectations of SEK 16.73 billion. The company’s stock reacted to this news with a 1.1% drop, reflecting investor concerns over the earnings miss. According to InvestingPro data, the company currently trades at a P/E ratio of 24.1x, which appears high relative to its near-term earnings growth potential.

Key Takeaways

• Q1 revenue increased by 10% year-over-year.
• EPS missed analysts’ forecasts by SEK 0.11.
• Stock price decreased by 1.1% following the earnings announcement.
• Alfa Laval acquired FIB Cryogenics for €800 million.
• Order intake was stable, with a record service order intake of SEK 5.8 billion.

Company Performance

Alfa Laval demonstrated strong revenue growth in Q1 2025, with a 10% year-over-year increase. The company’s gross profit margin improved to 36.8%, up from 34.9% in Q1 2024. This growth is attributed to increased demand in several of its divisions, particularly in heat exchangers and pumps. However, the EPS miss indicates challenges in meeting analyst expectations.

Financial Highlights

• Revenue: SEK 16.47 billion, up 10% year-over-year.
• Earnings per share (EPS): SEK 4.82, below the forecast of SEK 4.93.
• Adjusted EBITDA: SEK 2.9 billion, a 20% increase.
• Operating income: Increased by 27%.
• Gross profit margin: 36.8%, up from 34.9% in the previous year.

Earnings vs. Forecast

Alfa Laval’s actual EPS of SEK 4.82 missed the forecast of SEK 4.93 by approximately 2.2%. This miss contrasts with the company’s historical trend of meeting or exceeding EPS expectations. The revenue shortfall was less pronounced, with a 1.6% miss against forecasts.

Market Reaction

Following the earnings announcement, Alfa Laval’s stock price fell by 1.1%, closing at SEK 401. This movement aligns with the market’s response to the earnings miss, as investors adjusted their positions based on the company’s performance against forecasts. The stock remains within its 52-week range of SEK 365.2 to SEK 497.7. InvestingPro’s Fair Value analysis suggests the stock is currently fairly valued, with analyst consensus maintaining a bullish outlook and price targets indicating potential upside.

Outlook & Guidance

Looking ahead, Alfa Laval expects strong demand in its Energy division for Q2 2025, while the Food and Water division is projected to maintain stable demand. The company has also provided guidance for a tax rate between 24% and 26% and recommended a dividend of SEK 8.50 per share. Estimated capital expenditures for Q2 are projected at €800 million.

Executive Commentary

CEO Tom highlighted the company’s robust financial position, stating, "We are essentially debt-free, and the 24% ROACE is a healthy number." He also emphasized Alfa Laval’s competitive advantage, noting, "The more difficult it gets, the more it is to our advantage when it comes to market position."

Risks and Challenges

• Currency revaluation impacts could affect future earnings.
• Slowing capital expenditure decisions in the U.S. market may hinder growth.
• Tariff environments present potential challenges in key markets.
• Order book revaluation in Northeast Asia could impact future performance.
• Potential delays in HVAC market recovery and refrigerant transitions.

Q&A

During the earnings call, analysts inquired about the strategic rationale behind the FIB Cryogenics acquisition and its expected impact on Alfa Laval’s market position. Discussions also covered the potential effects of tariffs and trade dynamics on the company’s operations.

Overall, Alfa Laval’s Q1 2025 performance showed significant revenue growth but fell short of EPS expectations, leading to a modest decline in stock price. The company’s strategic acquisitions and strong market positions provide a foundation for future growth, despite current challenges. For deeper insights into Alfa Laval’s financial health and growth prospects, InvestingPro offers a comprehensive research report with detailed analysis of the company’s competitive position, valuation metrics, and growth potential, along with expert insights available exclusively to subscribers.

Full transcript - Alfa Laval AB (ALFA) Q1 2025:

Tom, Executive (likely CEO), Alfa Laval: Good afternoon, and welcome to Alfa Laval’s first quarter earnings call. Fredrik and I will give you an update on the quarter and then open for questions. As always, in the first quarter earnings call, we have to move on to our AGM direct following. So we will stick to the timetable today so that also the visiting shareholders have a chance to meet us. With that, let me then go to a couple of introductory comments first.

So demand was stable in the quarter and in line with expectations across all divisions, supported by a strong quarter for transactional business and service. The execution of the order book continued well and supported a solid invoicing quarter and a positive margin development. And last, the balance sheet is seldom in focus, but today we should recognize that we are essentially debt free and the 24% ROACE is a healthy number indeed, if I may say so. And with that, let us go to key figures. So let me first clarify the order intake numbers for the quarter.

Due to big currency movements in the order book of SEK 52,000,000,000 was affected to an unusual degree and the revaluation in the quarter of the order book amounted to SEK900 million. We have always reported order intake net of revals and cancellations. Looking at the last 40, this way of recognizing orders has reflected the underlying market conditions fairly. In Q1, the NOK versus dollar movement affected the Marine division specifically and therefore included the reval of the order book into the bridge now and going forward. In all, orders were stable at minus 3% organically, both sequentially and compared to last year.

The order book stands at SEK 52,000,000,000, and the margin in the order book is not affected by reval. Moving to the invoicing, it increased with 10% and with a good mix effect, the margin grew to 17.7%. And then on to the divisional review, starting with the Energy division. Order intake was largely in line with expectations and HEVAC orders were well supported by demand in data center applications. The recovery in the heat pump business is still a quarter away or so.

The pipeline of large orders was a bit slow to convert to booked orders, maybe partly due to macroeconomics. Sales and margin were operationally stable and reflected well the underlying business conditions in the quarter. On to the Food and Water division. A stable quarter overall, with a very solid and continued growth in the transactional business and service. The execution of the order book progressed reasonably well, with invoicing growing 12%.

The margin improved mainly due to a positive mix, and the product business had both positive and negative deviations, in all neutral to the margin. Then the Marine division. As indicated earlier, the orders booked in Q1 excluding rebels amounted to SEK6.4 billion approximately, just below last year and sequentially in line with guidance. This was expected to be the last quarter with elevated demand in cargo pumping, and that guidance remain. We now have a massive order book in cargo pumping covering 2025 and 2026 and partly beyond.

The other marine businesses are still not fully reflecting the strong ship contracting of 2,400 vessels in 2024 in the order book at present. Invoicing developed as expected at plus 16%, and the margin improvement continued driven by both mix and volume. Then service. It was again a strong service quarter with SEK5.8 billion in service order intake. It was a new record with some margin.

It was an unusually high share of orders, especially in the Marine division. Please note that adjusted for the reval in Marine, the service share would be 36%, not 42%, but it’s still a very strong number. In terms of the market development in the regions, most regions performed well with limited deviations compared to last year. Northeast Asia was again affected by both the reval of the order book and also a slightly decline in the marine orders. China continued to perform well, especially in the Food and Water division.

Southeast Asia was flat, lacking a bit on large orders, but with India and Middle East growing well, mainly driven by high CapEx spending in The Gulf. Europe was stable with some variations between North and South. Latin America and Brazil continued on a good level, but compared to last year did not fully compensate for large Petrobras order. The U. S.

Was overall stable, but slowing CapEx decision was a negative factor in the quarter compared to what could have been. Then finally, a couple of comments on Cryogenics, the outstanding acquisition. For a long time at Alfa Laval, we have considered our options in cryogenics and we are excited to welcome Fib Cryogenics to the Alfa Laval Group, pending the needed approvals. Fib Cryo has a strong technology platform in heat exchangers and pumps, complementary to ours. They have a strong position in the LNG business.

Alfa Laval has a complementary market position with the same customer base, hydrogen and carbon dioxide, important future markets for gas liquefaction. We expect revenues in the short term to be at SEK2 billion to SEK2.5 billion, at the margin somewhat accretive to the Group. At the price of approximately €800,000,000 the multiples are a bit more attractive than early market estimates. There are no synergies included in the forward looking numbers. We will continue to invest in capacity and technology for further growth in FIB, so synergies will be exclusively related to driving volumes and benefiting from FIB cryos technology in some other areas and applications important to Alfa Laval.

We will brief on the business case further once the transaction is completed, possibly around September. And with those comments, I hand over to Fredrik for some further details.

Fredrik, Executive (likely CFO), Alfa Laval: And thank you, Tom, for that. So let’s start with a quick recap for context on order intake. Order intake in the quarter amounted to EUR 16,800,000,000.0, a contraction of 8%, of which almost 5% is related to currency revaluation of the backlog with some 900,000,000.0. Most of the revaluation effect is in the Marine division with EUR 800,000,000. Otherwise, the organic contraction of 3% is related to project order bookings, where the final investment decisions are delayed as a consequence of current market uncertainties.

Transactional and service business are on a good level and in many cases on a continued growth trajectory. Despite the rather significant order book revaluation, the order book stands at a high level of EUR 52,000,000,000, of which almost EUR 32,000,000,000 is for invoicing this year. Our judgment is that the quality of the order book is high and pricing is in line with the market cost level for inputs. As of this moment, we do not see any major disruptions to supply chains that would cause delivery delays, but we continue to monitor the development closely. Revenue in the first quarter followed normal seasonality from a sequential perspective, but posted a good growth at 10%, supported by a strong order book, as we just discussed.

Our manufacturing units report stable operations and deliveries are in line with expectations with no abnormal customer requests for delays in delivery. Revenues in the quarter contained a balanced mix of project, transactional and service business, which in addition to positive purchasing price variances and good manufacturing utilization levels yielded a gross profit of 36.8% compared to 34.9% in quarter one twenty twenty four. S and A costs increased with 6%, which is a couple of percentage points above cost increases where additional FTEs become annualized. R and D spend also increases with 8% as we continue to invest in new product development. Drop through in the quarter is on a good level, increasing operating income with 27% and boosting EPS to SEK 4.82 per share.

The adjusted EBITDA result increased with 20% to SEK 2,900,000,000.0, which increases the adjusted EBITDA margin to 17.7%, which is better year on year and sequentially. For the last five years, we have been on a growth journey, and it is worth noting that despite some variations on margin levels, we are now back to a high margin level with an almost doubled adjusted EBITDA result if we compare between quarter one twenty twenty one and quarter one twenty twenty five. Cash flow from operating activities is burdened by advanced payments to suppliers, prepaid expenses and annual invoices as is usually the case in quarter one. It is also burdened by paid assessed taxes in Sweden that over time will be compensated by other tax jurisdictions. Capital expenditure of $634,000,000 reduces cash contribution to a free cash flow before acquisitions of EUR $771,000,000.

Financing activities has a negative swing in relation to quarter one of twenty twenty four, primarily related to positive revaluations in that quarter, while interest debt cost and lease amortization remained on approximately the same level, bringing the final cash flow for the quarter to EUR $457,000,000. The EUR $457,000,000 in cash flow contribution has increased our cash balance to EUR 8,000,000,000, which in net debt yields a net debt of net debt in comparison to the last twelve months EBITDA of only EUR 0.13. The current balance combined with our BBB plus rating puts us in a good position for our capital structure post the FEVES acquisition and the upcoming dividend payment. Finally, some guidance in relation to quarter two and the whole year 2025. Estimated CapEx for Q2 is somewhat higher than Q1 at EUR 800,000,000.0.

Whole year guidance remains on the same level as previously indicated. Currency impact given current FX levels points towards a positive currency contribution of SEK 50,000,000 in quarter one sorry, in quarter two and EUR 200,000,000 in the whole year. PPA for amortization includes the FIVS does not include the FIVS acquisition as the PPA will only be prepared after closing. Tax rate guidance remains in the span of 24% to 26%, and there’s a recommended dividend of SEK 8.5 per share to be approved by the AGM later today. Finally, we can also communicate that given the uncertainty that prevails, we have started an internal initiative to control costs as a preemptive action.

It will not affect product development projects and should not be understood as a cost saving project, rather a cost prudence initiative addressing discretionary costs. And with that, back over to Tom.

Tom, Executive (likely CEO), Alfa Laval: Thanks, Frederic. So a couple of forward looking comments. And let me, for simplicity, just start with the divisional outlooks. Regarding the Energy division, we believe that demand will be somewhat stronger in the second quarter compared to the first quarter. For the Food and Water division, we expect demand to be on about the same level as in Q1.

And for the Marine division, we expect demand to remain on approximately the same level as it was in Q1, that is including the reval effect, so the posted number. For the Marine division, it’s important to remember that all parts of the portfolio, excluding the cargo pumping, is expected to continue to grow, while as we have guided you earlier, the demand in the cargo pumping after exceptional quarters is coming down to a lower level for a number of quarters ahead. And with that, I think we are ready for questions.

Moderator: We will now begin the question and answer session. The first question from Daniela Costa, Goldman Sachs. Please go ahead.

Daniela Costa, Analyst, Goldman Sachs: Hi, good afternoon. Thank you. I will focus on a question on margins. Actually, you had very strong margins in Marine. The orders are coming down, including what you flag in Pumping Systems, particularly, which I believe you had said in the past as accretive.

Can you talk through the margin sustainability going forward? And how do you see this balance between that and sort of maybe orders slowing down in coming quarters?

Tom, Executive (likely CEO), Alfa Laval: Yes. Thank you. We are not I’m not going to give guidance comments as to where our margin is going to go. But reflecting on where we are, it is true that the cargo pumping is accretive to the marine margin. That had some effect.

We have also, as you know, worked with profit improvement programs, specifically in the boiler segment where we had a nice improvement coming through in the quarter. And on

Unidentified Speaker: top of

Tom, Executive (likely CEO), Alfa Laval: that, we’ve for some time seen a strong service business developing in parallel to the capital sales. So all of that makes The Us very comfortable with where we are and the current both the current order book and the pace of short cycle businesses in Marine. And so and to some degree, that holds true also in Food and Water when it comes to service, when it comes to short cycle. So we were ending the quarter on a good note.

Unidentified Speaker: Thank you.

Moderator: The next question from Klas Bergelind, Citi. Please go ahead.

Klas Bergelind, Analyst, Citi: Yes. Hi, Tom and Fredrik, Klas at Citi. So you highlighted, Tom, slower decision making there in Energy and for the Water on the larger side. But if we zoom in on Marine, the other half of the business outside Cargo Pumping, have you started to see any sort of hesitation thinking about obviously, is a business that should benefit here from the early contracting, of course. Given the global trade backdrop potentially changing, I wonder if conversations had started to change a bit ex trauma as well?

That was my first one.

Tom, Executive (likely CEO), Alfa Laval: No, I think it’s difficult to jump to conclusion on that. I think what has been true for some time is that the contracting was unusually strong in 2024. The forecasted numbers were exceeded towards the end of the year. So it’s no surprise that the first quarter in terms of contracting is starting on a somewhat of a slower level. But I don’t see any meaningful impact on the current marine activities in terms of the business from the current trade disputes.

Klas Bergelind, Analyst, Citi: Yes, it’s probably too early.

John Kim, Analyst, Deutsche Bank: Then my second one

Klas Bergelind, Analyst, Citi: is on Karyonych. It seems like a very nice fit. Can I just ask you on the longer term growth prospect? It seems like you imply in the near term a high single digit CAGR, which is not too different compared to the Energy division. But if you think about a bit longer term, is this kind of sort of a 10 growth business if we look further out, if we want to sort of look at the prospects?

And then also, it’s a decent deal, but you have a very strong obviously very strong you have a strong balance sheet, lot of firepower to do more deals. If you could sort of help us a little bit with the remaining white spots and how you think about the balance sheet at the moment. Thank you very much.

Tom, Executive (likely CEO), Alfa Laval: Yes. The FIB, as I indicated, has two exposures going forward. One is on the LNG side. And compared to when these discussions and dialogue started, the LNG market has, for several reasons, strengthened now and going forward in the next five years compared to where we were a couple of years ago. So the LNG application will remain important.

At the same time, the carbon capture application, the hydrogen application is developing a bit slower than expected, but that’s obviously in our world a very significant growth opportunity for us going forward where cryogenics is absolutely crucial. So what the growth rates will be, I think, will largely depend on what you believe on the transition and the climate policies going forward. We still hold to the transition leader strategy. We believe that things are going a bit slower than we hoped. But over time, that’s where we’re going to go.

So it will be a fantastic story for us if the world develops the way we want to. And if it doesn’t develop the way we want to, it’s going to be an Okay investment. I think that’s how it’s an Okay investment with an optionality that is super important. Then I would add to that, that the part of the technologies that Phebe is using is very advanced and is very interesting for us in some other heat exchange applications as well. So we’re actually gaining access to a know how and a technology that is a bit more useful for us.

So we are very excited about this. And I dare to say that also at Field, the team is quite excited to join us. White spaces, there are many, but it’s very difficult for us to speculate in terms of our next coming acquisitions. But let me just say that probably in the region of SEK 10,000,000,000 to SEK 20,000,000,000 is still sort of available should we have the right opportunities going forward. We are continuously scouting.

There is a pipeline. And yes, so this may not be the end of the story this year.

Klas Bergelind, Analyst, Citi: Thanks, Tom.

Moderator: The next question is from John Kim, Deutsche Bank. Please go ahead.

John Kim, Analyst, Deutsche Bank: Hi, good afternoon. I’m wondering if we could just spend a little bit of time on the Energy division. HVAC, it’d be helpful to get a bit of color on what you’re seeing on commercial versus residential. I know that the change in refrigerants has prompted an opportunity to upsell or resell into the base. Just wondering what traction looks like on that.

And given current outlook, when you see an HVAC trough, I suppose, or a turn?

Tom, Executive (likely CEO), Alfa Laval: Yeah, I think we passed the trough on HVAC. I don’t have a real good split between residential and commercial for you. I don’t know if you have a better update, Fredrik.

Fredrik, Executive (likely CFO), Alfa Laval: No, in the current levels it’s probably 60 in favor of commercial and 40 in residential.

Tom, Executive (likely CEO), Alfa Laval: But you initiated the new refrigerants projects way back then, so maybe you want to comment on

Fredrik, Executive (likely CFO), Alfa Laval: Yeah, no, it’s nice to see now finally that the natural refrigerants are starting to take a real position in the market, both when it comes to process chillers but also heat pumps where it’s two different refrigerants. One is of course carbon dioxide and the other one being propane. It will higher the efficiency, it will enable the substitution of all hung boilers, and I think that’s an important part of it because the temperature program that you’re able to reach with propane is much higher. And then, of course, the environmental footprint of both the new refrigerants is much lower. It is also to the advantage of our product, which then has a lot of features that are enabled by the two new refrigerants and then, of course serves also as an entry barrier.

So I think it’s an exciting prospect ahead and it really allows for the substitution of fossil heating.

Unidentified Speaker: I think

Fredrik, Executive (likely CFO), Alfa Laval: Should we

John Kim, Analyst, Deutsche Bank: think of it more as a growth sector or margin improvement?

Fredrik, Executive (likely CFO), Alfa Laval: Sorry?

John Kim, Analyst, Deutsche Bank: Should we think of it more as a growth sector or margin improvement?

Fredrik, Executive (likely CFO), Alfa Laval: Our growth sector is where I would place it. I don’t know, Tom, if you see it differently.

Sven Bayer, Analyst, UBS: I think you

Tom, Executive (likely CEO), Alfa Laval: have to have the R and D muscles to be able to follow this. And I think we are the technology leaders in this area. So the more difficult it gets, the more it is to our advantage when it comes to market position. So I think it puts us in a good space. We are ready with the product program.

I’m actually showing it at the AGM today, so I wish you were there. But it’s in a good place. And I just wanted to add on the HVAC side that we think we passed the trough. We are a bit cautious where we go on HVAC in Q2. But certainly, on the second half of this year, we expect to have a better traction, especially on the heat pump side where we’re going back to some sort of normality after a long period of very, very weak demand.

So it remains an upside for us going forward.

Klas Bergelind, Analyst, Citi: Thank you.

Moderator: The next question from Vlad Sergievskiy, Barclays. Please go ahead.

Unidentified Speaker: Yes, gentlemen. Good afternoon. Thanks very much. If I can ask on Marine profitability, please. Do you think there is more upside versus q one level from the mix or operating leverage as you move through 25 and to 2026?

And are there any meaningful parts of marine business which are underperforming compared to your own internal expectations and could catch up supporting the overall business?

Tom, Executive (likely CEO), Alfa Laval: Well, think on your second point, would say, no, we are pretty much where we want to be. There are always a little bit of listen, if the piano was playing everything clear, I would love to see that day. But there’s always going to be a little bit of slips and things. But I think for us, the quarter in Marine was quite clean. And so I don’t think there are improvements.

We did restructuring activities in end twenty twenty two. We are still restructuring and working on an improvement program for the boiler business. So we’re not completed there. That completion will take this full year, so into 2026. We know we will be a bit better.

Where the market prices and competition will be, we don’t know. So but I think I have to say it was an okay quarter for us. In terms of the mix, I don’t see that changing dramatically in the quarter to come. We are on a good level with order books and so are invoicing accordingly. I think in my book, this was a fair reflection of our operational performance in Marine in the quarter.

Unidentified Speaker: Thank you very much. And if I can ask about energy as well. How do you see demand which is related to oil and gas segment given the recent direction of commodity prices? And also, would you be able to give us some more clarity on what was or how big was this inventory evaluation effect from the margin last quarter?

Tom, Executive (likely CEO), Alfa Laval: There was no inventory reval effect last quarter. Last year, I think it maybe which was elevated. So let’s go back. We expressed during a couple of quarters the fact that we were working with an elevated margin in the Energy division. That was partly supported by reval effects on the inventory.

I think the difference Q1 last year and now is about a percentage point. I’m looking at Fredrik, about a percentage point. So around half the difference. Level here we think is, as we expressed, a good reflection of the operational performance of the unit, bearing in mind that we are still not fully loaded back on the heat exchanger side for braced heat exchangers on heat pumps. So that’s kind of where it is.

In terms of the fossil side, it’s okay. It wasn’t a super strong quarter for fossil, but we believe the we are mainly driven by the gas application. And we don’t see an immediate change on those announced projects and where they’re going. So for us, it’s too early to call investment cycle over. There is a number of products in the pipeline here.

So I think for the short term, it will not change dramatically for us.

Unidentified Speaker: Excellent. Thank you very much.

Moderator: The next question from Andreas Koski, BNP Paribas Exane. Please go ahead.

Andreas Koski, Analyst, BNP Paribas Exane: Thank you and good afternoon. A couple of questions. First, it looks like you have changed the phasing of the backlog deliveries a bit. Is that based on customers postponing deliveries? Or is it just based on your internal judgment of when the backlog will be delivered?

Fredrik, Executive (likely CFO), Alfa Laval: So we’re continually looking at our backlog and of course that’s in tight dialogue with our customers. And sometimes it is about fitting our manufacturing windows and sometimes it’s about fitting their ability to receive the projects or the components. So it is a bit of both, but we continually assess the phasing of the backlog and when it’s large projects and it falls on the wrong side of the year, then then then it results in a complete movement in backlog. So we will continually do so. So I I don’t I don’t recall there being particularly large movement.

I think what you see is more pronounced invoicing in the quarter that causes a movement in how the backlog is faced.

Andreas Koski, Analyst, BNP Paribas Exane: Okay. And then can you explain why the backlog did not move in size despite the significantly stronger SEAC? Because I guess the backlog is based on the currency rates at the end of Q1.

Fredrik, Executive (likely CFO), Alfa Laval: Yes. So without getting too technical about the question, so the big movements in the backlog or the revaluation of the backlog happen when we book in a currency that is not the same as a reporting I’ll use the example of Framo since it’s the most apparent one here. Most of those orders, or the majority of those orders, are booked in U. S. Dollars, but the Framo entity reports in NOK.

That causes a revaluation. And it’s a revaluation we do every single month. It’s nothing particular to a quarter. It’s something we do on every month. In fact, if we had done the revaluation a few days later, it would have had a completely different outcome.

But that’s besides the point. The point is we have always chosen to have a backlog that reflects the invoicing value of that backlog. And when I say backlog, of course, I mean the order book and not delayed orders in any shape, way or form. So it is the movement that you see then from 52% to 52% despite the movement of the order intake is the difference of that is the revaluation in this quarter.

Andreas Koski, Analyst, BNP Paribas Exane: Okay. And then lastly, on the outlook. So you had orders of SEK 16,800,000.0 including the revaluation effects. And my understanding is that, that is included in the outlook for the second quarter. But is that outlook also based on, say, currency rates?

Tom, Executive (likely CEO), Alfa Laval: answer is yes. We don’t speculate in the currency. The order book stands where it is until we revalue it. But it’s correct to understand that if I would make the bridge for you this way. If last quarter we came down SEK 900,000,000 because of currency this quarter, we see that corresponding decline on the cargo pumping side.

So we are back to approximately the same level as we were in Q1, assuming that currency is not moving one way or another. It could go both ways Correct.

Andreas Koski, Analyst, BNP Paribas Exane: Thank you very much both of you. Thanks.

Moderator: The next question from Sven Bayer, UBS. Please go ahead.

Sven Bayer, Analyst, UBS: Yeah, good afternoon. My question was also exactly around that point, because I was also wondering if the starting point for the group guide is the 17.7% rather than the 16.8

Tom, Executive (likely CEO), Alfa Laval: completely understand. So

Klas Bergelind, Analyst, Citi: now you basically said the starting point is 16.8%.

Sven Bayer, Analyst, UBS: It is. Am I still not understand? Okay. Thank you. Mean, I think at this point

Tom, Executive (likely CEO), Alfa Laval: in time, if I just may, we looked at the difference between revals over the last forty quarters. And there have been very few quarters with any meaningful numbers. So although we are going forward including that in the bridge, we don’t expect that generally speaking, it will be a difficult factor to take into account for. All we know, it will remain pretty stable. So but anyhow, for clarity’s sake.

Moderator: The next question from Sebastian Kune, RBC Capital. Please go ahead.

Fredrik, Executive (likely CFO), Alfa Laval0: Thanks taking my questions. The first one is on the energy side. You spoke of very strong demand from data centers. Could you maybe give us a bit more detail on whether this is liquid cooling or conventional air cooling with the gasket and heat exchangers? And what portion of business

Unidentified Speaker: of the Energy business that

Fredrik, Executive (likely CFO), Alfa Laval0: is currently on order intake? This will be my first question.

Tom, Executive (likely CEO), Alfa Laval: I think currently and take into account that these numbers are moving can move quite rapidly. But if I would take sort of a running twelve month rate, we are somewhere around SEK 2,000,000,000, 2 billion plus in order intake. I’m not sure what the exact split we have, but probably a bit less than half of that is gasketed applications and the rest is. So we are moving the mix is for us has been moving clearly into liquid.

Fredrik, Executive (likely CFO), Alfa Laval0: Excellent. Second question is, again, on the currency. This revaluation of the order book also means you then book lower revenues for existing contracts. And you give some indication on the FX translation transaction effect, but I think this is not related to the existing contracts. It’s just transaction.

I guess you have some hedging for the existing contracts in place that go below the EBIT line. Could you shed some indication of whether we will see some tailwinds from these hedging of the contracts that you had to write down or No.

Fredrik, Executive (likely CFO), Alfa Laval: And you’re absolutely right. I mean the order the revaluation of the order book is related to currency and affects the invoicing value to that it reflects the same value as we have in the order book. However, when we enter each one of these contracts, of course, we do put a hedging contract in place as well. Then that is, of course, to protect us against these currency movements. So, from a generation of profit, the order should be protected, assuming we keep the same timeline as the contract is based on.

But so the answer to the question is, if we have done everything right and the timing clicks as it should, it should be profit neutral from the expectation or from the level that we took the initial contract on.

Fredrik, Executive (likely CFO), Alfa Laval0: Yes, so profit neutral, therefore margin accretive for at least for the time that you bring those contracts through the P and L?

Fredrik, Executive (likely CFO), Alfa Laval: Sure. If you assume that the current FX level stays exactly where it is, then your assumption is correct. I wouldn’t make that assumption.

Fredrik, Executive (likely CFO), Alfa Laval0: Yes. Thank you very much.

Moderator: The next question from Max Yates, Morgan Stanley. Please go ahead.

Unidentified Speaker: Thank you. Good afternoon. Just I wanted to ask around tariffs. And I imagine you sort of like everyone else has been doing sort of quite a lot of work internally to try and better understand how it may affect your business. So I guess the first part is, is there any kind of direct impact that you’ve uncovered kind of as this has been rolled out?

And I guess the other question in The U. S, I’m just wondering, given your market leaders, you have a kind of good view of the market. How much of the market comes from China, I. E, nothing to do with your business? But is there an argument that you may have a competitive advantage in The U.

S. If you produce locally because some of the sort of lower end of the market gets knocked out because you can no longer because competitors can no longer export from China. So just thinking through some of the indirect impacts as well.

Tom, Executive (likely CEO), Alfa Laval: Thanks. Good question. If you take a brief answer on tariffs, the answer would be it doesn’t have any meaningful impact the way we can see it in the quarters to come. We are either covered in contracts or have implemented price increases accordingly. So we don’t feel that is much of a topic for us.

In terms of our imports into U. S, they are to the degree they exist mainly related to Europe. So it’s almost a non existing part that goes from China and that is related to the fact that there were tariffs on China already before. So we had redone our product flows several years ago. So it’s not too much of an issue for us.

The question is more where is the macroeconomics going as a result of it. On your and that ties on to your second question. It’s a good question. I cannot give you a super clear answer, but it is clear that there are, among other things, the spare parts market, pirate copies from China coming in to The U. S.

On the heat exchanger side specifically. So I hesitate to say that it’s to our advantage. It’s a disruption for customers and everybody. But I don’t think we are disadvantaged versus the market when it comes to our presence in The U. S.

Or how tariffs will affect us or the dependency on China. I think we are possibly somewhat positive in that scenario, but I don’t want to make too much of a statement around it.

Unidentified Speaker: Okay. And just really quick follow-up. On your energy guidance of demand up, now I completely understand it’s almost impossible to guide in this kind of environment, but I just want to understand kind of what it is that you’re seeing in your business that is making you presumably, it’s related to one of the sub segments. Is it because you’re a bit more optimistic on HVAC? Is it something else that you’re seeing?

Is it because of timing of some orders and some maybe slipped into this quarter? Just to understand kind of the thought process behind that. Completely appreciating it’s

Klas Bergelind, Analyst, Citi: hard to

Tom, Executive (likely CEO), Alfa Laval: think the short cycle business is running in an okay pace. We don’t see big changes on that up until the end of the quarter. So we don’t feel it’s prudent to change our outlook in the quarter when there is not a clear signal on it. The project pipeline is always subject to some sort of probability calculation. And of course, the probability is difficult to set specifically.

But if we look at the pipeline per se and the projects in the pipeline per se, that project pipeline is not weaker than it was before. And there are some opportunity in that and there are some things we would like to see differently. But all in all, when we look at those numbers, this is, to the best of our knowledge, the most probable outcome that we have. We are clearly aware that should market go more negative, it could affect some of those decisions. But I think our line of sight is pretty much as good as it was last quarter last year.

So I’m not exceptionally worried about the outlook. It is our best representation of what we see.

Unidentified Speaker: Understood. Thank you very much.

Moderator: The next question from Karl Dienberg, Carnegie. Please go ahead.

Fredrik, Executive (likely CFO), Alfa Laval1: Thank you very much. So two questions from my side relating to the Energy Division. I wanted to come back a little bit on the margin development here year on year. If you could just remind us the magnitude of the effect of the underutilization you’re facing on the brace side and also the magnitude of the valuation effect that you’re mentioning here in 1Q. Is that roughly half half of the 200 bps contraction?

Or yes, any sense there would be helpful just to understand what that could look like in H2 to get a little bit better volumes in Quebec?

Fredrik, Executive (likely CFO), Alfa Laval: Yes. Well, let’s put it this way. I think the when we look at the utilization levels for the brazed heat exchangers, to address that question directly, we have a real good tailwind when it comes to the data centers and the heat exchangers for liquid cooling. And that means that a lot of what would have been an under capacity driven by the lower heat pump volumes is to an important degree mitigated. And of course that is something that we have said from the beginning, that if it wasn’t going to be the very quick ramp up of the heat pump volumes, saw that the conversion to liquid cooling was going to come on the horizon.

So are we being able to utilize everything to the optimal levels? The answer is no. But on the other hand, it’s on a good level that doesn’t necessarily have a too big of an impact on the result or the margin of the energy division. And then to your question of the revaluation, I think Tom already to a very large extent answered it. It’s not so much that there isn’t an absence of revaluation.

It’s the gap between one being there.

Tom, Executive (likely CEO), Alfa Laval: Needs to be multiplied with somewhere between one point zero five and one point one depending on product groups and that. The pricing effect is there for customers. Nobody likes it, but that’s where it is. We’ve taken the policy decision that we calculate the tariff costs without margin. So that part of the price increase that we put on is reflecting purely the cost of covering the tariffs.

We think that is the right way to deal with our customers. We’re not going to make money on tariffs. We don’t feel that’s a fair way to price our products. So you could say that to a very limited degree, if these tariffs remain in place at the current level, there will, down the road, be a very marginal margin effect on The U. S.

But given that it’s only a part of our products and a part of our turnover, I think it will not be noticeable in the group accounts.

Daniela Costa, Analyst, Goldman Sachs: Thank you very much. That’s super helpful.

Moderator: That was the last question. I would like to turn the conference back over to you gentlemen for any closing remarks. Thank you.

Tom, Executive (likely CEO), Alfa Laval: Okay. Well, thank you very much. And some of you, maybe we’ll see you at the AGM in a little while, and we’re going to display some of the fantastic new products on in launching phase, including some from Fredrik’s old units. So we’re looking forward to that. Thank you very much, and we’ll speak to you in a quarter at latest.

Thanks.

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