ALFA.ST FY2026 Q1 Earnings Call Transcript
Date: 2026-04-22
Source: Financial Modeling Prep

Tom Erixon: Hello, and welcome to Alfa Laval's first quarter report. Fredrik and I will share some time going through the details. Because of today, we also have an AGM starting relatively soon, we need to limit this call to 45 minutes. So our apologies if our Q&A session is slightly short. With that, let me, as always, go to some first introductory comments before moving on to the presentation. So first, overall, we felt we had a stable quarter, well in line with our expectations. The pattern of a strong transactional business and a hesitant project business continued in the quarter. Second, the implementation of the new operating model continued in a high pace with adjustments to the financial reporting, management appointments and consolidation in various areas. The financial weight of the changes during this process was limited in the quarter. And then finally, with the war in the Middle East, our main priority has been employee safety in the region and appropriate customer support in difficult times. The financial impact on Alfa Laval was limited in the first quarter and medium term, the energy crisis may provide both some downsides and some upsides across the world in terms of our customer base. So with that, let me go to the key figures. We started '26 well with order intake growing sequentially and with a 6% organic growth compared to last year. Sales was on the low side, partly because of a very high invoicing towards the end of 2025. Despite the lower invoicing and big currency movements, the margin improved slightly to above 18%, mainly due to a positive mix. Moving on to the Energy division. Demand was as expected on a very high level across many end segments, and with a continued recovery of volumes in HVAC, including the heat pump market. The data center business was as expected, strong and continued to grow in the quarter. Going forward, we are now starting to build the data center order book for 2027. We are, of course, concerned for our customers in the Middle East with the damage inflicted on critical infrastructure. The rebuilding process in the region is not clear to us at this point, but we are ready to put all available resources to support the regional needs in the years to come in this very critical situation. Then to the Food & Pharma division. Demand was firm with a 9% organic growth in the quarter. While the transactional business was on a new record level, it was gratifying to finally book sizable oils and fats projects in Brazil, including biofuel components. The outlook for biofuel projects is improving gradually with a viable project pipeline going forward. The consolidation of the BU structure continued in the quarter and in addition to building the future growth platform for the Pharma business. In the Ocean division, we remained as expected on a lower order intake pace compared to the record last year. But at the minus 12% organic decline, it was still a good quarter and better than expected. Ship contracting at the yards was very active due to high freight rates and longer shipping routes. It had a positive effect on orders in general and for cargo pumping specifically. In this application, we are now starting to build the order book for 2028. The energy crisis may trigger additional offshore projects outside of the Gulf to gradually compensate somewhat for the shortfall of volumes. It may impact our offshore business in a positive way going forward. The margin remained stable at around 22% based on the solid order book, which will continue during 2026. Then on to Service. On group level, we remained at about 30% of orders in Service for the Ocean division higher due to the slightly lower capital sales and for the Energy division, the opposite at 25% of total orders due to significant growth in capital sales, especially on the data center side. Volumes were perhaps a little bit on the low side overall and flat compared to last year. We expect to regain the growth path in service going forward. In the Ocean division, there is a negative effect though from sanctioned ships that we cannot serve amounting to about 5% of the global fleet at this point. In addition, there is significant stress on ships and crews in the current crisis, which may delay some service work further. In general, though, as I said, we expect to return to growth in the year. A couple of comments on the top markets and regions. As you know, China and the U.S. are 2 top markets in some time, and both developed well in the quarter with the U.S. on a new all-time high. Our expansion plans in both markets continued with full speed with several site investments in both countries. We also added a smaller Chinese heat exchange companies to the group, supporting their growth plans as well as creating a better coverage of the Chinese market for Alfa Laval as a whole. In terms of the regions, please note that the numbers includes currencies, so they're not the organic. They are the overall growth numbers. And as mentioned, North America and Latin America had a very strong quarter with significant growth, especially in the North America. Europe was flattish with the exception of Eastern Europe that grew well in the quarter. Middle East and India, both faced headwinds due to the ongoing crisis and the energy crisis, and that was reflected in the order intake at this point. And in fact, both India and Southeast Asia are the 2 regions with the biggest short-term exposure to the energy crisis at this moment. Finally, Northeast Asia had a good quarter overall. But of course, they are impacted by the very high marine orders from Q1 last year. Other than that, China and Northeast Asia developed well in the quarter. So that's a summary where we are on that. And I'd like to hand over to Fredrik for some further details.
Fredrik Ekstrom: And thank you, Tom. So moving on then to some comments around orders received. But before I start I have some additional comments on order intake and a quick word on the change. We have adopted an order intake approach that reflects new orders in the quarter only, meaning revaluations of the order book are not deducted from the order intake. This is highlighted and explained in more detail in Note 1 referring to accounting policies in the quarter 1 report. And now to some additional comments on order intake. A clear impact on the comparability of figures is currency rates, where the SEK has appreciated against both the euro and the U.S. dollar over the last 12 months. This impacts the comparability with almost 10%. The structural component is related to acquisitions and mainly due to volumes of the acquired Cryogenics business. Organic growth in the quarter exceeded 6% with the Energy division accounting for a good part of that increase with growing data center volumes and a recovery in the HVAC end markets. Food & Pharma also noted a strong organic growth intake in its 2 largest markets, oils and fats and dairy while the Ocean division remained stable with a normalized marine pumping systems order intake. The order book closed in the quarter at SEK 48.7 billion compared to the SEK 48.3 billion at the year-end 2025. SEK 32.1 billion of this is scheduled for invoicing this year. The current order book supports a continued good invoicing level and the order book is assessed to be in line with current input cost levels and the book-to-bill in the quarter was 1.11. On to sales. Currently, we are only experiencing minor disruptions to our supply chain related to the escalated geopolitical tensions, primarily the conflict in the Middle East. Once again, we are impacted by currency with almost 9% negative comparability. Organic growth at almost 2% with a structural contribution of 3.8%. The aggregate impact is negative with 3.3% with a quarter sales level of SEK 15.9 billion. This level, which is somewhat lower than expected, is affected by delaying -- delayed invoicing of projects to a minor extent, transportation disruptions, particularly related to the Middle East and normal seasonality from quarter 4 to quarter 1. Our gross profit margin was on a high level of 39.9% compared to 37.5% in quarter 1 2025. The positive data can be traced to an accretive invoicing mix of transactional business and service, a strong factory in engineering result and good purchase price variances from cost levels set in our standard costing. On the cost side, S&A increased with 1.9% in the quarter and R&D with 4.2%. Approximately SEK 75 million cost increase in the quarter was related to the new divisional structure. Amortization of step-up values increased to SEK 174 million, reflecting the acquisitions made during 2025 with majority related to the Cryogenics business. Taxes also landed within guidance range and operating income in the quarter landed at SEK 2.7 billion. And finally, an EPS of SEK 4.59 with the majority of the deviation stemming from lower invoicing and currency impact. Adjusted EBITDA of almost SEK 2.9 million was, as previously mentioned, supported by a strong factor in engineering result, positive purchasing price variances and an accretive invoicing mix of transactional business and service, negatively impacted by currency with SEK 264 million and SEK 75 million related to the new divisional structures and strategy initiatives. 18.1% adjusted EBITDA margin in the quarter exceeded the 17.7% in quarter 1 of 2025 and is well above our target level of 17% over a business cycle. On debt levels, they have increased from quarter 1 last year, reflecting the financing of the Cryogenic acquisition. In the quarter, we have an MTN bond of EUR 300 million that has matured and been repaid. SEK 1.2 billion in commercial papers was issued, and we expect to issue a further amount of commercial papers during the coming quarter to cover the upcoming proposed dividend of SEK 3.7 billion. Net debt in relation to the last 12 months EBITDA was just shy of 0.7. The increase in lease liabilities reflects the balance sheet impact of renewed long-time leases for some of our operating footprint. Cash flow in the quarter saw a strong EBITDA contribution of SEK 3.7 billion. Working capital change had a negative impact of SEK 1.5 billion, where the majority comes from the building up of work-in-progress inventory and a strategic buildup of buffer inventories for some commodities that we believe are at risk of disturbance from the disruptions that are caused by the conflict in the Middle East. Capital expenditures were somewhat below guidance at SEK 529 million and yielded a free cash flow before acquisitions of SEK 708 million. Acquisitions in the quarter accounted for a cash flow impact of SEK 565 million, stemming from the majority share acquisition of the Chinese heat exchanger manufacturer and a SEK 50 million share in Industrikraft. Finally, the contribution of financing activities is related to the repayment of the EMTN bond of EUR 300 million and the issuance of commercial papers of SEK 1.2 billion. Finally, some financial guidance going forward. We expect CapEx to remain high but stable within a range of SEK 0.6 billion to SEK 0.8 billion in the next quarter and a whole year level within the range of SEK 2.5 billion to SEK 3 billion. Amortization on about the same level of quarter 1 with SEK 175 million and in the next quarter and SEK 600 million for the entire year. And finally, a tax interval of 24% to 26% for both quarter 2 and the entire year. And with that, I hand back to Tom for some forward-look commentary.
Tom Erixon: Thank you, Fredrik. And while history is clear, obviously, forecasting in today's environment is somewhat complicated. We don't consider that the looming energy crisis and the war in the Middle East is having any major impact on our outlook in this moment in time. In general, we are somewhat more optimistic about the year now than when the year started about a quarter ago. And demand specifically sequentially for this year in the second quarter is expected to be on a group level, somewhat higher than the first quarter. And on a divisional level, we expect the Energy division to remain on the current all-time high level in the second quarter. We expect demand in the Ocean division to be higher than in the first quarter and we expect the Food & Pharma division to remain at approximately this level with both some upside and perhaps downside depending on how larger projects are materializing in the quarter. So that's where we are in terms of our forecasting in a crystal ball. And with that, I'd like to open up for questions.
Operator: [Operator Instructions] The first question comes from the line of Daniela Costa from Goldman Sachs.
Meihan Yang: It's actually Meihan here. I just want to have 1 question on data center business. What is the percentage of the energy businesses is data center now? And do you see a difference on the order intake trend on liquid cooling versus air cooling? And what's the ASP difference on those 2 products for you?
Tom Erixon: If we move back 1 quarter, we then stated that the 12-month rolling order intake on the data center side amounted to approximately SEK 2 billion. If we move up to this quarter, now 1 quarter later, the ongoing rolling 12 months is at around SEK 2.5 billion. Obviously a bit higher in this quarter specifically, but over the last 12 months, that's what it is. So it's a clear growth trajectory as we have indicated earlier. We remain on that growth territory right now. I don't have in my head the split between air and liquid cooling, but what we have in the plans, and it's pretty clear is that we will have fairly slow, but still a meaningful gradual shift towards water cooling in the incoming orders. But I believe we are still clearly in the majority of the air cooling if I take it from the hip. We can confirm to you later on. But I think that's where we are.
Operator: The next question comes from the line of Kim John from Deutsche Bank.
John-B Kim: I'm wondering if you can help us kind of square the circle here. If you look at Clarksons data, I think you had some pretty good activity in tanker contracting. I'm trying to think about that and the cadence of your order intake, not just for Q1, but potentially through the rest of this year. Is that something that would have shown in your numbers at some point in time? Or is this still to come or am I misinterpreting here?
Tom Erixon: No, I think we came in a bit stronger on the order book for new contracting in this quarter than we had expected when we started. As you know, the outlook -- your outlook was a little bit gloomy when the year started. I think right now, we are at the -- the count is at around 500 ships this year so far, which is significantly higher than last year at the same date. And so it looks like we are coming into a decent year of contracting and we saw a little bit of those effects and a little bit higher product tanker contracting than expected in the beginning of the year. And in March, we had a bit of effect on that, and we may very well have something on that kind also in Q2.
Operator: The next question comes from the line of Gustaf Schwerin from Handelsbanken.
Gustaf Schwerin: I have a few. Maybe starting with the invoicing level in Q1. Can you give us a sense of the magnitude of sales delay here? And also if this is an effect of customer decisions or something else? That's the first one.
Tom Erixon: I'd be a little bit careful in sort of using the delay. What you should be aware of is that after the SEK 19 billion in invoicing in Q4, obviously, sort of we went a bit all in on the invoicing side towards the end of the year, and that had some spillover effect into Q1. We are shipping products on normal delivery times a normal delivery commitments without any major disruptions on our side. I think the difficulty we sometimes have is to predict exactly the percentage of completion. And so those payment schedules, typically they don't get accelerated. But for various reasons, in larger projects, the execution of those projects, they moved the time line a little bit here and there in terms of commissioning and final payments. And so I don't want to -- it's not an -- we're not looking at an operational problem. It's just a bit of seasonality between Q4, Q1, and perhaps not a perfect bridge to the timing of invoicing in the number of projects.
Gustaf Schwerin: Okay. Secondly, on energy orders, clearly stronger than we had expected and also better than the comments you had back in Q4. I mean the main positive delta there is data center. Is there something else that's stacking out?
Tom Erixon: I think there was a lot of things sticking out actually. I think the transactional business in Food & Pharma went to a new all-time high after a fairly strong Q4. That was not exactly in our mind at the time. The slight improvement on the ship contracting side was not exactly in our mind at the time. And maybe even the HVAC side, although we saw a turn already in Q4 last year. We picked up a bit better on that as well. So I think that there have been a number of contributing factors. So it sounds like I'm all super happy with all of the order intake. It's not -- that's exactly true. If we have 1 miss in the quarter, I think that is related to the service side, which is flattish compared to last year. There are some maybe small structural temporary reasons around that. So we feel fairly committed that we're going to return to a growth path for the rest of the year. But as an individual quarter, we didn't quite see the organic growth in service that we've been used to for the last 6, 7 years.
Gustaf Schwerin: Perfect. Just lastly, the comment in the CEO letter around escalating cost inflation and you potentially considering price increases by midyear. I mean, how should we read that? As we stand now, do you foresee a material change in your cost base Q2 versus Q1?
Tom Erixon: It is a reflection that the energy crisis we are going into is clearly, macroeconomic-wise continuing to drive an inflationary environment that has been higher than we've been used to for a long period of time, and we haven't got the grips with it. And this process that we have of escalating energy prices is not helpful in the current inflationary environment. We see specifically issues in part of our bill of materials. We see a bit of challenge on the logistical cost, and we are just not prepared to passively watch that escalation go on. And we are, by the way, not sure that this problem is over. And we are now returning back to some sort of normality on the energy side. So I think we created a bit of inflationary way ahead of us. And as we did last time when we had this problem, we will prefer to deal with it proactively rather than afterwards. But it's no -- it's nothing specific on Alfa Laval's sourcing mix or exposure that puts us in a different position than anybody else. I think you will see a number of companies doing the same thing.
Operator: The next question comes from the line of Andreas Koski from BNP Paribas.
Andreas Koski: Two questions. First on HVAC, where you're seeing the recovery continuing. Can you -- do you have a good feeling of how the distributors' inventory levels are today? Is there a possibility that we will see both end market demand improving at the same time as the distributors have to restock a lot after the destocking that we have seen over the many years?
Tom Erixon: I'm looking at Frederik. Listen, I think I think we are -- when we look at the...
Andreas Koski: I can ask it this way instead, if you want. I mean when we look at HVAC in the past, we were at a quite high level. And I think the heat pump business was at a total of around SEK 3 billion, and now we've been below SEK 1 billion when it comes to the heat pump business. So is there a possibility that we will reach the previous peak that we saw a few years ago in the...
Tom Erixon: I think -- all right, let's take it from there. I think we actually peaked at around SEK 2 billion, if I remember correctly. And we've been partly down in the pace that has been below SEK 500 million. So this has been a really significant destocking. And we've seen now for a couple of quarters that the volumes are picking slowly up, and they were picking up a little bit faster in Q1 than before. But I don't think there's a lot of inventory, certainly not excess inventory in the systems right now. I think we are looking at -- we're looking -- we are still on less than half of the peak. So I think we are balanced with the market. I think the big question for us is how much? There's a number of questions as to the current energy crisis, how will it affect our business in offshore? How will it affect the electrification, the move to heat pump and a number of other areas. And so there are some upside coming from the current energy crisis in terms of energy resilience and diversification that may put some extra volume growth into the market. But otherwise, we expect a fairly slow growing heat pump market in Europe. And we expect to be maybe back towards the -- the then record levels early as 2030 or so. So it is -- that's our main business case. But of course, we may see increased subsidies and increased push again, higher gas prices and so on, that is again favoring the heat pump market. So it is kind of an upside, but I would not look at that upside as more than maximum SEK 1 billion or so, if I were you.
Andreas Koski: Okay. Great. And then coming back to Gustaf's questions about potential price increases. And you mentioned that you're seeing inflation picking up. But can you just remind us how you are impacted by the tariffs? And if there will be an incremental impact for you because of the updated Section 232 tariffs?
Fredrik Ekstrom: Yes. So as Tom expressed, I mean, the inflation that we're seeing is probably ahead of us, and it comes in the form of being -- staying close to our suppliers, and there's a signaling that for a lot of the energy-intensive inputs that we have into our products that, of course, that's being driven up by the current energy prices. That's one part of your question. And to the second part of your question, yes, there has been a shift in the so-called Section 232 or an update of it. I believe it was the second of April that the update went through. Our assessment when we look at it and we look at it from the different product groups and the different supply chains that we have is that it's fairly neutral for us. We don't see that we have a big impact neither negatively nor positively. There are some negatives and some positives, and they weigh out in the end. But of course, we keep a close eye on this. And you have to remember that when I say different supply chains. We have everything from delivering finished units to delivering components for assembly in the U.S. to spare parts and then there's whole host of supply networks around there that come from Mexico, Europe, China and so forth, it's a little bit different, but our assessment as it stands today is that it doesn't imply any major changes to the cost of tariffs as we have it today. And to be clear, from the new level that was set after the previous round of tariffs was deemed illegal.
Andreas Koski: Understood. And then lastly, on the updated way of how you will present your order intake and that you will not include cancellations and revaluations. When you write about the order book in the text, in the report, will you there mention if you have had revaluations and cancellations? Or will we just see the order book development basically?
Fredrik Ekstrom: Yes. No, you will see the order book development for certain. And referring to that change, I will remind you that when we went into quarter 1 last year and we had the big movements of the NOK and the U.S. dollar, in particular, to pumping systems where we had a revaluation of backlog that was reflected in our order intake at that point in time of almost SEK 800 million. And so the critique or the feedback that we got from the market was you're not really reflecting the demand and the new orders as you get them on the market if you're actually netting out revaluation. So this was a little bit a response from our side to say, let's align ourselves with the way the market is getting this information from other peer companies. So it was a little bit in response to that. So we don't see it as anything dramatic. I think the new number clearly reflects what the real demand is on the market and what the new orders in the quarter are. And I take on board your feedback on whether we should include it into the backlog in the report.
Andreas Koski: No, because there is -- when I look at it now, there is a possibility that you have had some cancellations, which would also be interesting to know about, actually, because the order intake was SEK 1.6 billion higher than sales, but your order book only increased by SEK 400 million in the quarter. And that's why I was wondering if you would have mentioned in the text if you had cancellations or revaluations, but I understand that you...
Fredrik Ekstrom: But I take it with me and just to answer the question, the lion part of that change is revaluation due to currency.
Operator: The next question comes from the line of Klas Bergelind from Citi.
Klas Bergelind: Sorry, I joined a bit late, maybe you covered some of this. So first, on Ocean, the higher demand you see into the second quarter. I'm trying to understand the dynamics between cargo pumping versus offshore and then rest of Ocean. Is this a step-up you see in cargo pumping or in the other categories, i.e., ex Framo? The reason for asking is that it typically take some time from contracting improvement until you see improved orders outside Framo. So that dynamic would be interesting.
Tom Erixon: Yes. You're asking for a lot of granularity here. So I'm a little bit hesitant to meet your question too much. But as I indicated before, part of a slightly stronger order intake in the ocean than we perhaps expected for Q1 was related to higher product tanker contracting that had some effects at Framo. And it's possible that, that, to some degree, will continue. But don't keep me hostage for doing product-by-product prophesies. All in all, we see a slightly more favorable environment on it, and then you have to do a little bit of your own risk assessments there.
Klas Bergelind: All right. Fair enough. My second was on the heat pump side. Did you say that there is a quarter-on-quarter improvement already in your orders now within HVAC? Or is this a sentiment improving? It feels a bit early that we would have a broad-based improvement in heat pump orders. I mean maybe in certain countries, but I'm just interested in what you said there. And sorry, I was late on the call, maybe you talked about this.
Tom Erixon: Yes, we did but no problem. But there has been, over the last couple of quarters, a clear improvement in the volumes. Now I would say that the big part of that has been the completion of the destocking process, which was getting completed towards the end of last year as far as we could judge. And if we were correct in the depletion of excess stock towards the end of this year, then the first quarter order intake on heat pumps were reflecting a better production plan and a stronger production plan at our customer site in terms of their expectations into Q2, Q3. So we had a pretty clear growth at that point in time.
Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Tom Erixon for any closing remarks.
Tom Erixon: Thank you very much. Thanks for being. It's a very busy day for all of you guys. So we appreciate taking the time and we're going to be off to AGM. And so hopefully meet some of our investors there. So thank you very much for your attention, and see you next quarter.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your line. Goodbye.