Alfa Laval Corporate AB

Good morning and welcome to Alfa Laval's fourth quarter earnings call and also for the full year. So Fredrik and I, we will give you a rundown on the year and the quarter. As always, let me start with a couple of introductory overview comments from the year. Growth continued strong in the fourth quarter and the full year of 24, ahead of expectations with favorable market conditions in most applications. It was especially good momentum in the short cycle business in the food and water and in service overall. Now we enter 2025 with a solid 52 billion SEC order book and good momentum on the short cycle side. The full year 24 margin was at 16.6% ahead of last year and also slightly above our expectations when we entered the year. Q4 was seasonally a bit weaker, but also affected by some one-off charges. The operational cash flow was solid in Q4 with 4 billion SEC and a new record level of 12 billion SEC for the full year 24. And so consequently, our balance sheet is strong at the moment and supportive of various options going forward. Let me then go to the key figures. Organic growth was strong in Q4 at 8% organically with good conditions in many ad markets and more positive business climate in the second half of the year compared to the first half. Invoicing also grew at 8%, but somewhat below expectations. The order book is solid, and there are no extraordinary delays in project invoicing. Rather, perhaps, the precision in our invoicing forecast was a little bit off. The Q4 margin at 16% was somewhat affected by one-offs related to restructuring costs in a couple of different areas and certain project risk exposures. Operationally, it was a stable quarter with a reasonably stable invoicing mix. Moving to the energy division. We entered 24 in a weak HEVAC and heat pump market and anticipated a volume drop of maybe in the order of magnitude of 2 to 3 billion sec for the full year. At the end, the drop was compensated fully with growth in other end markets, and Q4 was back on a healthy growth of 7%. Notably, clean energy applications grew with 40 percent compared to last year, although from a somewhat small level, the global concerns regarding the pace of the energy transition is perhaps a little bit over-dramatized. And we are now looking at the clean tech business in the energy division for around 10 percent of the total order intake. Also, data centers' application grew, especially in the second half of the year, and compensated partly for the continued weak heat pump market. The data center demand is expected to remain firm in the first half of 2025, while the heat pump market recovery is mainly anticipated into the second half of the year. Both invoicing and margins were stable in the quarter despite the underutilization of several production units. The profit protection program has yielded a better result than expected for the full year 2024 and for Q4. Then moving into the food and water division. The division entered 24 with a strong order book after an exceptional year for Desmet, with several large order bookings in 23. As expected, Desmet returned to normalized order intake level in 24, and most of the drop was compensated for by other end markets in the food and water division. The recovery in the short cycle business continued, both for equipment and service, and Q4 ended very strong in this area, including in China. The margin for 2024 was on the expected level, but with the Q4 affected by some reduction costs and some project risk exposures. In most end markets, the sentiment is positive, moving into 2025. The project pipeline, including for biofuels, has strengthened somewhat compared to last year, and India, after the election year, is also expected to recover into 2025, an important end market for the Food and Water Division. Now to the marine division. After a strong ship contracting market and a solid order intake in 2023, we were a bit uncertain regarding the order intake for 2024 at the beginning of the year. Instead, it became another record year with orders of 30 billion SEC, and we finished the year with a 40% order intake growth in Q4 2020. It was a very strong year indeed. The order book is now well loaded for both 2025 and 2026, and continued good market conditions are expected as we move into the first quarter of 2025. After two years of strong tanker contracting, the expected slowdown in order intake, not invoicing, will likely affect the divisional order intake from Q2 and onwards in the cargo pumping business specifically. For all other applications, business conditions will likely remain positive into all of 2025. The margin was positive and stable in Q4, as expected, and somewhat affected by one-offs in the quarter. Then on to service. Again, it was a very strong service quarter with a 13%. organic growth pace. The full year reached the growth of 8% supported by good momentum in all three divisions. So then moving on to, sorry. So finally, then let me say on the service side, sorry, at the large market, Okay, I recap on this. So we're back to the service. Throughout the period of strong growth in capital sales, the service growth has been following the same growth patterns as capital sales. So service continues to account for approximately 30% of the group invoicing, providing a healthy mix. We will continue our strategic focus and operational investments into our service organization with a positive outlook into 2025. Then finally, two top 10 markets. China is now by far our biggest market, driven not least by the marine sector. However, all three divisions have returned to growth in China during 2024. India had, as I mentioned, a weak 24, but markets are expected to recover in 25, supported by a reinvestment in the production capacity locally. Southeast Asia was okay, but affected in comparative numbers with 23 on a couple of large orders. Otherwise, the region is positive. The U.S. is obviously a bit uncertain for 2025, but in general, the momentum was positive until the end of 2024. We do not expect major effects from possible tariffs on the Alfa Laval specifically. However, tariffs may have some effect, as the hyperinflation on large CapEx projects did a couple of years ago, with resulting projects delay in the pipeline. It remains to be seen if that materializes. So with those words, let me hand over to Fredrik for some further comments.

All right, Tom, before we do that, I think we want to mention something about the acquisition that we have also announced this morning.

Indeed. Very good. And so, as we said it for a long period of time. Our belief on the energy transition is that the toolbox is required. And especially in the marine, you've seen the toolbox of what we call in the exploration bucket with a number of new initiatives. We have now complemented that with a small acquisition related to anti-fouling of hulls. It's the same principle as for ocean glide. We are looking to reduce the friction in the water and create energy savings and fuel savings for the ship owners. It is in a startup mode. So while we have commercial installations, we will look to rapidly expand it in the coming years. For 2025, however, do not anticipate any particular impact on neither invoicing nor margins or results. So that's where we are with it. We are very excited about it. The toolbox is getting completed. Thank you, Tom.