Alfa Laval Corporate AB

Good morning and welcome to Alfa Laval's fourth quarter and full year earnings call for 2025. So Fredrik and I, we will give you a rundown presentation, a summary of the quarter and the year, and then we will go to the Q&A as always. So let me start with some introductory comments to the quarter and the year. In all, we felt it was a strong year in 2025, resulting in record invoicing and record earnings, with earnings per share for the first time climbing to 20 sec per share. The supply chain was strong, especially in the quarter, and we delivered a record invoicing of 19 billion SEC in the fourth quarter. With that said, we still need capacity additions that are required to support our customer base in the data center applications. And yesterday, the board of directors approved a targeted CapEx program of 1 billion SEC for this purpose specifically. Then finally, during 2025, Alfa Laval has prepared for further growth by simplifying the operating model and consolidating the business unit structure. It is a substantial reorganization of the company. And as of January 1st, the new organization is operational after considerable efforts on many hands. And with that, let's move on to key figures. Orders held up well with a 2% organic decline in Q4. We had good support and strong demand from the US and several important Asian markets. The margin was okay, and as always, a bit affected by the seasonal high share of project invoicing. In addition, we carried approximately 150 million sec of one-off costs, partly related to the ongoing reorganization program. On a divisional level, first to the energy division. Orders reached an all-time high in the quarter at 6.1 billion SEC with firm demand in both HEVAC and cleantech applications. Data center orders were increasing as anticipated and was accounting for approximately 15% of the divisional orders. Service has been slow during 2025 for the energy division, partly due to internal constraints. In Q4, the service was again showing double-digit growth, and the growth trend may well continue into 2026. As indicated earlier, a new CapEx program of one billion SEC is launched to maintain a leading market share for the heat transfer applications in the data center business. The program is spread over our existing footprint in the US, in China and in Europe. We are with the existing infrastructure in a very good position to scale our volumes and capacities in this area specifically. Then to the food and water division. Orders remained flattish organically, both sequentially and year on year. We continue to see considerable growth opportunities in many end markets going forward, and the new growth strategy launched in 2025 is supported by targeted investments into application specialists and the global sales force to cover areas like pharma and protein. The margin in Q4 was impacted by some one-offs, both in weak project execution and the reorganization as discussed earlier. And it amounted to approximately 80 million SEK in the division. In 2026, we will take some cost for driving the growth strategy forward in the areas described with some margin impact in 2026 and possibly into 2027. Then on to the marine division. Orders were stable sequentially and the lower cargo pumping orders were, as before, partly offset by growth in the other application areas. In all, the market is, and is expected to remain, stable to positive for ship contracting. Invoicing continues on a good level based on a solid order book with a positive mix. The order book mix remains unchanged in 2026. Then on to service. After many years of growth, the service business now accounts for about 20 billion SEK of invoicing. The growth trend slowed a bit in 2025 compared to before, but the structural demand trends remain positive and the troubleshooting in the energy division specifically is now completed and resolved. As a consequence, in the quarter, we had unusually large mixed differences between the divisions. with the marine division at almost 40% share of service orders, partly related to lower project order intake on the marine division. And the energy on the other side with just above 20% of service order intake after a very strong capital sales quarter in Q4. The spread between the divisions is expected to decrease going forward. All right, and then a couple of regional comments to round up. In many aspects, it was a positive quarter with good progress in important growth markets like Southeast Asia and India. China was positive in energy and food and water, but not fully compensating for the slower cargo pumping volumes that we expected in the quarter. U.S. grew in many end markets with special focus, obviously, on the data center market, and we had an all-time high in the quarter for the U.S. market as such. And with that, let me hand over to Fredrik for some further financial details.

Right, so let us dive straight into it and take the order intake in quarter four amounted to 17.1 billion with a negative currency impact of 8.7%, a structural growth of 3.3% and an organic contraction of 2.2%. What's notable in the quarter is the continued slow conversion of large project business from project pipelines that are both extensive and with quality projects. The energy division reflected demand strength in HVAC with a 7% growth and on data centers more than doubled. On a whole year basis, order intake accumulated to 66.7 billion with a negative currency impact of 6.1%. Growth from acquisitions of 1.6% and then organic contraction of 6%. Of the negative organic growth, the majority of the contraction is slow conversion of large projects, which lag behind with some 20%, of which the majority stems from the normalization of marine pumping systems and large project orders in food and water. Transactional business, on the other hand, increased with 2% during the year to compensate. The order book stood at 48.3 billion at the end of the year, of which some 7.5 billion is invoicing for 2027. During the year, 1.9 billion of negative revaluation due primarily to currency impacted the backlog and order intake. Quarter four book to bill was 0.89 with a good invoicing and project execution in Q4. Now moving on to sales. Revenues in quarter four reached an all-time high of 19.1 billion with a growth compared to last year of 4.6% of which 10.9% was organic, 3.1% coming from acquisitions and the negative impact of currency with a whole 9.4%. The higher revenue stems from good project execution in the quarter and a good mix of growing transactional sales. Revenue in all three divisions grew in the quarter, energy division with 12%, food and water with 1%, and marine division with 3%. On a year basis, revenues grew with 4.1%, driven by 7.9% growth of organic business, 1.8% structural, and a negative currency impact of 5.6%. Revenues from the marine pumping systems increased with 23% on an annual basis, and project execution in the Food and Water Division contributed with 10%. The large order book we carry into 2026 supports a continued good development in revenues. Now to some key figures. The adjusted gross profit of 34.7 was in line with quarter four in 2024, but sequentially lower than quarter three at 37.8, reflecting the heavier project execution mix in quarter four. The adjusted gross profit margin as in previous quarters continues to be supported by strong manufacturing results. S&A grew with 2%, while R&D grew with 11.6%, as expected in the quarter. Operating income grew with 8.3%, yielding an adjusted EBITDA margin of 16.9%. To be noted further is that the adjusted margin is affected by the last tranche of the acquisition costs incurred in the cryogenics transaction, lower yield from a project's execution in food and water division, and costs arising from the new organizational structure with some 150 million in the quarter. The increase of financial costs in quarter four is driven by higher interest costs and more substantially by the net of exchange rate differences. Profit before tax is on a similar level as last year and finally an EPS of 4.79 for the quarter. On an annual basis, adjusted gross profit margins increases to 37%, reflecting the revenue mix, a strong factory and engineering result, and positive purchasing price variances. S&A grew with 4.5% and R&D with 4.9%. However, both remain stable in relation to revenues at 15% and 2.5% respectively. Operating income increases with 12.6% to yield 11.7 billion and EPS for the year just above 20 crowns, an increase of 12%. Now on to some profitability comments. The adjusted EBITDA margin for the quarter ended at 16.9%, an increase of 1% compared to quarter four 2024. In absolute terms, the adjusted EBITDA in quarter four increases with 437 million, despite the negative currency impact and the additional burdening of the result with 150 million in the quarter as previously detailed. On an annual level, the adjusted EBITDA margin was 17.7%, an increase of 1% compared to 2024. Adjusted EBITDA increases with 12% to yield 12.3 billion. Now some comments on debt position. Debt has increased with 7 billion, reflecting the financing of acquisitions during the year of 9.4 billion, with a resulting leverage to EBITDA of 1.21. Net debt after subtracting a health and liquidity position of 7.8 billion is 9.4 billion, which corresponds to 0.66 in relation to EBITDA. Finally, net debt, including lease liabilities, lands at 0.92 in relation to EBITDA. Cash flow from operating activities in the quarter was on a good level, given the increase in revenues. Release of working capital was positive, but on a lower level than quarter four last year. CapEx in the quarter was in line with guidance, bringing the free cash flow for the quarter to 2.6 billion. On an annual level, cash flow from operating activities was 9.2 billion. Capital expenditures in line with yearly guidance at 2.7 billion. Three acquisitions during the year totaled 9.4 billion. And after financing activities, the final cash flow for the year was positive with 168 million. And finally, for some guidance on Q1 2026 and whole year 2026. CapEx in quarter one is expected around 0.7 billion and a whole year guidance of 2.5 to 3 billion. Amortizations at 175 million in quarter one and 670 million for the year, and that includes all recent acquisitions. Tax rate guidance remains in the range of 24 to 26%. With that, I conclude my financial overview and I hand it back to Tom for some closing remarks.

Thank you, Fredrik. So let me give you our forward-looking comments before we go to the Q&A. As we are all aware, the synchronized global business cycles are not so synchronized anymore. So in reality, geographies and different end markets tend to move in different directions. So all in all, we remain in a situation where we don't have extremely clear trend lines With that said, the general feeling we have in the market is that it is overall, everything said and done, somewhat positive momentum in the market. And we also perceive that the slowdown we've been having in large capex projects from customers is maybe easing somewhat as we move into 2026. So with that said, we expect, after a strong Q4, sequential demand in the first quarter to be on about the same level as we had in Q4, with the energy division being somewhat lower, but compared to an all-time high record level, as you remember, in Q4. The food and water we expect to be somewhat higher and the marine division somewhat lower. And all in all, it takes us to market conditions that are relatively unchanged in Q1 compared to Q4. And so with that, we round off the presentation and we are open for questions. Thank you.