Alfa Laval Corporate AB

Good morning and welcome to Alfa Laval's Ernest Call for the third quarter 2026. Fredrik and I will take you through the quarter and then we open for Q&A as always. Let me then start with a few introductory comments. Although we had strong tailwinds from both data centers and chip contracting in the quarter, the growth was broad and balanced. Global market conditions remained firm in the quarter, driven by the US and China. While part of our portfolio is benefiting of some cyclical growth short-term, Alfa Laval continues to invest for long-term structural growth. We continue to invest in R&D, in market positions, competitive supply chains and service. With substantial investment for the future market leadership, the group delivers still on the expected profitability level in the quarter at 18%. All three divisions were at their respective profitability target ranges. Finally, we continue to optimize the CAPEX program within the current footprint. Due to the accelerated growth, our CAPEX guidance in the short term is increased from 3 to 4 billion SEK yearly. So with that, let's move on to the key figures. The quarter was special with regard to order intake with a 23.2 billion SEC new record order level. Perhaps a bit unusual in the seasonally somewhat lower third quarter. Invoicing and profits grew on a more normalized level with an 8% and 6% growth respectively. As a result, the order book reached a new record level of just below 60 billion SEC. On the divisional level, starting with energy, it was a significant growth quarter, both for orders and for invoicing. The data center business amounted to approximately 2 billion SEC in the quarter in terms of order intake. And the 12-month rolling or rolling pace right now is in line with the earlier guidance. Now at the level, well, about 5 billion SEC. To ensure a healthy order book, we do not recognize orders in this area more than 12 months forward. The return to growth in the important TVAX segment, including heat pumps, started earlier this year and continued well during the third quarter. Then over the last 12 months, we have as a firm and in the division concluded three important acquisitions. The first one some time ago was the fifth cryo business and our expectations on the strategic fit on the cryo business and performance have been met and we continue to invest to build market share in this important area. The last two acquisitions are heat exchanger companies in China. The last one closed just a week ago. As we build our market share in China, the two acquisitions complements Alfa Laval well, both in technologies and in market positions. They add approximately or somewhat above 1 billion sec in revenue on a yearly basis, mainly in China. And it will serve as important growth platforms going forward. Moving on to the Food and Pharma Division. Again, it was a solid quarter for the division, including some important project wins in the biofuel sector. The transactional business continued strong and is on a record level. The recent capacity increases in the US specifically was arriving timely in the quarter in that respect. All three key markets for the division, US, China and India, had a strong quarter. Invoicing was a bit below expectations, but influenced by delivery schedules rather than supply chain constraints. And with that on to the ocean division. Ship contracting is on an exceptional level at the moment, driven by longer shipping routes and high freight rates. As an asset class for ships, new orders are supported both by traditional ship owners and financial investors. The final contracting number for ships for this year, 2026, will be well above 3,000 ships, substantially ahead of the forecast a year ago. For Alfa Laval it resulted in a new record level of orders at 8.3 billion SEC in the quarter and in all 2026 is far beating our expectations compared to a year ago. Cargo pumping was as always converting early into Alfa Laval's order book. The major capex program at Framo in Bergen is executed with priority on upgrading the production lines for cargo pumping systems specifically. So while order intake was solid across all of the business units, the current ship contracting has not still translated fully into the Alfa Laval order books. The product pipeline in offshore continues to build stronger and the current turmoil in the global energy markets is expected to create a new capex boom in the offshore segments going forward. Then on to service. Service is one of several important structural growth drivers and it grew 6% organically, however, a bit uneven across the three divisions. The energy division had a very strong quarter and growing well above double digit level for the quarter. Food and pharma was okay with a more modest growth while service declined in the ocean division due to sanctions and due to a degree, the high utilization of the remaining fleet. For your reference, approximately 4,000 ships out of the global merchant fleet of 60,000 ships are out of scope for Alfa Laval's service activities. With the rapid growth in capital sales, service as a share of total sales is now clearly below 30%, while a positive challenge, it does perhaps impact the group margin somewhat in terms of the mix change going forward. Then on to a couple of comments on the key markets and regions. As you know, US and China are our two top markets, currently accounting for above 40% of new orders. Both markets are currently growing faster than the other regions in the world. We have strong Alfa Laval teams in both markets, and we allocate a substantial part of our capex program to these markets as well to ensure strong local presence and reliable supply chains. On the overall global map, as indicated earlier, growth was broad-based globally, with all regions except one growing on a good level. The India-Middle East region declined somewhat. After a record quarter in Q2, Middle East specifically struggled for obvious reasons in a complex environment. We do everything we can to keep our customers, our own staff and their families safe. India specifically still had a strong quarter and is expected to be an important growth engine over the next decade. For this reason, we have allocated our Indian capex plan a higher priority and increased the efforts there substantially going forward. And with that, I hand over to Fredrik.

Thank you, Tom. And good to have you all here for the quarter three earnings call. Some additional details around the strong 23.2 billion order intake in quarter three. In the energy division beyond the strong booking and data centers, power and fuel applications booked some 2 billion in the quarter. HVAC and refrigeration, in particular heat pumps, continue to grow and better utilization of the capacity added a few years ago is a fact. Traditional food and farm applications also post strong orders in brewery, dairy and prepared foods and beverages. Transactional business continues to outperform COMPs, and pumping systems in the ocean division continue to benefit from a high contracting level of tankers. Contracting for bulk carriers, container ships and ferries, including ROROs, contributed with a good order intake for the marine product portfolio. 63.1 billion in order intake year to date represents a 23% growth, of which 22% is organic. Good momentum heading into quarter four with an all-time two high quarters behind us. After another record quarter with a book to bill of 1.25, the order book closed the quarter at just shy of 60 billion. The order book is deemed to be priced well in line with input costs and current cost levels. Quarter 3 sales reached 18.6 billion, a growth of 7.8% compared to Quarter 3 last year. The transactional part of the business outpaces the total, meaning that the manufacturing capacity is well utilized in the majority of our manufacturing units. In certain areas and applications, a higher delivery pace and capacity will require more and further investments. Those investment cases will be planned and executed over the coming years with investment peaks in 2027 and 2028. These investments in capacity lead us to revise our CAPEX guidance to a range between three to four billion per year for the next three years and up from the guidance of two and a half to three billion that we currently have. Year-to-date sales of 52.6 billion and organic growth of 4.5%. However, to provide more context to our future investments, plans, the transactional business revenue, including service, has grown with over 10% in the last nine months. Now to some P&L highlights. Cross-profit margin of 37.6 is in line with quarter three last year and well supported by a high utilization rate of manufacturing assets and a favorable mix effect from transactional business. Sales and administration costs increased in the quarter with 10%, with three major contributors of equal weight, inflation, acquired businesses with no comps, and growth-driven addition of resources. R&D also continues to grow at 7%, which is in line with innovation ambitions and product development initiatives. Operating income increased with 5%, but does not drop through fully into EPS due to one-off bookings in the financial items related to the termination of a JV. Year-to-date gross profit margin at 38.2%, which after all costs and taxes results in an EPS of 14.91 crowns. Adjusted EBITDA in Q3 in money is at all-time high of 3.4 billion, equalling a margin of 18.1%. On a divisional level, the margins in the quarter are representative of a good level going forward, with the energy division at 18.1%, food and pharma division at 15.5%, and the ocean division at 21.3%. Year-to-date, the EBITDA margin stands at 17.7%, which is above the external target for the group. Our debt position remains stable compared to Q3 2025 with all ratios improving in relation to EBDA last 12 months. Net debt including leases in relation to EBDA last 12 months at 0.94. Good cash balance generated from a good cash conversion which takes us to the cash flow analysis. Cash flow from operating activities in quarter three amounted to 3.4 billion, a marked improvement from the year before. CapEx continues at a high pace in the quarter at 819 million. A positive final line cash flow caps off a strong quarter three. Year to date the pattern is similar with a strong cash flow contribution from operating activities, capital expenditures at 2.4 billion, acquisitions for 600 million so far and financing activities representing mainly the sharehold dividend of 3.7 billion. Now to some guidance. In line with raising the guidance on CapEx going forward, we have also increased the CapEx guidance for 2026 with one billion expected in quarter four and 2027 on a level of four billion. Amortization of step-up values in the order of $180 million in Q4 and $730 million for 2027, based on current acquisitions. Tax rate guidance remains in the range of 24% to 26%. And with that, I hand over back to Tom for some closing remarks.

Thank you, Frederick. And then finally, the forward-looking comment. It is for us, and I think globally, the demand trends are strong, and we expect the overall demand trends to remain favorable and solid into Q4. With that said, after two record quarters, we are somewhat more modest when it comes to how we believe this will convert for us. So we believe overall on a somewhat lower demand in Q4 than in Q3. And on the divisional level, we expect the energy division to remain at about the same level, food and pharma to be at the somewhat lower level, and the marine division or ocean division, sorry, specifically at the lower demand level. And so with that, we are open for Q&A.