Welcome to the Alfa Laval Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference I would now like to hand the conference over to your speaker today, Tom Erikam. Please go ahead.
Thank you very much and welcome to this call. We apologize we are a bit late on the line for some technical reasons. We are not quite sure what happened. Anyhow, let me start by positioning this call in. We have, as you know, during the spring started a strategic review in Alfa Laval.
And today this morning, we went out with the full internal information on new structure, and we will move into a very intense phase in terms of reorganizing this company. And we felt it was appropriate to give you the same information at the same time and that's the background for this call. You should not see this as a full presentation of a new strategic plan with all the activities we are nowhere near at that point. We will come back to the timetables later on. But this is an update in line with the early information that you have gotten in terms of the review and the steps we will take.
So let me move to the next yes, we are on reflections. So let me bridge a little bit from where we were in the spring. I shared with you my first reflections in Alfa Laval and you will recall this slide if you've been participating earlier. There were a number of strong points in Alta Laval and there were also some concerns. And at this point in time, we've gone through a substantial effort internally to analyze the market trends, our company, our performance, the competitiveness and the nature of our business with external perspectives as well as internal perspectives.
And without going into details and sharing that part of the analysis, let me just say that those initial reflections are valid and they are playing a part in how we are about to shape our strategy going forward. And certainly, if you want a headline for what we want to put emphasis on going forward is to create the best possible scenario for our future organic growth, which is something we've been concerned with for some period of time. Now let me go to the next slide. As I indicated, this is some first results and updates driven by the organizational change we're going into. So today, you will get some words and some context, let's call it like that, in terms of the strategic direction what we try to take care of.
You will get an update on the new structure and organization on a high level and some changes in group management. And that's what we are focusing on today. We will continue with the development of our plans and our activities and we will share those with you latest at the Capital Markets Day in November. So that's where we are in terms of our process. Let's go to the next slide.
We know and you know that we are facing some challenges in markets particularly related to the situation in the marine market and in the oil and gas sector which is also of importance to us. We've said from the very beginning that as we adjust to a macroeconomic scenario that is affecting us going forward into 2017, we want to make sure that we are well aligned with the long term value creators and strategic priorities for the group. And consequently, we are from a structural point of view trying to place the priorities for us first and then we will at some point in time also come back to you with the action plans that we need to implement when it comes to managing the cost base of our business in the scenario we have ahead. The 3 pillars may not be very surprising to you, but let me at least share some aspects of what we are doing when it comes to the pillars of our strategy related to customers, technology platforms and the service business. Regarding customers, there are some implications from the decisions we've been taking.
The first one is that, I think we are signaling very clearly to you and internally that the food area of our business will be very important going forward. It has not been transparent to you necessarily given that the food business has been divided in 2 divisions, but we are now forming one division that is centered on the food and also interesting opportunities in the wastewater business. And that in itself is a concentration of resources and focus. Generally speaking, although that is not absolutely clear from an organizational structure, we will continue to concentrate sales and marketing and R and D resources into the areas that we think are most important and the customer areas where we have the biggest opportunity to make a difference. So there will be going forward additional decisions and measures taken in order to ensure a customer focus which is adequate.
The third point on the customer side, which is very important for us is that the new structure will help us in gaining speed and flexibility in the marketplace. And I will come back to that when we go through the organizational structure. In terms of technology, we are within the divisions that we are forming creating product based business units. And this means in itself a very strong signal internally that the product technology and product development programs are an extremely high strategic priority for us going forward. We will at the same time take measures and we do that ongoing in order to make sure that our development programs are going as we want them to do.
And one important decision has already been made in this area and it's communicated in the press release that we've taken the decision to invest in a new test laboratory facility in the high speed area, which is a way for us and one of the steps we are taking to make sure that we accelerate the development of the next generation high speed separators for the company. There will be other aspects of technology happening as part of our strategy going forward. In terms of service, as you know, it is of prime importance to our customers and certainly to us to make sure that we in a good way serve and develop our installed base, which is significant around the world. There are several measures that are being taken in order to make sure that we optimize our service and service delivery capability out in the marketplace. Some of those will relate to structure and organization, but obviously there is a lot of decisions involved in putting us in the right place when it comes to our service business.
2 decisions have already been taken in this area over the last few months. 1 is that we will strengthen our harbor based services in the Marine divisions to make sure that we have the mobility and flexibility to meet the somewhat unpredicted service schedules that we have from vessels traveling around the world. That decision is taken and is implemented gradually during this year and next. The second area is that although we have for a long time built our infrastructure of service workshops around the world, there are still opportunities on the map and there are still development in emerging markets and other places that makes it interesting for us to continue to cautiously expand the service workshops. 3 workshops will open during the rest of this year, one in Iran, one in Angola and one in California.
And that will further enhance our presence in markets that we think are very interesting for particularly our heat exchanger service business. I'm making a couple of concrete examples in our strategic pillars not to give you the idea that we are done, but just give you the flavor that we are running the company and our business on a steady basis and we're not stopping just because we are thinking about our long term strategy. Now let me go to the next slide and go straight into the structure. I guess the center point of the strategy and the structure is around the 3 divisions that we are now forming. The implications are that as of January 1, the equipment division and the process technology division will no longer exist.
And for your information, that also means that segments will no longer exist as organizations nor will market units exist as organizational entities. We will of course have competences in segments and applications, but they will not be organizational structures on their own any longer. We feel very comfortable with the basic approach that were taken when we formed the Marine division. So that division in its business focus will remain the same, although there will be some adjustments within that divisions in order to be aligned with the rest of the group structure and the rest of the group company. The Food and Water division will be formed based on a couple of different and important product areas.
One is obviously the fluid handling part of our business, which today is mainly placed within the sanitary business of our organization. But they will also be responsible for the high speed separator business where the most advanced applications are in the dairy and in the food industry at large and also the decanter business will be based within food and water. On the energy side, we will place the responsibility for products related to heat exchangers where by far the big even vast majority is going into energy optimization programs. And consequently, the entire range of heat exchangers will be there. We will also place responsibility for areas like HEVAC and OEM businesses that you may be aware of in this unit.
So as such, we have a logical home for our businesses. We will share products across the divisions as we do today. The biggest sharing that we have across applications and divisions is in the high speed separator business, which go into all of the three areas. But other than that, we have a relatively clear focus between products and end customers in the divisional structure that we are creating now. The most important change in our organization is not the creation of these 3 divisions.
It is what we do on the level below. And as I indicated to you, we are now going to a business unit structure with clear product responsibility, product management responsibility, customer focus responsibility, application development responsibility and in several area also in operation or manufacturing responsibility, although that is not true for all of them. That means that the basic profit responsibility in our company will be clearly anchored with business units in the division and those business units will probably for the entire group be on a number around 12 plus minus. So there are 12 very important managers that will be appointed on that level with a very clear business agenda going forward. And that's what I'm saying that all these organizational entities like markets, units and segments that have been running businesses on their own, they will be consolidated into a more coherent, clearer, faster, more accountable structure than we've been having in the past.
And that is for us and in terms of how we meet customers and our ability to take decisions on the spot and act in a fast and forward looking way, that is the key change that we are after and that is the most important part of what we try to do in the coming months when we set up the organization. With that, I think the divisions form a great home for them, but I would like you to pay some attention that actually the biggest things operational that we are doing is on a level below. Now in terms of Global Sales and Services, as you know, we've been running 3 regions in the past. We will consolidate that to 1 global sales and service responsibility. We think that better reflects the type of agenda that we need to run in our global sales and services organization.
We will as before have the very strong sales company managers in place and running the local business on the best way in interaction with the divisions and business units. So there is no change or let's say there is no revolution when it comes to salespeople today serving customers. We will keep a good continuity out towards the customer end of our business as we go through the changes that we have on a more central level in the divisional and business unit structures. And that's important for us and for the customers to know. We think it will allow us to better develop the sales program, the sales management aspect and certainly the service execution business, which by far is a very local activity.
And we need an operational drive in that and we think the Global Sales and Service Organization will be the way to do it. There will be a substructure in the Sales and Service Organization given that we have some 50 direct reports into the global sales organization from our vast global reach, we need some sort of let's call it the clustering activity to coordinate our activities in the market. And there will be a substructure of let's say 8 entities where we will consolidate the sales companies. But from an operational perspective, we largely will run the sales companies on a market by market type of approach as we do today. In terms of operations, we've been developing a very strong functional performance within our operations capabilities.
We have a solid line for operations when it comes to several of our core product groups and that includes high speed separators and plate heat exchangers. And we will keep a solid line on the operations for these large product groups certainly given the fact that the cost savings programs already today this year and last year, but also going forward will require that we keep operations together as it is today in order to execute the changes that we need in adopting for the market situation we are in. With that said, we probably have drifted apart a little bit sometimes between the business and operations and manufacturing. And in this structure, we would align the operational responsibility for high speed separators with the business responsibility in the Food and Water division in a way that I think we will have the matrix working a little bit better for us. It's also so that several parts of our operations including many important acquisitions like Framo and Pakenox to just take 2 examples, we are running them in a slightly different way with a clear align accountability also for operations and that will remain the same, but with maybe a clarification of the role and the synergies that we get from operations also in these areas.
So these are the main structural changes that we are going through. In the process when we have a lot of change in the company, I'm happy that our group staff is staying stable. So we have no in principle changes when it comes to human resources, communication and finance, legal and IT. It could be that we over the coming months are reallocating some responsibilities within these functions. But they are not the subject for this change nor perhaps are they of critical importance to you.
But we have just decided that at this time we need focus on the big operational change we go through. So let's avoid changing everything at the same time. With that, let's go to next slide and some comments on the appointments in this new structure. You should see the appointments as a vote of confidence to a management team that's been running the Alfa Laval business in a very good way for a long period of time. It is not a revolution when it comes to the name.
We have one new member into the team and I'm very happy that that is an internal appointment of one out of several extremely talented operations manager in our group and his name is Mikael Zideen. He is well versed in the programs that we had. We will not lose any time in the handover between the previous and the new operations managers. And in fact, the retiring operation manager will be for an extended period of time available for consultation and support and task force work as needed under the leadership of Mikkel today. So we are very comfortable about this change.
Joakim Wilson, who will run the Global Sales and Service Organization, has been running one of our 3 regions previously and is obviously well trained and into the management of our sales company and sales company structures. The choice fell on him, I would say, probably predominantly because of his leadership and interaction capabilities with the sales company managers. He has been handling among other things the challenges in the Brazilian and Russian markets, which as you know have been turbulent places in an excellent way and returned us to growth this year ahead of our expectations and ahead of the timetables that we thought were possible, I'm very comfortable to have him increasing his responsibility for the global sales. Peter Leiflein has built the Marine Division since its start essentially and is obviously continuing his role for a number of years. Nish Patel has been running one of our sales division before.
He has been operating a whole range of positions prior to that. He's well versed in all our aspects of the business. Obviously, the food and water will have a high priority for us and probably for you being one of the stable and also short term growth opportunities that we see. And I'm very happy that Nish with his international background outlook and strategic capability has said yes to accept the challenge of forming this division from scratch. I'm very excited about that.
Finally, the Energy Division will be the responsibility of Sesan, Pali and Auckland. And she has, as you know, successfully run the EQD division before. She's been instrumental in starting to build our e commerce and digital capabilities in that division. And she is well technically and experience wise versed in the heat exchanger business coming from the thermal area the beginning of her career. So there you have the operational leadership team, one new person in, new roles for most, but a lot of continuity and certainly continuity that we need in a period where we go in to a lot of change when it comes to people, structures, competencies and market direction.
And then finally on our group staff level, we have no changes. We will go with the team, a team that knows our numbers, knows our people and knows our communication channels very well. So I'm very comfortable to see this as the group taking the next step without Flavan. There are as you know 3 persons leaving us and I would like to be clear to all of you that those three individuals came to me during my 1st months of service and said that after a long career within Alfa Laval and reaching the 60 plus age bracket, they would like to see a controlled succession. They've been exceptionally loyal to me in the sense of saying, I'm here to help until we are ready to change and this time has come now.
So we have a good agreement with Ray Fields who has done the Asian job for many years. He remains supporting us with some of our joint ventures and other challenges in the region on a senior adviser basis. With already commented that he will also move into a significantly reduced exposure and working time with the group, but still available as a senior advisor. And finally, Svante Karlsson, who has been running PTD for good many years and built up our engineering capabilities and application capabilities in many areas will, as he retires formally on March 1, take over the responsibility for the multi brands. And we have not talked so much about the multi brands and we may get back to you with some comments later on.
But we feel we have good opportunities to continue multi brands, to do it a little bit more strategically and with a bit of different touch than in the past, but the multi brands continue to play a role for us in the market in our market strategy. So with that, let me just sum up on the last picture. What you should see on this organization, as I said, is not 3 divisions only. It's a different way of working for us. We are primarily driven by creating increased speed and increased accountability and decision making capabilities in front of customers.
We think the customers are the winner in this organization. It's a prerequisite for us to get back on the growth path that we are looking at. And with that, I'm done with the presentation and we are open for questions. Thank you.
Thank The first question comes from the line of Mark Yates. Please ask your question.
Hi, good morning. Thank you. Just two questions from me. Firstly, you talked a lot about the growth opportunity from the changes in business structures and changing to the business units organization. Could you talk a little bit about the cost savings opportunity and where you think this may lead to sort of duplicate roles within the organization?
And if you could try and quantify potentially how much of how much those changes may impact the cost line as well as growth? Thank you.
Yes. I suppose you suspect what my answer will be. The issue with cost is that behind cost there are people and we have a process where when you deal with people in this company, we make sure that we have an adequate analysis. We are specific in our conclusions and we communicate internally before you get the word so that we handle the people side right. We are on to this topic.
I didn't want to make it the headline of today. And from the 2 years you were given from me at the first date, you now have some wording on this coming at the Capital Markets Day in November. So we are making sure that we stay on track. I'm very comfortable where we are in the process. We know what to do.
But when it comes to being specific about targets and headcounts, I would ask you to be patient with us for another 2 months and we will be back on that. And with that, I want to say that as I have indicated in on the customer side, on the service side, there are obviously actions taken also as an ongoing basis in order to adjust not least manufacturing cost to the volume changes that we have. And you can see that in a strong performance on the gross margin that is holding up despite underutilization in our operations network. So that was I got on to question number 2. And question number 1 was
Yes. Sorry. So that was question and the second question I had, could you would you be able to at this point give us the margins, the last 12 month margins of each of the business units? So it would just be interesting to hear how far the energy margin had come down once that had been separated?
No, we will not give that now, but just to give you a little bit of an indication on the divisions, depending on obviously the cycles in marine and energy and all of that. By coincidence I have to add, the divisions look to end up at reasonably the same size. We will obviously provide you with some information on margins and pro form a back and forth, so that you can follow the transition from the current structure to the new structure. Both we and you are benefited by seeing how that transition works, so we don't lose our compass when it comes to where we were and where we're going. But we are not at that stage today.
Okay. So the message on cost is that even though the focus was very much on growth today that doesn't mean that down the line we shouldn't get some much more substantial details on the cost benefits of these changes. Is that fair?
It's absolutely fair. And as you can hear, what I have wanted to make sure is that the areas that we're going to develop when it comes to service, when it comes to some of the product development initiatives that I feel we need to move forward with, there will be increased efforts in some areas. And I wanted to make sure that before we are addressing part of our structural cost that we are being very clear ourselves as to what is it that's going to go forward and where is it we're going to hold back. And this has been the whole motivation for not starting a JEDELIN headcount exercise in March or April.
Okay. Thank you very much.
Thank you. Your next question comes from the line of Ben Weyer. Please ask your question.
Yes, good morning. Three questions from my side, please. The first one on the divisional setup. Do I take it from your comments that basically the Marine division is going to be unchanged? Or are you going to take out the diesel part of it?
And is the Food division then including food, pharma and water and everything else going into energy? The second question is in terms of what you highlighted on the last page in the presentation, details on strategy, impact of initiatives, financial goals. And I think in the press release you say you're going to release that gradually. So is it fair to assume that by the Capital Markets Day we know all the details? And when you say financial goals, does it mean new financial goals?
And the last question I had was just if you can repeat your Q3 guidance from today's point of view. Thank you.
Okay. Thank you.
In terms your question number 1, yes, basically to what you say. The fact that diesel does not appear in the name of our Marine Division is more to make it clear what is the priority here. There is no change in the diesel market. We are working with it as before and it's still an interesting area for us. It will remain under the leadership of the Marine.
I do not exclude that we have some areas that may be debated in the future whether it belongs in one place or another. It doesn't relate to the diesel area as such though. So in that sense, the Marine is for practical purposes unchanged with some internal adjustments in the division in order to align with the Group structure and responsibilities. The food, yes indeed include pharma. We thought as a name it started to become a bit long.
So we stuck with the 2. But the pharma and personal care I should say is as a whole area, a very interesting area, continues under responsibility on the food leadership. And at this point in time, let's say that everything else goes into energy. Yes. So that's question number 1.
The process coming to the Capital Markets Day is that we will communicate as we are ready and rather than putting up strict timelines to deliver to, we make sure that we are where we want to be before we start communicating. So we are very comfortable with the Capital Markets Day timeline. As you see from today's announcement, we don't see a value in itself to hold everything back. We are all that transparent when we can as long as we know what to do. So I think our expectations is that you may see something before the Capital Markets Day.
Whether that will be the full package or not, I don't know. But there is no value for us to make a big splash at the Capital Markets Day. We will as we take actions and decisions in the Group Management and in the Board be transparent and communicate with you. And number 3, I hand over to Thomas Doerthson.
Yes. As far as the financial goals are concerned, they will be either confirmed or adjusted. And of course, you will know when we communicate and that will be, as Thomas said, latest at the Capital Market Day. And then the last question from Sven was about the Q3 guidance and there is no change to the quarter 3 guidance at this point. So that remains.
Thank you.
Thank you. The next question comes from the line of Wasi Rispi. Please ask your question.
Hi, good morning. Just a few for me. I guess on the cost initiatives, you have been very specific in one point where you said that they're short term. So I was wondering what you're trying to tell us when you're saying that these are short term initiatives, what your thinking is around that? And then secondly, just on returns.
So you've given us quite a lot about on your thinking on growth and you think that there's more that can be done. How do you think about returns at Alfa Lavalin, where they sit and whether they could be higher or whether the balance between growth and returns has been right and that could shift? I'd be interested to hear how you think about that.
I think on question 2, why remain silent for this telephone conference? I'd be happy to address it at a later point. On question number 1, when it comes to timing, I think you can expect to see both short term and medium, longer term initiatives. There are certain parts of how you drive efficiency in a structure with 17,000 people that you should not attempt to do overnight. There are things that needs to be involved to be planned, to be taken in sequence.
So I think we will have we will create the framework and transparency with you as to what will take time and level of details that at least allows you to make, let's say, the calculations or and understand the intent. And but with that said, obviously, as we are moving into a new organization on January 1, 2017, we need to until then clearly have agreed on our scope, our manning, our sizing, our structure. And from that point of view, I would consider everything which is on the side of this of 2016 to be short term. And everything else will be a plan, although a plan with pretty clear milestones.
Right. So just to be clear, you are thinking about medium to longer term initiatives, but for now we're just talking about short term ones.
No, but I mean, let's look at it maybe in a slightly different way. Short term in our book means more like we appreciate that we have to adjust our capacities in order to, yeah, align with the demand situation, particularly in the oil and gas and marine area. So that is shorter term adjustments to demand. And then of course, the longer term is more related to the reorganization of the company into the new divisions in the business units. And of course, with a change that inevitably entails changes in the management structure and that is sort of a longer term implication, but it will have its effects on manning over the months to come.
That's what we mean.
Okay. Thank you.
Thank you. Your next question comes from the line of Peter Frohnen. Please ask your question.
Yes. Good morning, Tom. Good morning. Thomas, your review also conduct a certain sort of focusing on your operations throughout everything, so to speak. Is it fair to assume that there will be divestments in the agenda?
That's the first question. My second question would be regarding the organic growth initiatives. Again, on focusing, should we expect more R and D spend? Or will they be more targeted? Would we expect more service centers or just more targeted?
And of course, finally, on the digitalization, could you share some thinking how this will be conducted throughout the company? I mean, some actually do operate wastewater plants if they have the products with the right sort of scope and stuff like that. How far would you be able to and willing to drive the digitalization in your sort of product company setup?
All right. Let's start with portfolio. What you can safely assume is that we are looking at everything. You cannot assume the outcome of that review. If there was an outcome, you would have had it today.
But our business portfolio is flexible both when it comes to what we actually do and what we potentially want to acquire in the future. So that's I think that's what I can say on the divestment side. On the organic growth side, I think what you hear on the service side is, I think it's not a matter of primarily on priorities. I think it's a matter of increased efforts. We are not in a situation where we have there's always efficiency issues in any organization and we have thousands of people working with service.
I wouldn't exclude that there are efficiency improvements that we can done also in our service structure without being less aggressive with the business focus, but we are expanding our footprint in service. That's clear from what I said today. With that said, you know, it's not hundreds of people. It's in the bigger scheme of things. You will not see them in the headcount, but for us we will see in terms of shift of the share of employees in service, which is also reflecting the fact that we have a shift on revenue between capital sales and service as well ongoing.
So it's only logical. I think on product development, I will not give a clear answer. Yes, I give an I think a very clear indication that specifically in the high speed separator, which is I got to say the most technologically advanced and demanding application when it comes to new product development, partly given by the fact that there is extreme caution when it comes to high speed rotation equipment that's going to go out into market. So there's a lot of safety issues and other things involved apart from energy efficiency and the normal things in product development. So there you will see an increase.
I think I've indicated too in the past that we have in the Group 19 product centers which are responsible for the R and D budget today. We are not done with a full review in terms of whether everybody will remain on the same level as some go up. I think maybe the new structure we go into will make it clearer for us in terms of where we put money and where we put less money, where in the past maybe we've been a little bit too neutral when it comes to balancing the R and D between the various parts and rather be balancing it as part of the overall budget. So we will see what will come out there. But I'm not shy to take a bit of investment on the product development side if that's what it takes for us to make sure we are fully competitive in the range we want to compete on.
Sorry, thank you. Digitalization as well.
I prefer to duck that question for now. I think digitalization is a big topic when it comes to e commerce challenge, when it comes to the way customers are selecting suppliers and when it comes to digital functionality of our products. It takes us a little bit beyond this call at this point in time. I think you can assume you will, if nothing else, hear some thinking on that topic when we meet for the Capital Markets Day and have a little bit more time for our disposal. So I apologize for that.
No, that's very fair. Thanks a lot.
Thank you. Your next question comes from the line of Ben Marston. Please ask your question.
Yes. Thank you. Good morning, Tom. Thanks for the presentation. Three questions, please.
Firstly, just on just bigger picture on the organic growth opportunities. What do you think has been missed at Alfa Laval? Is it certain product segments, certain verticals you know, push into the middle market or lower price points? Where do you see the biggest opportunity? Thank you.
It's a very good question and framing the answer is not necessarily straightforward. But I would say in one sense, problem is we haven't missed anything. I mean, whatever the opportunity, let's go there a little bit. And I think that has made it a little bit more difficult when you come to the specific sales process between a salesperson or a sales group out in one of our companies in 60 different countries, they sort of at the end have been running on a little bit too broad agenda. There's been too many strategic decision makers in the company compared to the operational muscles that we have.
We are decreasing the number of strategic decision makers, concentrating them up in the organization in the new structure. And with that, the operational muscle out in the sales companies and other areas will be stronger, better utilized. And I think that is, let's say, an organizational signal when it comes to how we want to get the local initiative and drive taking care of the market opportunities as they see them combined with a strong business leadership on a strategic level from our business unit. So that is that's part of the answer. The second part of the answer is that we have and we do see as we speak good growth in a number of areas.
And if you go back to our Q2 results for the first half year, one of the areas that has been performing exceptionally well is the sanitary. We are in fact today capacity constraint with extended delivery times in some areas due to the fact that we are significantly above the forecast that we work with for the market segments this year. So there are growth in the company today. There are opportunities that we need to further continue to invest in when it comes to manufacturing capacity as well as to driving the product program forward. Thirdly, I think given that we have answered up in product development to a lot of different segments and market applications, we have diluted our focus in product development for the core product development opportunities.
So while we don't necessarily need to go haywire when it comes to R and D focus, I think we are in a better position now to focus our product development on some of the core areas of the volume opportunity for us. There are in some instances niches where let's say a cost competitive product offering might be a priority as opposed to just adding functionality and performance. There are different segments in the market. There are different customer demands. Some needs the latest and greatest and most energy efficiency in every other area and some need a cost efficient product that's performed reliably in their function.
And with our market position in our core technologies, we need to make sure that we cover, let's say, a fair share of this market without perhaps going to the absolute low level pricing and market performance, but within what we think is attractive applications, we perhaps also need to fill some pockets of our product program when it comes to cost efficient and reliable performance of products.
Got it. Secondly, just it sounds like internally quite a big change in focus, change in structure in what is a fairly difficult end market environment. What risk do you see that you get kind of additional disruption as the business becomes a bit more kind of inward looking, single sales force, new production structures and so forth. How disruptive could this be over the next 12, 18 months?
Let me say like this. I think there are 2 main risks in this type of scenario. One that I'm not so concerned with. The first one is the front to the customer, the daily sales stuff that we have. In this change, I think we have a good stability out in the sales companies where the daily transactions between us and the customer takes place.
So I'm not so worried about that. In fact, we have consciously designed this process and the strategy that we're going about it and the way we're implementing in a way that we are not starting by shaking our relationships out in the market. I will hope and I cannot guarantee, but I will hope and I think that most of our sales company managers will go to their sales team and say this is going to be better. It's going to be easier. It's going to be faster.
It's going to be less fragmented. We can go out and focus on our job. And I think that we'll do so tomorrow morning as well. So there I'm not I'm concerned, but I'm not so worried that we will get any short term disruption there. There's another part of our business where the risk is slightly bigger and that is related to the engineering application know how that we've been built up in this group.
Although we are dissolving a lot of organizational structure and complexity, there is a lot of the engineering know how that has been built in brewery, in food and in other areas and certainly in the oil and gas field where we need to make sure that we have the application knowledge staying with us for large projects as well as small projects. And for those talented engineers in our organization, we need to make sure that they find and realize that there is a place and a way to go forward that is going to work also for them. Here I'm a little bit more worried not for the short term, but that we make sure that we are leveraging and continue to build on the application know how that has been a benefit from the strategy and structure we had for 10, 15 years. And we are not intending to throw it out, but we need to reshape it. And obviously for those people, there is bit more of a risk.
We are we're going to do everything we can to handle it. It's an operational question for us to deal with. But you can hear from me and I think from the rest of the team that this is something obviously that we have to be realized is a risk and we are concerned.
Very clear. Thank you. Thanks, Tom.
Thank you. You have another question and it comes from the line of Andreas Koski. Please ask your question.
Thank you and good morning. I have a couple of questions on business units and accountability. So this accountability, is this only on the sales side or is it also on the manufacturing cost side?
There is. First level of answer is we are not able to divisionalize Alfa Laval fully. We are not running totally separated businesses. We have interfaces and some matrix responsibilities that however we draw the organization, there are realities there that we need to take care of for the benefit of the end customer at the end of the day. So there is a matrix situation for key product groups when it comes to operations and when it comes to sales and sales resources.
Strategically, the business units will be very much, if not in the driving seat, at least a very strong spokes persons about what needs to be done, what are the levels that needs to be met, what are the priorities that we see for next year 3 years from now. So the strategic drive will come from the business units and not from the functions. With that said, on a day to day basis, the functional expertise of running efficiency, delivery, yields and productivity will be handled in operations and as well as the daily sales management job will be handled in the sales company by the sales company manager. So there will be interdependencies. But I would say from an ownership point of view, the strategic direction of our businesses will be made in the divisions by the divisional management team and certainly the business unit managers has a strong say in that.
So there will be basically 12 different business unit managers talking to the operations division manager to try to adapt manufacturing etcetera and the cost side in the operations division? Because I find
it a bit tricky to understand how this will work. I understand and to some degree within the frame of a press release and a quick Q and A, it's difficult to give you the full light of how the organization will be in all of the aspects. But let me just say like this, my without going into extreme detail, my expectations is that in a couple, let's say, there will probably be some divisions that do not have any manufacturing whatsoever because they are engineering based. So you may find 1 or even 2 of those. You will find some business sorry, on business unit level, you will find some business units, which are actually already in control in the line of their operations.
And I use Fromo again as an example. Fromo is running its own production where we have engineering businesses where we make to order based on specific sales processes with engineers designing unique products for unique customers, we tend to have operations in the full business line of the business unit. So take some of those business units aside and say they run actually the full scale of the business today and they will do so tomorrow, but more explicitly than we've been about it before. And then we will have some areas where we share products. I mentioned HSS to a degree we do that for plated heat exchangers, although it is on the margin when it comes to the bulk volumes.
There I anticipate that the operations managers for HSS will form part of a business unit management team as well. It doesn't mean that the business unit management team necessarily needs to deal with all of the functional challenges of our operations managers. But when it comes to where do we need to be in the next couple of years, how do we manage the fact that we're having a new generation of products coming in, what cost targets do we need to meet in the next couple of years, what our volume forecast that we are thinking about the coming years, we can tighten the interaction compared to how we have it today. So I don't think operation managers need to coordinate 12 interactions, but we will get it a bit tighter than it has been in the past when it comes to how we align operations with our businesses. Okay.
And
then secondly,
from the press release, it sounds like you already are of the view that you have to be more selective in terms of market and application presence and that you should target fewer areas with clear growth opportunities. So when you look at your business, I'm sorry about this, it's a fire alarm, but when you look at your businesses, how large part of the business would you say is in low growth environment where you don't see this kind of growth opportunities?
From understanding your question, I would say certainly, if anything, it's on the tail. And whereas the predominant positions, if you look at the invoicing structure of our group when it comes to our main businesses in energy, in food and in marine, certainly it's core. So we are talking when asking the question that way we're talking about the tail, asking about how we focus out in the market companies when it comes to what's our real opportunities versus the small, I think we will find a better operational day to day focus which will vary between markets. So you may not see it on an overall picture, but we will see it as how we allow our organization to focus on the real opportunities as opposed to the marginal business in each of the markets.
That's perfect. Thank you very much.
Thank you.
Thank you. The next question comes from the line of Daniel Smith. Please ask your question.
I think we touched upon it in the previous question, but sort of dissolving the organizational complexity and making Alpha faster and speedier, Is that sort of with these 12 business unit managers, is that translating in to sort of more power further out in the organization? Is that correctly understood?
That is 100% correct.
Is that in any way sort of contradicting with what you said in terms of concentrating strategic decision making further up in the organization or is am I taking it the wrong way?
I would express it like this. We have had a tendency to delegate. I'm not weighing my words on very carefully here. But if you take it for the big scheme, I feel we have been delegating strategic decisions too far out and concentrated operational decisions and we're going to do exactly the reverse. Even if you take the core strategic decisions to a degree on a divisional level and to a degree on the business unit level, a lot of the operational responsibility for making the course, making the decision, being accountable and going for it, That's where we struggled in the past.
So I certainly don't see this as a centralization effort at all. I don't think that's how anybody will perceive it. That will I think on the contrary, there will be some people who will wake up a little bit sweaty in the morning and say, it's up to me. And that's how I like it.
Yes. All right. Good. Thank you.
Thank you. Your next question comes from the line of Denise Molina. Please ask your question.
Hi, good morning. Thanks so much for the call and the update. Just wanted to touch back, I think we've talked about this a lot, but just one more question on the selectivity of your investments and thinking about the short term opportunity in food, which you mentioned, and I know that's more than a short term opportunity. But I'm just wondering if you're thinking about your investments going forward is focusing more on that sector. And if you think that you have some catch up to do in terms of product or if you're thinking about development in terms of getting ahead of the competition in terms of product offering?
Let me start with the last question. I think you will see a little bit of both. As always, when you play a big portfolio with a big product groups, there are some areas where you say, well, maybe we should have been a few years earlier and there are others where you just run a long term product plan. So I'm not desperate about where we are there. I think it's just important that we're very clear what we're going to do and are clear on the priorities as opposed to doing a bit all over the place.
So that's the language around that. When it comes to our investments, I assume you think about M and A. And on the M and A side, I think it's important to say that we have over a period of time built platforms, certainly one and obviously is in the marine, but we also done a lot of acquisitions in the oil and gas sector, complementing our product offering, not the least into the drilling side. We see some tough times in these areas, but we will stand by those in a very clear way. You shouldn't go into these businesses unless you realize that there has volatility.
And consequently, that's what we're going to do. But I think to a large degree, we feel that we have fully competitive broad based offerings in these sectors. So from that point of view, I think it's natural to assume that the mix, I would assume would gravitate a bit more into food personal care and water based applications, not because of a refocus, but because we have opportunistically been able to acquire a number of companies in the earlier mentioned area. So I think as direction that's what I expect. And then as you know, there is always an element of timing and when the lead that is interesting come up.
So there is not a no go on anything that is outside of food by any means. But if I would if I was able to do the deals in the right order that I wanted to irrespective of sellers, you will probably see a bit more food based acquisition strategy, yes.
Great. Thank you very much.
Thank you. Your next question comes from the line of Nathalie Voelkmann. Please ask your question.
Tom and Thomas, thank you so much for updating us. I have a couple of questions. You, Tom, mentioned that you have looked at different markets, your underlying markets. Would you be able to ask you to share with us what how you see the underlying growth in your food and sanitary market?
That is I don't think so. But maybe Thomas just as an indication could you give some comments in terms of what we said in Q2 when it comes to the ongoing growth of the sanitary business and
Well, I mean, if we look at the performance in the first half of the year, we've seen a very strong performance in the sanitary segments, very much thanks to our colleagues in Tetra Pak, who seem to have a very good run-in their dairy and liquid food businesses. And then if we look at our food segment in PTD, we've seen a pretty good development in fats and oils or vegetable oil as well as in breweries. So there we have the main application areas and they've developed, I would say, particularly when it comes to dairy and liquid food, very, very strong. And we've seen that and you've seen that in the sanitary segment development.
Okay. I guess you'll maybe provide some more guidance on the food and sanitary areas that you will focus on going forward by November, hopefully. But I have another question. You touched upon product strategies. Have you looked at your pricing strategies?
Do you have any opinion on pricing?
I find the question maybe a bit broad to tackle here. There is not one question on pricing. There are a lot of them depending on products and segments and where we want to go. But I don't think you have a reason to expect enormous changes when it comes to pricing as let's say one of the inputs to the overall group performance at this point in time.
Okay. Thank you. And just the last one. You mentioned and people ask you, of course, about the selectivity and more focus on markets and applications and about acquisitions potential. Do you but as I understand it, you'll stand by all the areas that you have today in your portfolio.
So any disposals will be not really on the agenda?
I'm saying everything is on the agenda. Decisions have not been taken.
Okay. Thank you very much, Joao.
Thank you. There are no further questions at this time. Please continue.
Okay. So with that, thank you very much for calling in. Again, apologies for starting a bit late, but we kept it at an hour, I think. So thank you very much. And if not before, we look forward to talk to you again at the Q3 report.
Thank you very much.
That does conclude our conference for today. Thank you for participating. You may all disconnect.