Welcome to the Alfa Laval Q1 Earnings 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 this conference is being recorded today, Thursday 23rd April 2015. And I'd now like to hand the conference over to your first speaker today Lars Renstrom.
Please go ahead sir.
Thank you very much and good afternoon and most welcome to our presentation. I will start by highlighting 3 matters. Firstly, both sales and operating result reached new record levels for the Q1. Sales increased by 38% to €9,100,000,000 and the operating result of €1,600,000,000 meant an increase of 48% compared to previous year. Secondly, order intake in the Marine and Diesel division exceeded our expectations with strong bookings for LNG carriers and offshore oil and gas vessels.
And finally, the order intake reached €9,800,000,000 where revaluation of the backlog contributed with $400,000,000 The balance of $9,400,000,000 is what our outlook refers to. Let's move on. Since I basically covered the key figures already, we move straight to the orders received and margins. And there you see that orders received on rolling 12 months reached €39,000,000,000 and the increase year on year was 19% at constant exchange rates. Next slide.
From the order analysis, you find that Frank Moon contributed with 22% and organically we declined 3.8%. Currency effects were 13%, giving a total of 32%. Sequentially, the organic development was minus 10% and we had positive currency effects of 4%, giving a total of minus 6%. However, when we adjust for the revaluation of the backlog in the last two quarters, the organic decline sequentially is 3% instead of 10%. Moving on, we see that the EBITA margin reached 17.3 percent and the operating result of SEK1.6 billion was by far the best first quarter ever.
Now we move over to the highlights in the quarter. There you see that in Process Technology, we booked several large orders for natural gas plants and energy efficiency in the process industries. From Moving on to the development per segment. We had 4% negative organic growth year on year in the quarter. You see that all segments in equipment and marine and diesel were unchanged or grew.
Hence, the negative organic growth came from Process Technology, which was significantly affected by the lower oil price and non repeat large orders. Let's move on and take a look at the development per division. And now all comments are sequential. We start with equipment that declined 3%. Industrial Equipment saw lower demand in HVAC and Industrial Ref.
Sanitary saw positive demand from food, beverage and personal care, while both dairy and pharma declined. OEM was affected by lower demand from air conditioning and heat pump manufacturers. We move over to Marine and Diesel. Here I want to point out that excluding the revaluation of the backlog orders actually grew. Equipment was slightly up as environmental products offset lower demand for equipment for new ships.
Marine and Offshore Systems saw lower demand for exhaust gas cleaning, while marine boilers rose. Pumping systems was unchanged as fewer new marine orders were offset by 2 large offshore orders. And finally, service declined due to lower activity for repair and upgrading. Let's move on to Process Technology. Energy and Process was affected by up and midstream customers reining in spending due to lower oil prices.
Refinery and petrochemical customers meanwhile entered into a wait and see mode for new investments. Food and Life Science saw fewer large orders, while base business was unchanged. And service overall was unchanged, while service in refinery and petrochemicals grew significantly. Now we move on to the geographical developments. And you see that year on year Asia and Nordic stands out boosted by traditional marine and the acquisition of Framo.
And we are pleased to see that the optimism after the elections in India starts to generate orders. North America grew 11%, mainly thanks to large orders in oil and gas and refinery. Central and Eastern Europe and Western Europe are basically unchanged. And in Latin America, we see a decline mainly due to the challenges that the Brazilian economy is facing and lower commodity prices. Let's take a look at the regions and now all comments are sequential.
China was affected by a somewhat slower business climate. Business base business was however unchanged. The slowdown in China affected the Asian export economies, while lower oil and gas prices caused delays in placement of large orders. South Korea and Japan benefited from good demand from marine. Moving over to Europe.
Western Europe was affected by a non repeat record size order. Base Business and Service was unchanged. NOLIC was boosted by an offshore oil and gas order. Russian customers' difficulties in securing financing led to a drop in large orders, whereas Turkey had a record quarter with strong base business. Moving over to the Americas.
The U. S. Decline affected by the non repeat of a large exhaust gas cleaning order as well as a decline in OEM, while Canada was unchanged. Industrial Equipment, Energy and Process and Water and Waste did well and service had positive developments. In Latin America, Brazil declined mainly due to non repeats, but also as a result of the slower business climate.
Argentina and region Colombia, Panama, Venezuela performed well. Moving over to the next slide, our top 10 markets in 2014 and how they have developed in the Q1. There you see that the U. S. Strengthened its number one position, thanks to currency effects.
China, South Korea and Nordic all benefited from strong order intake in Marine and the acquisition of Framon. Mid Europe's positive development reflects the strength of the German economy. In Japan, Marine and the acquisition of Ramo gave a boost. What is remarkable with this diagram is that Russia and Brazil have been displaced by Japan and the U. K.
This is the first time in many years that only one BRIC country is on the top ten charts. And now I hand over to Thomas for the highlights.
Okay. Good afternoon all of you. So let's get into the details of the P and L and the cash flows and so on. Let me jump right into sales. Remember after quarter 4, I commented that we expect that sales will decrease in quarter 1 compared to quarter 4 in accordance with a known seasonal pattern.
That as you have seen did materialize. In comparison with quarter 4, sales was down 19 percent before currency effects. Frank Mone contributed with $1,400,000,000 in the quarter. We were not surprising correct in our expectations. In the quarter, we realized sales of €9,100,000,000 an increase excluding currency effects of 24% year on year of which the organic element was about 2.5 Looking at service, the service activities represented 27.6 percent.
That is to be compared with a high of 29.2% last year quarter 1 and 26.2% in quarter 4. That is to say causing an adverse mix effect year on year and with a positive mix effect sequentially. Let me then deliver the first forward looking statement. We expect that sales will increase slightly in quarter 2 compared to quarter 1. Let's then get into gross profit margin on the next slide.
Gross profit margin for the quarter ended 36.7%, representing a decline of 2.7% year on year and an increase of 2.4% sequentially. I would argue that we have delivered as predicted after the quarter for report. But let's move on to the next slide to get into some further details. Again, to begin with, let me remind you what I said with the quarter 4 report. I said, in the near term, we expect gross profit margin to get a positive influence from pricemix as invoicing is expected to decline sequentially and as a consequence improve the mix.
In addition, I would like to point out that the PRAMA backlog revaluation will have a certain adverse effect on gross profit margin during the course of 2015 as there is still hedging of revenues in place. The actual for quarter 1 came out as expected I would argue in all respects. Sequentially gross profit margin was positively influenced by mix between capital sales and service as well as transaction FX effects. In this slide, I give you an indication of the magnitude as well as the direction of the various main factors influencing gross profit margin. Let me then get to the second forward looking negatively influenced by a somewhat increased invoicing and as a consequence of worse mix.
In addition, we see a risk of an adverse impact from load and we expect a continued positive and reinforced impact from FX transaction. With that, let's move on to the highlights slide and look at overheads and other elements of the P and L. R and D ended at €190,000,000 in the quarter, which is a reduction year on year like for like of just over 7%. In percent of sales, R and D only represented 2.1% as opposed to 2.8% a year ago. The explanation for this relatively low level is twofold.
Firstly, the savings program that we initiated towards the end of last year and secondly, the phasing of individual development projects. S and A amounted to €1,440,000,000 in the quarter. That in turn represented a reduction like for like year on year of 0.7%. Sequentially, it was actually a reduction of 8.3%. To summarize, the savings program continues to generate the promised results as far as sales and admin is concerned.
Other cost and income came out with a bigger negative this quarter than a year ago. In addition to normal variations between quarters, we have had some additional costs for changes in the equipment division. I will be coming back to that in a minute. We had positive FX effects totaling €148,000,000 towards EBITDA as predicted including a positive transaction. Profit before tax €1,260,000,000 compared to just under €800,000,000 a year ago.
Of course, an increase very much influenced by the acquisition of Framo. Before I leave the P and L, taxes ended with a charge of just over €400,000,000 €401,000,000 to be exact. This is above our guidance in percentage terms and has to do with certain nondeductible charges and also phasing of withholding taxes on dividends coming out of China. However, we maintained a 28% guidance, 28% on profit before tax as our tax charges. For EPS up 53% year on year and excluding step up an increase of almost 60%.
Return on capital and return on equity are of course impacted by the acquisition of Ramo. And as the numbers are not presented pro form a, they are even more so influenced. Still, we consider the levels attractive at 20.5% 18.9% respectively. Let's then move on to the divisional performance and I'll give you a few short comments on operating profit and margin by division. To start off, equipment came out below quarter 4 as well as quarter 1 of last year.
In comparison, the decline in operating margin is explained by a lower volume and effects of restructuring of our products with regard to supply chain as well as distribution. That is to say, we've taken charges in the month kicking in on other costs relating to distribution And we have some limited delays in the supply chain affecting equipment as well. This has been partly offset by positive FX and a lower R and D charge. For Process Technology, operating income was lower compared to quarter 1 of last year due to a decline in volume, average price mix partly compensated by positive FX. Finally, Marine was benefiting from positive FX effects and the sales increased partly thanks to Framo.
This has been partly offset by higher cost and the year on year increase in step up amortization again following from the Framo acquisition. Before I finish off on divisional performance, let me add a few comments. As some of you may be concerned about the swings in EBIT margins in the divisions, let me repeat some comments that we've made on earlier occasions. We will also going forward have swings in the divisions because of variations in load in the various supply chains. These swings will have varying effect on the different divisions.
Secondly, we will also continue to have variations on the basis of the mix in sales and that is particularly in the Process Technology and Marine divisions. And then thirdly, marine must be considered being at the higher end of its cycle in terms of sales right now and that is likely to remain still for some quarters to come. With that, let's move on to talk about the cash flow statement. Cash flow from operations amounted to €1,100,000,000 an increase of 86% year on year. The explanation is of course the increase in sales very much supported by Framo.
If we look at taxes and working capital, the 2 other main items, they came out almost exactly as they did a year ago. CapEx, regular CapEx is somewhat lower than a year ago more to do with phasing and that of course contributed to cash flow in the quarter. And then finally financial net paid was negative with €126,000,000 against the positive of €97,000,000 basically to do with FX variations. To summarize, free cash flow was almost €900,000,000 compared to €560,000,000 a year ago. And to summarize that in short sales increased Frank Mone, of course, delivered this substantial increase.
Then next subject, FX. As I just mentioned EBITA had positive effects of totally 148 €1,000,000 in the quarter, of course, primarily to do with the strengthening of the U. S. Dollar. And as you can see, it's starting to generate meaning full transaction based benefits.
We've also updated our full year forecast for this year. We've used the rates specified on the slide for open transaction exposures for the main currency pairs. And of course, we've applied closing rates as per end of March for calculating the translation effects. On that basis, we've arrived at the forecast for the full year of 5 €45,000,000 almost a doubling compared to the forecast of quarter 4. Of course, very much to do with the strengthening of the dollar and also the fact that we are getting a better visibility of the FX in front of year on year in the second half of twenty fifteen against 2014.
We've also included an indication of possible transaction effects in 2016 applying current rates and the current hedging status. We've arrived at a number of a positive €450,000,000 Jan is concerned. Then move on to the backlog. We had a total order backlog for end of March of $24,300,000,000 representing about 7.5 months of LTM sales. For shipments in 2015, we have a backlog amounting to 15,700,000,000 I think to be considered for the whole year 2015 sales should be noted that on a like for like basis, the order backlog as per end of 2014 for shipments in 2015 was about $1,000,000,000 higher compared to the situation at the end of 2013.
Having said that, let's move on to the bridge when it comes to sales whole year 2014 to whole year 2015. As I just said, the backlog going in to the year for shipment was about €1,000,000,000 higher than a year ago. So that provided an opportunity to increase sales, everything else the same of €1,000,000,000 Based on the closing exchange rates as per end of March, we now dollars after the quarter four report. And then finally, when it comes to the known parameters, additional sales from francmohan of €1,600,000,000 in 2015. That means Frank Mone sales for the full year 2015 is expected to amount to $5,400,000,000 This gives you a total for the known parameters of €39,500,000,000 As always, it's up to you to form an opinion about demand and price and their implications on sales.
As for demand, however, I would like to remind you of the decline that we've seen since quite some time in particularly oil and gas. That is excluding large contracts. That is excluding large contracts. This will have an impact on sales this year. With regard to prices, you remember what I've said on many instances before.
We've only made small adjustments to prices for standard products at the beginning of 2015. With that, I hand back to Lars for the outlook and closing remarks.
And the outlook is as follows. We expect that demand during the second quarter will be somewhat lower than in the first quarter. And please note that our reference point is €9,400,000,000 And for each division, our demand expectations for the Q2 is as follows compared to the Q1. Process Technology, unchanged. Equipment, somewhat higher, thanks to seasonality.
And finally, marine and diesel lower due to lower contracting at the yards during 2014 and that we compare with a very strong Q1 that landed sizable offshore and LNG orders. And that completes our presentation. And now we hand over to the operator for the Q and A session. Is the operator there?
Thank Your first question comes from the line of Max Yates from Credit Suisse. Please ask your question.
Hi, good morning. Two questions from me please. Firstly, you give us an update on the cost savings and also whether given any end market dynamics you may feel the need to do more? And secondly, just within Process Technology, obviously, year on year there was quite a material decline in profitability. Could you go into the mix dynamics into that division in a bit more detail and also confirm that the pricing there hasn't turned negative?
Thank you.
Hi, Max. Just which division were you referring to in your second question? The Process Technology. Well, let's take your first question first. When it comes to the savings program, as you do see from the sales and admin line as well as the R and D line, we do have at least the projected effects when it comes to those aspects of the savings program.
As far as closing of the manufacturing plants in Olboe, in Afton, in Groningen, in Qingdao that is progressing according to plan and we'll be generating the kind of savings that we anticipate. As far as the risk for further worsening load as I alluded to in my projection on gross profit margin. Of course, there is a continuous and ongoing adjustment of capacity as far as direct and indirect staff is concerned. So that is monitored on a weekly basis according to what we see as far as orders received and RFQs are concerned. When it comes to PTD and the margin performance in the quarter, As I mentioned, there was an adverse volume impact hitting the absolute result as well as not least the operating margin in Process Technology.
And then having to do with the revenues recognized on the capital sales side in Process Technology being negative. That was those were the 2 main factors. And then of course there was a positive FX. If we look at last year, I would like to remind you that we had sizable swings between the quarters also through last year moving between 14% and 17% plus. So this is again evidence of one of the comments that I made before because of variations in load in the various supply chains, which hits the divisions to different degrees as well as the mix of sales that we recognize that will have has had and will
you look in your most recent annual report, I think your exposure to the U. S. Dollar, your net long position on the U. S. Dollar has gone up quite considerably.
I think if you look at the sort of U. S. Dollar spot rates and multiply that out, it implies a sort of tailwind materially bigger than the €450,000,000 that you've given for 2016. What's holding that back? Is it and how does sort of hedging play out this year?
If you could go into a bit of detail about that please?
Yes. Well, remember that we are hedging 12 months forward and then you say well then you shouldn't have the full effect during 2016. But remember we have also hedging for contracts that are only delivered even later. So there is a delay over a longer period than 12 months. And this is still our best estimate when it comes to FX effects at this juncture.
And of course, you have to look at the combination of €275,000,000 €450,000,000 for the 2 years combined. That makes up quite a handsome number, euros 725,000,000.
Thank you very much.
Thank you. Next question comes from the line of Lars Brorson from Barclays. Please ask your
please and understand the divisional outlook for marine and diesel? I know obviously order intake here is lumpy, but I wonder whether you could help us to try and quantify the outlook. Obviously, this is not now somewhat lower. It's rather lower. I wonder whether you can talk a little bit about what kind of increments we're talking about as you move from unchanged to slightly lower to lower.
And then also more generally for the demand outlook for the group somewhat lower from a base number of 9.4%. On the basis that seasonality adds about €300,000,000 or so sequentially in FX another €300,000,000 is the base number here more something that looks like €8,800,000,000 8.9 Or how should we adjust again for seasonality and FX in terms of your outlook? Thanks.
When it comes to marine and diesel, you are right. We're saying lower. We're not saying somewhat lower and lower is more than somewhat lower. So that's I think the answer to the first question. The second one is on a group level.
Again, we are telling you that we believe in a demand and as a follow on from that orders received somewhat lower from a base point of 9 point €4,000,000,000 And that is on the basis of that very absolute number, we believe on somewhat lower. So everything has been taken into consideration. That is our absolutely best assessment at this juncture.
Thanks Thomas. Just to be clear, am I right in saying seasonality in equipment normally provides sequentially some €250,000,000 to €300,000,000 And am I also right in saying that FX at this point given spot rate should add another €250,000,000 to €300,000,000 sequentially on your order intake?
I leave it to you to make your assessment and make your forecast. We have a basis of €9,400,000,000 and we believe that demand will be somewhat lower in quarter 2 than in quarter 1.
Thanks. Can I finally just ask to your divisional performance slide on slide 26? Thanks for giving the quarterly commentary there or the divisional commentary rather. That's helpful. It's obviously year over year commentary.
I was a little bit surprised to see a negative impact on restructuring and equipment. Can you help us understand what the cost related to that is? And whether on a net basis again, I'm trying to square that with cost savings coming through from your program from Q3 last year on a net basis what the impact is from restructuring equipment? Thanks.
Well, guys now I will give all of you a bit more of detail. There is an additional charge for adjusting the distribution of our products to the tune of well in excess of SEK 10,000,000. So that's a 1 off hit in equipment in quarter 1.
Thanks.
Thank you. Next question comes from the line of Andreas Koski of Deutsche Bank. Please ask your question.
Yes. Hi. Thanks for taking my question. Two questions on marine and diesel firstly. On environmental products, you're saying in the report that increased demand for environmental solutions offset the lower demand for equipment.
Is it mainly ballast water treatment systems? And how many orders did you have for ballast water treatment systems in terms of absolute value? And also have you started to see demand also coming from the retrofit market? Or are you still only delivered to new buildings?
Well, when it comes to the environmental products, we saw a good demand both for bilge water. And when it comes to ballast water, we are now seeing that we get we are starting to get requests for quotations for retrofits. So it's very obvious that the ship owners are sincerely looking at significant retrofit programs.
And to be more exact on the ballast water treatment product, we had actually a bit more than a doubling of last year's number. We're looking at some SEK 45,000,000 of orders for those products in the quarter. So it's a bit more than a doubling compared to last year.
Perfect. Thanks. And then the second question on marine and diesel. You're now guiding for lower demand in the Q2. If that comes through, would you say that your demand in Q2 would reflect the current order intake level of vessels?
Yes. Well, you know that there is a delay in order intake. Yes, I know.
But we've seen very weak orders for a long time now. So maybe we should start to reflect the current order intake.
Yes. But you can say we can we also have to look at, of course, at the ship mix. And so it's not just to count the ships. But of course
Well, we saw a bit of a decline 2014 over 2013. And if you look at the forecast for 2015, there is a further decline in contracting according to Clarksons. But of course, we are starting to see the effects of the decline in contracting that started to happen say mid last year. That is starting to hit from the beginning of this year.
Yes. Okay. So not really reflecting the current level yet? No. No.
That is my assumption.
No. As Lars said, there is a lag and there is an assumption for a continued limited reduction in contracting of course there will be a further decline as far as we're concerned.
May I also ask on FX your 2016 guidance? Is that based on your estimated transaction exposure in 2015? Or do you make an assessment also what kind of transaction exposure you will have in 2016 when you do your forecast or guidance for 2016?
It is on the basis of the exposures that we see at this point. So to the extent that we have a decline in volume or an increase in volume of course that will have an impact on the size of the transaction effects. Okay. Thank you very much.
Thank you. Next question comes from the line of Peter Froelen from Handelsbanken. Please ask your question.
Yes. Thank you. Good afternoon Lars, good afternoon Thomas. A couple of small one if I may. The North American order activity was down 5% sequentially.
Could you please help us with the number if we try to isolate the oil and gas business in the U. S. Maybe it will if it's a couple of times on the minus 5 or in line and so forth? Secondly, I heard something about seasonality before, but could you please help us to understand sort of normal seasonality in this business in terms of orders, a couple of percent better in Q2 than Q1? Is that normal?
Although, of course, it is lumpy. My final question, sorry about this, would be on the margin in PTD. It was quite a large bridge. And I heard what you said, Thomas, about the lumpiness. Is it possible to quantify the volume and the price mix effect in that bridge please?
Well, if we take the U. S. To start with, its base business was unchanged.
For oil and gas?
Well, for the total.
Okay. I thought to get the U. S. Oil and gas orders, so how that was quarter on quarter?
I mean, it's I don't Good quarter. Let's see. No. Well, we are not able to We
can't give you the details
of U. S.
We can't give you the details. What we can say is that U. S. Overall base business was unchanged and it was down because we had a large exhaust gas cleaning order in the Q4 that didn't repeat in the first one. And then we had a decline in the OEM segment.
That is as far as we can go.
Okay. Thank you.
Then you were on to seasonality. And we are only referring to seasonality when it comes to the equipment division. Yes. And the reason for it is of course that HVAC related products district heating that sort of thing is typically in the Northern Hemisphere ordered in quarters 2 and 3 and delivered in quarter 3 and early quarter 4. So it is limited to equipment division.
And as a consequence, of course, it has a limited impact in percentage terms on the total of alfalfaol, a very limited impact. Of course, we're talking about percentages on something that is less of less than 10% on the total Alfa Laval scale. And then when it comes to Process Technology and Margin Development, I think we are providing a great deal of transparency and detail when it comes to the divisions with the details documented in our presentation. You have to accept that I don't want to get into discussing tens of percentages plus and minus in all of the divisions that will I think make us all a bit confused after some time. So this is as far as we're prepared to go.
I understand Thomas. But let me try with this one then. The margin drop in PTD was 4.5 percentage points or so. Is the effect larger on pricemix than on volume? [SPEAKER SEBASTIEN DE MONTESSUS:] Yes, it is.
Great. Thanks. Absolutely. Yes. Thank you.
I'll get back in line.
Thank you. Your next question comes from the line of Peter Testa from 1 Investments. Please ask your question.
Hi. Thanks very much. I was wondering on the equipment division. You noted that there was sort of an absence of large orders in a number of the parts of that division in this quarter. And I was wondering if you had any particular view on outlook on large orders in the equipment division based upon our Qs?
There are typically no large orders in the equipment division.
So you talked about the food sorry, maybe I was wrong part of the food in particular food and the food part of the business?
That's Process Technology. Process Technology, excuse me.
But inside the Process Technology business, the food and say non oil and gas, non marine parts of the company, which has been the focus of most of the call. Maybe look at the other parts. You talked about an absence of large orders.
Yes. And the character of the business is that it is lumpy. We get contracts in brewing. We get contracts in fats and oils. We get contracts in meat pie products, fish meal.
And sometimes we don't get or we get fewer large contracts. So it's the nature of the business. It is inevitably lumpy.
When looking at your RFQ flow, do you have a sense as to whether this has got more in the immediate future? Or is it unclear?
As far as the food segment is concerned, there is no difference compared to what it was like 2 or 3 months ago when we issued the quarter four report. And I would argue there is no difference compared to what we commented after the quarter 3 report even.
Okay. And then on one of your earlier comments, you talked about the load risk for Q2. I was wondering if you could give some sort of sense as to in which divisions and maybe also your opportunities to mitigate that that you're taking?
Well, remember that we have a common organization as far as manufacturing and logistics is concerned. If we look at the manufacturing, it is common for all of the 3 divisions. They take products from one division all of them. So depending on the weight of a certain selling division in a certain factory, it will have more or less of impact. Let's say we take welded heat exchangers then the Process Technology division carries heavyweight.
If you take brazed heat exchangers then the vast majority of variations is carried by equipment division, but it is spread across the divisions. And as I think I touched upon earlier, we are continuously on a weekly basis adjusting resources direct as well as indirect personnel and all other variable and semi variable costs. And that's happening on a continuous basis. And that is happening on top of the factory closures that we have initiated and that are well on the way at this juncture.
Right. Okay. And then my last question is just on pricing. You've highlighted pricing challenges in some parts of the business. Can you give a sense please as to how this is earning its way through I.
E. Are you already seeing that full effect of any pricing effects in the backlog coming through to sales now? Or is there any additional impact yet to come?
Well, as a general statement at this juncture, we do not have any sort of obvious and material difference to the situation 3 months ago as far as price pressure is concerned from customers. Lars, I don't know what you
No. We have seen no change in behavior when it comes to the competitive price pressure.
Not even in the oil and gas division where you've seen business or you've seen comments from other companies. No? Okay. No.
We cannot report that.
Okay.
Thank you. Thanks. Then we take the final question. Who gets the favor?
Thank you. Your next question comes from the line of Colin Gibson from HSBC. Please ask your question.
Thank you very much. Yeah, there you go. Just got in before the finishing line. Two questions if I can, if it's possible. The first question was I was just intrigued in the context of the slowdown in oil and gas.
Your Marine division saw new equipment sales holding up better than service, which I guess is a bit unusual. Normally in a cyclical downturn, you'd expect service to hold up better than new equipment. So I wonder whether you see that as just temporary blip if you like for Q1 and you would expect that to switch around as we go through the rest of the year or whether you see that Q1 trend as sustainable through the year in Marine? And I just wanted to also confirm, Thomas, your wording. I was trying to note down as quickly as I could.
But you talked about the outlook for Marine. You said Marine must be considered to be at the high end of its sales cycle right now. I'm reading my own notes, so it's possibly not quite what you said. And that will continue for some quarters. Are you saying that we don't see an immediate drop off in Marine, but we should nonetheless expect a drop off in Marine?
Am I interpreting that correctly or should I reinterpret that? Thank you.
Yes. Well, I can take the first part. This when it comes to service, we believe that we will see continued growth in service for the Marine and Diesel division. So we don't see the Q1 as being representative for 2015.
Then Collin, I'm happy to be able to confirm that you read your own notes correctly. I did say that Marine we must consider is at the higher end of its cycle. And we believe that that is to stay for still some quarters. And this is really the same as we have said in a different way earlier on. We've said that we do have a very sizable backlog in marine and we have a good level of load for the marine specific products as well as general products aimed for marine until basically mid-twenty 16.
But then of course in for out business will still may still impact and swings in service and so on. But a strong backlog until mid-twenty 16 that is really the basis for my statement.
Thanks very much, Thomas.
All right. Thank you very much. And thank you for attending our conference call and we wish you a continued good day. Thank you and goodbye.
This concludes our conference for today. Thank you for participating.