Welcome to the Alfa Laval Q1 earnings call. At this time, all participants are on a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time if you wish to ask a question, you will need to press star one on your telephone. I must advise you this conference is being recorded today, Thursday the 23rd of April, 2015. I would now like to hand the conference over to your first speaker today, Lars Renström. Please go ahead, sir.
Thank you very much, and good afternoon, and most welcome to our presentation. I will start by highlighting three matters. Firstly, both sales and operating results reached new record levels for a first quarter. Sales increased by 38% to SEK 9.1 billion, and the operating result of SEK 1.6 billion meant an increase of 48% compared to previous year. Secondly, order intake in the Marine & Diesel division exceeded our expectations, with strong bookings for LNG carriers and offshore oil and gas vessels. Finally, the order intake reached SEK 9.8 billion, where revaluation of the backlog contributed with SEK 0.4 billion. The balance of SEK 9.4 billion 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.
There you see that orders received on rolling 12 months reached SEK 39 billion, and the increase year-on-year was 19% at constant exchange rates. Next slide. From the order analysis, you find that Frank Mohn contributed with 22%, and organically, we declined 3.8%. Currency effects were 13%, giving a total of 32%. Sequentially, the organic development was -10%, and we had positive currency effects of 4%, giving a total of -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%, and the operating result of SEK 1.6 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. Pharma booked two large orders for pumping systems to offshore oil and gas. We booked eight exhaust gas cleaning systems for eight vessels. 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 & 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. 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 there and Pharma declined. OEM was affected by lower demand from air conditioning and heat pump manufacturers. We move over to Marine & 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 & 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. Service declined due to lower activity for repair and upgrading. Let's move on to Process Technology. Energy & 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. Service overall was unchanged, while service in refinery and petrochemicals grew significantly. We move on to the geographical developments. You see that year-on-year, Asia and Nordic stands out, boosted by traditional marine and the acquisition of Framo. 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. 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. 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. Nordic 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. declined, 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 & Process, and water and waste did well, and service had a positive development.
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 first quarter. 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 Framo. Mid-Europe's positive development reflects the strength of the German economy. In Japan, marine and the acquisition of Framo 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 10 chart. Now I hand over to Thomas for the highlights.
Good afternoon, all of you. Let's get into the details of the P&L and the cash flows and so on. Let me jump right into sales. Remember after quarter four, I commented that we expect that sales will decrease in quarter one compared to quarter four, in accordance with a known seasonal pattern. That, as you have seen, did materialize. In comparison with quarter four, sales was down 19% before currency effects. Frank Mohn contributed with SEK 1.4 billion in the quarter. We were not surprising, correct in our expectations. In the quarter, we realized sales of SEK 9.1 billion, an increase excluding currency effects of 24% year-on-year, of which the organic element was about two and a half. Looking at service, the service activities represented 27.6%. That is to be compared with a high of 29.2 last year, quarter one, and 26.2 in quarter four.
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 two compared to quarter one. 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 four report, but let's move on to the next slide to get into some further details. Again, to begin with, let me remind you of what I said with the quarter four report. I said, "In the near term, we expect gross profit margin to get a positive influence from price mix as invoicing is expected to decline sequentially, and as a consequence, improve the mix.
In addition, I would like to point out that the Framo 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 one 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 statement. In the near term, we expect gross profit margin to be negatively influenced by a somewhat increased invoicing, and as a consequence, a 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 highlight slide and look at overheads and other elements of the P&L. R&D ended at SEK 190 million in the quarter, which is a reduction year-on-year like-for-like of just over 7%. In percent of sales, R&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&A amounted to SEK 1.44 billion 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 costs 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 SEK 148 million towards EBITA, as predicted, including a positive transaction. Profit before tax, SEK 1.26 billion, compared to just under SEK 800 million a year ago. Of course, an increase very much influenced by the acquisition of Framo. Before I leave the P&L, taxes ended with a charge of just over SEK 400 million, SEK 401 to be exact.
This is above our guidance in percentage terms and has to do with certain non-deductible charges and also phasing of the withholding taxes on dividends coming out of China. However, we maintain the 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 Framo, and as the numbers are not presented pro forma, they are even more so influenced. Still, we consider the levels attractive at 20.5% and 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 four as well as quarter one 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. 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&D charge. For Process Technology, operating income was lower compared to quarter one of last year due to a decline in volume, adverse price mix, partly compensated by positive FX. Finally, Marine was benefiting from positive FX effects and the sales increase, 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. 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 SEK 1.1 billion, 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 two 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. Finally, financial net paid was negative with SEK 126 million against a positive of SEK 97 million, basically to do with FX variations. To summarize, free cash flow was almost SEK 0.9 billion compared to SEK 0.56 billion a year ago. To summarize that, in short, sales increase, Framo, of course, delivered this substantial increase. Next subject, FX.
As I just mentioned, EBITA had positive effects of totally SEK 148 million in the quarter, of course, primarily to do with the strengthening of the US dollar. As you can see, it's starting to generate meaningful transaction-based benefits. We've also updated our full-year forecast for this year. We've used the rate specified on the slide for open transaction exposures for the main currency pairs. Of course, we've applied closing rates as per end of March for calculating the translation effects. On that basis, we've arrived at a forecast for the full year of SEK 545 million, almost a doubling compared to the forecast after 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 effects in Framo year-on-year in the second half of 2015 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 SEK 450 million as is concerned. Move on to the backlog. We had a total order backlog for end of March of SEK 24.3 billion, representing about seven and a half months of LTM sales. For shipments in 2015, we have a backlog amounting to SEK 15.7 billion. 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 SEK 1 billion 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 into the year for shipment was about SEK 1 billion higher than a year ago, so that provided an opportunity to increase sales, everything else the same, of SEK 1 billion. Based on the closing exchange rates as per end of March, we now forecast translation that is up from SEK 1 billion after the Quarter 4 report. Finally, when it comes to the known parameters, additional sales from Frank Mohn of SEK 1.6 billion in 2015. That means Frank Mohn sales for the full year 2015 is expected to amount to SEK 5.4 billion. This gives you a total for the known parameters of SEK 39.5 billion. 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 particular oil and gas. 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.
The outlook is as follows. We expect that demand during the second quarter will be somewhat lower than in the first quarter. Please note that our reference point is SEK 9.4 billion. For each division, our demand expectations for the second quarter is as follows compared to the first quarter. Process Technology, unchanged. Equipment, somewhat higher, thanks to seasonality. Finally, Marine & Diesel, lower due to lower contracting at the yards during 2014, and that we compare with a very strong first quarter that landed sizable offshore and LNG orders. That completes our presentation. Now we hand over to the operator for the Q&A session. Is the operator there?
Thank you. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. 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, could you give us an update on the cost savings? Also whether, given any end market dynamics, you may feel the need to do more. Secondly, just within Process Technology, obviously year-over-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&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 Aalborg, in Asten, in Groningen, in Qingdao, that is progressing according to plan and will 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. 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. Having to do with the revenues recognized on the capital sales side in Process Technology being negative, those were the two main factors. 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 %. 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 has had and will continue to have impact on the margins also going forward.
Thank you. Maybe just one follow-up on the FX guidance. If you look in your most recent annual report, I think your exposure to the US dollar, your net long position on the US dollar, has gone up quite considerably.
Yes.
I think if you look at the sort of US dollar spot rates and multiply that out, it implies a sort of tailwind materially bigger than the SEK 450 million that you've given for 2016. What's holding that back? How does hedging play out this year? If you could go into a bit of detail about that, please.
Well, remember that we are hedging 12 months forward, then you say, "Well, you should have the full effect during 2016." Remember, we have also hedging for contracts that are only delivered even later. There is a delay over a longer period than 12 months. This is still our best estimate when it comes to FX effects at this juncture. Of course, you have to look at the combination of SEK 275 million and SEK 450 million for the two years combined. That makes up quite a handsome number, SEK 725 million.
Thank you very much.
Thank you. Next question comes to the line of Lars Brorsson from Barclays. Please ask your question.
Hi. Thank you very much. Good afternoon, Thomas. Good afternoon, Lars. Can I just get back to the demand outlook, please, and understand the divisional outlook for Marine & Diesel? I know obviously order intake here is lumpy. 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 about what kind of increments we're talking about as you move from unchanged to slightly lower to lower. 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 SEK 300 million or so sequentially in FX, another SEK 300 million. Is the base number here more something that looks like 8.8 or 8.9?
How should we adjust again for seasonality and FX in terms of your outlook? Thanks.
Yeah. When it comes to Marine & Diesel, you are right. We're saying lower. We're not saying somewhat lower, and lower is more than somewhat lower. 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 SEK 9.4 billion. That is on the basis of that very absolute number, we believe on somewhat lower. 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 SEK 250 million to SEK 300 million? Am I also right in saying that FX at this point, given spot rate, should add another SEK 250 million to SEK 300 million sequentially on your order intake?
I leave it to you to make your assessment and make your forecast. We have a basis of SEK 9.4 billion, we believe that demand will be somewhat lower in quarter two than in quarter one.
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 and 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 million. That's a one-off hit in equipment in quarter one.
Right. 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 & 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? How many orders did you have for ballast water treatment systems in terms of absolute value? Have you started to see demand also coming from the retrofit market, or you still only deliver to new building?
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 are starting to get requests for quotations for retrofits. It's very obvious that the ship owners are sincerely looking at significant retrofit programs.
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 million of orders for those products in the quarter. It's a bit more than a doubling compared to last year.
Perfect. Thanks. The second question on Marine & Diesel. You're now guiding for lower demand in the second quarter. If that comes through, would you say that your demand in Q2 would reflect the current order intake level of vessels?
Yeah, well, you know that there is a delay-
Yeah, I know
in order intake.
We've seen very weak orders for a long time now, so maybe we should start to reflect the current order intake.
Yeah, you can say we also have to look at, of course, at the ship mix. It's not just to count the ships, but of course.
Well, we saw a bit of a decline, 2014 over 2013. If you look at the forecast for 2015, there is a further decline in contracting, according to Clarksons. 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.
Yeah. Okay, not really reflecting the current level yet.
No.
It's 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.
Yeah. 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. 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.
Thank you very much.
Thank you. Next question comes from the line of Peder Frölén from Handelsbanken. Please ask your question
For oil and gas?
Well, for the total.
Okay. I thought to get the U.S. oil and gas orders, how that was quarter-on-quarter.
Yeah. Well, I mean, A quarter, let's see. No, we are not able.
We can't give 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 fourth quarter 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.
Yeah. You were on to seasonality, and we are only referring to seasonality when it comes to the equipment division.
Yeah.
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. It is limited to equipment division. As a consequence, of course, it has a limited impact in percentage terms on the total of Alfa Laval, a very limited impact.
We're talking about percentages on something that is less than 10% on the total Alfa Laval scale. 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 tenths of percentages, plus and minus, in all of the divisions. That will, I think, make us all a bit confused after some time. This is as far as we're prepared to go.
I understand, Thomas, let me try with this one then. The margin drop in PTD was 4.5 percentage points or so. Is the effect larger on price mix than on volume?
Yes, it is.
Great. Thanks.
Absolutely.
Yeah. Thank you. I get back in line.
Thank you. Your next question comes to the line of [Peder Prah] from One Investments. Please ask your question.
Hi. Thanks so much. I was wondering on the equipment division, you noted that there was an absence of large orders in a number of the parts of that division in this quarter. I was wondering if you had any particular view on outlook on large orders in the equipment division based upon RFQs.
There are typically no large orders in the equipment division.
You talked about the food-- Sorry, maybe I was wrong. The food in particular, the food part of the business.
That's Process Technology.
Process Technology, excuse me. Inside the Process Technology business, the food, let's 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. 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 byproducts, fish meal, and sometimes we don't get or we get fewer large contracts. It's the nature of the business. It is inevitably lumpy.
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 two or three months ago when we issued the quarter four report. I would argue there is no difference compared to what we commented after the quarter three report even.
Okay. 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 you're taking.
Remember that we have a common organization as far as bill of material procurement, manufacturing, and logistics is concerned. If we look at the manufacturing, it is common for all of the three divisions. They take products from one division, all of them. 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 heavy weight. If you take brazed heat exchangers, then the vast majority of variations is carried by equipment division. It is spread across the divisions. 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.
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. Then on a last question, just on pricing. You've highlighted the pricing challenges in some parts of the business. Can you give a sense, please, as to how this is earning its way through? Are you already seeing that full effect of any pricing effects in the backlog coming through to sales now? Or is there an 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 three 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.
No
comments from other companies? No? Okay. That's it.
No.
Okay.
We cannot report that.
Okay.
Thanks. We take the final question. Who gets the favor?
Thank you. Your next question comes to the line of Colin Gibson from HSBC. Please ask your question.
Thank you very much. Yeah, there you go. I 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. I wonder whether you see that as just a 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. I just wanted to also confirm, Thomas, your wording. I was trying to note down as quickly as I could.
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. That will continue for some quarters. Are you saying that we don't see an immediate drop-off in Marine, we should nonetheless expect a drop-off in Marine? Am I interpreting that correctly, or should I reinterpret that? Thank you.
Yeah. Well, I can take the first part. When it comes to service, we believe that we will see continued growth in service for the Marine & Diesel division. We don't see the first quarter as being representative for 2015.
Colin, 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 is to stay for still some quarters. 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-2016. Of course, in for out business may still impact on swings in service and so on. A strong backlog until mid-2016, that is really the basis for my statement.
Thanks very much, Thomas.
All right. Thank you very much. Thank you for attending our conference call, we wish you a continued good day. Thank you and goodbye.
That's all for today. Thank you for participating in our call. Disconnect.