Welcome to the Alfa Laval Q4 Earnings Call. At this time, all participants are in a listen only mode. I must advise you all that the call is being recorded today on Tuesday, February 3, 2015. And I shall now hand over to your first speaker for today, Lars Vanstrom. Please go ahead, sir.
Good morning and most welcome to our presentation. I will start by highlighting 3 matters. Firstly, both sales and operating results reached new record levels. Sales increased by 25 percent to SEK10.8 billion and the operating result of SEK1 point $94,000,000,000 means an increase of 37% compared to previous year. Secondly, the focus on service that was launched in 2013 continues to deliver results.
Organically, we grew 6% excluding currency effects and in total 25% compared to previous year. And finally, order intake reached $10,500,000,000 where revaluation of Frank Moon's backlog contributed with $1,000,000,000 The balance of $9,500,000,000 is what our outlook refers to. Let's move over to the key figures. Orders received rose 29% to 10,500,000,000 dollars Net sales grew 25 percent to 10,800,000,000 and adjusted EBITDA increased 37% to €1,940,000,000 and the adjusted EBITA margin reached 18%. For the whole year, orders received rose 21% to €36,700,000,000 Net sales increased 18% to $35,100,000,000 and the adjusted EBITDA grew 20% to €5,900,000,000 and the adjusted EBITA margin reached 16.8%.
Now I hand over to Thomas for comments regarding the integration of Frank Moon.
Good morning all of you. The integration of Frank Moun got into a new phase in quarter 4. That was particularly the case when it comes to the implementation of IAS and IFRS in the daily accounting as well as the regular reporting. The transfer from earlier accounting practices to IAS IFRS revealed a number of variations specified in some detail on the slide you have in front of you on the screen now. You find some of these details in the column from certain items in the slide.
To start off with, orders in foreign currency in the backlog were traditionally in franc mode not valued at current rates, but historical or hedged rates were applied. Applying current rates has led to a very substantial increase in orders and order backlog that will eventually be turned into sales. Only a small part of this revaluation was actually realized at sales in quarter 4 that is to say $50,000,000 Secondly, working capital items have traditionally not been revalued at closing rates after each reporting period. Adjustment again to customary practice of using closing rates has led to an adverse effect of some SEK89 million to gross profit. A number of other adjustments have given a positive effect to EBITA in quarter 4.
These other adjustments they've been reported as a positive net in other cost and income of €34,000,000 Then finally, I have to say that the hedging practices as Frank Mown have neither been consistent with effective hedge accounting as defined by IAS 39 nor have they been based on operational exposures to some degree. This has led to a substantial adverse effect to the financial net in quarter 4, a negative of €440,000,000 of which 200,000,000 they are still unrealized as per end of last year. It is important to note that these effects have largely arisen during quarter 4 as a consequence of the weakening of the Norwegian kroner against primarily the dollar and the yen. You see the effect of bringing things in line and consistent with IAS IFRS in the final Fromo is
as
a company at least as good Fromo is as a company at least as good as we thought when we made the acquisition. And with those comments, I give back to Lars for continuation of the presentation.
We move on to the next slide. The Board of Directors proposes an increase of the dividend with 7% to SEK 4. And now we move on to orders received and margins. Orders received on rolling 12 months reached SEK 36,700,000,000. Dollars The increase year on year was 22% at constant exchange rates.
If we deduct $1,000,000,000 corresponding to the revaluation of Frank Moon's backlog, then we reach $9,500,000,000 for the quarter, which should be compared to the previous record quarter of €9,700,000,000 Moving to the next slide. There we see from the order analysis that acquisitions contributed with 22% and the organic growth was up 0.7%. Currency effects were 6.7%, giving a total of 29%. Sequentially, the organic growth was 6% and we had positive currency effects of 2%, giving a total of 8%. Let's move over to the next slide.
There you see that the EBITA margin reached 18% and the operating result was over €1,94,000,000 was the best quarter ever. The previous record was set in the Q4 of 2,008 when we were in the boom before the financial crisis. Moving over to highlights in the quarter. It was a very good quarter for large orders and in total we booked SEK 780,000,000 exactly the same as in quarter 3. We had a good mix of end customer industries like oil and gas production both on and offshore, petrochemicals, power generation, pulp and paper and food.
In Marine and Diesel, we enjoyed a continued strong order intake for exhaust gas cleaning systems with 12 systems booked. And for the whole year, we booked 47 systems, which confirm our leading position and the competitiveness of our system. Now we continue with the Development Perch segment. We had 1% organic growth year on year in the quarter. And you see that all segments in Marine and Diesel grew or were unchanged, while it was a mixed picture in Process Technology and Equipment.
We are very pleased that the organic growth for Service in total was up 6%. Let's take a look at the development per division. And now all comments are sequential and we start with equipment. Industrial Equipment was down due to seasonality, while sanitary saw generally higher demand from food and pharmaceutical industries. OEM was lifted by a good demand from boiler and air conditioning manufacturers, while service was unchanged.
Let's move over to Marine and Diesel. Equipment declined mainly due to lower demand for environmental solutions, while demand for traditional products going into new ships was unchanged. Marine and Offshore Systems was boosted by exhaust gas cleaning systems and boilers for offshore. Pumping systems excluding backlog revaluation was down due to non repeats as well as weaker yard contracting. Service was up significantly as ship owners increased their maintenance activities.
Let's move to Process Technology. Energy and Process booked the group's largest order ever in oil and gas. Power, petrochemicals and refinery also did well. However, did oil and gas based business decline due to lower demand. Food and Life Science was up with good activity in protein, vegetable oil, brewery and life science.
Service declined somewhat affected by lower activity in Energy and Process. Next slide. For the whole year, you see that all marine and diesel segments have been growing. All equipment segments have been stable. While there is a mixed picture in process technology where we are very pleased with the growth in service.
Now we continue with the geographical developments. And you can see that year on year Asia stands out and is inflated by the backlog revaluation. Excluding that, Asia is still up 18%. Western Europe is boosted by the large oil and gas order of $290,000,000 The underlying business was unchanged. North America is up boosted by large orders in oil and gas and petrochemicals, while base business was unchanged.
We are very pleased that Center and Eastern Europe grew 5% on top of a very strong 2013. The other regions declined somewhat. Now we will take a look at the regions and now all comments are sequential. Excluding the backlog revaluation, orders were slightly lower mainly due to lower contracting at the yards earlier in the year. Marine offshore projects remained on a high level.
In Process Technology, both base business and large orders grew. Equipment was slightly down as continued weak construction industry affected industrial equipment. Now we move over to Europe. Western Europe and Nordic as a whole increased as both base business and large projects grew and Western Europe was boosted by the €290,000,000 order in oil and gas booked in the U. K.
K. We are very pleased that Central and Eastern Europe in Central and Eastern Europe both pace business and large orders grew contributing to the 40% growth with Russia being the main driver. Moving over to the Americas. Both U. S.
And Canada declined due to non repeat large orders and base business declined somewhat. Senator and Marine developed favorably. The strong growth in Latin America was driven by Brazil where a number of larger orders were won in the food and oil and gas industries. Base business across the region had a generally good development, thanks to food, dairy and marine customers. Next slide.
For the whole year, Asia stands out, thanks to the high demand from traditional marine and offshore. Frank Moon was also a major contributor to the growth. North America has grown 18% and we have had a generally good development in particular from oil and gas and the re industrialization of the process industry. The 11% growth in Western Europe comes from a number of large orders and exhaust gas cleaning. Central Eastern Europe has only declined 2% despite the political crisis around Ukraine.
In Latin America, the impact from lower raw material prices and internal problems at Petrobras caused a decline of 5%. And we move over to the next slide now. Here you see the top 10 markets in 2013 and how they have developed in 2014. The U. S.
Has had a generally good development supported by one acquisition. In China, where you see a significant growth, there we have had 2 years of solid broad based growth coming from our investments in increased local presence, topped up by strong demand from the shipyards. South Korea's boost came from strong demand from traditional marine and offshore industries. And here Frank Moon has been a major contributor. Russia and Brazil have declined and will be replaced by Japan and U.
K. Next quarter. And now I hand over to Thomas for the financials.
Okay. Thanks Lars. So let's move on to the next highlight slide directly and get on to the sales development. After quarter 3, we commented that we expect that sales will increase in quarter 4 compared to quarter 3 in accordance with the seasonal pattern. In the quarter, we realized sales of $10,800,000,000 an increase of 21 29% year on year with an organic increase of just under 1%.
In comparison with quarter 3, sales was up 16% a good 16% including an organic increase of 14.5%. The higher than I have to say the higher than expected outcome on sales came from 3 main elements: bigger shipments of boilers that is the Old Boy product family and pumping systems out of Fromo as well as somewhat bigger than expected FX translation effects not surprising. If we look at Frank Mon, they contributed with almost $1,500,000,000 of revenues in the quarter. Looking at sales, the service activities represented 26.2% of total revenues almost on the same level as in quarter 3 and an increase of just under 13% sequentially. Having said all this about sales, let me then deliver the first forward looking statement.
We expect that sales will decrease in quarter 1 compared to quarter 4 in accordance with I would argue a known seasonal pattern. Let's then move on to gross profit margin. In the quarter, gross profit margin ended 34.3%, representing a decline of 2% year on year and a decline of 1% sequentially. To start with, I would argue that the actual for quarter 4 came out largely as expected in all material respects thus for one element. Let's move on to the next slide and get into some more details.
With quarter 3, I said, in the near term we expect gross profit margin to get a limited positive influence from FX transaction effects. However, gross profit margin in quarter 4 will be adversely influenced by the seasonal increase in capital sales, No further adverse price mix effects within capital sales are expected. Again, as I just said, the actual for quarter 4 came out largely as expected in all material respects, but for one effects in pharma to the tune of 0.8% of sales on an Alfa Laval level. So basically all of the sequential decline is to do with the FX unrealized FX effects, the revaluation of working capital in trauma. For the rest on this slide, I've tried to show to you that we're only looking at none or very small variations sequentially as well as year on year including the small predicted positive transaction effects on FX.
Let me then wrap up with the 2nd forward looking statement. 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 I. E. More of the market relative to total sales. In addition and this is something that will be valid for the total year, I would like to point out that the promo backlog revaluation alone will have a certain adverse effect on gross profit margin during the course of 2015 as there is still hedging of revenues in place.
If we move on to the next slide, let's look at the development of overhead costs. R and D ended at 221,000,000 an increase year on year of 4.8%. I think I'd like to point out here that the whole year increase has gradually during the course of the year come down and ended 6.4% up on a like for like basis. In percent of sales R and D ended 2.3% as opposed to 2.4% in 2013. Then sales and admin $1,550,000,000 in the quarter representing a reduction like for like of 4.3% year on year.
Of course, this year on year reduction is the first evidence of the effectiveness of our savings program. With this reduction, we've undoubtedly delivered and only with this item, we've delivered the anticipated saving of $50,000,000 from the savings program in 2014. Then to other costs and income. These two items came out with a small positive net in the quarter EUR 19,000,000 to be exact. This is of course an anomaly.
We normally anticipate to come out at about €100,000,000 negative. This is thanks to among other the mentioned positive net from accounting adjustments plans in Holland and Sweden, partly to be considered as non recovery. If we just add up these three dollars and as well as the financial net was very much influenced by the FX charge of the €440,000,000 related to Fromo that I commented on initially. But before leaving the P and L, taxes ended with a charge of EUR266,000,000 in the quarter below our guidance. However, we maintain our guidance of 28% taxes or profit before tax.
And if you look at the full year outcome, we actually ended up 28%. EPS was up 5% year on year in the quarter. If I allow myself to exclude the FX charge of €440,000,000 in financial net on the basis that it is say non recurring, EPS would have been up approximately 40%. Return on capital employed and return on equity, they are of course both impacted by the acquisition and from particularly as the numbers are not presented pro form a. Moving on to the divisional performance just a few short comments on operating profit and margin by division.
Equipment came out above quarter 3 of 2014 and also better than quarter 4 of 2013. In relation to 20.13, the sales increase and reduced sales and admin gave a contribution partly offset by an increase in R and D. For Process Technology, operating income was up substantially compared to quarter 3 due to volume. Year on year operating income was down due to price mix and an increase in R and D, partly compensated by volume and FX. Marine finally was benefiting from the sales increase of course very much to do with Frank Mone and then offset by higher cost and not least the increase in step up amortization and again coming from the acquisition of Frommer.
Let's move on to cash flow then. To summarize cash flow, cash flow from operations amounted to 1 point $69,000,000,000 in the quarter and well above the year before and slightly above quarter 3. The contributor is of course the increase in sales, taxes paid being up and then a certain increase in working capital as a consequence of the increase in invoicing. Financial net paid is coming with a negative of €320,000,000 And of course, €240,000,000 has to do with the realized FX contracts in Framo. Free cash flow in the quarter $1,160,000,000 compared to $1,000,000,000 a year ago.
The sales increase in Frankfurt, of course, contributed. If we look at the full year, free cash flow was almost €4,100,000,000 dollars 450,000,000 more than in 20 13. So then a bit more about FX. We had positive effects of €97,000,000 in the quarter including a change to positive in transaction. We've of course updated our forecast for 2015.
We have applied the rates stated on the slide for euro dollar and euro sec for open transaction exposures. We've applied closing rates as of December for calculating translation. And on that basis, we estimate a positive €280,000,000 on EBITA level, €15,000,000 compared million on EBITA level EUR 15,000,000 compared to EUR 14,000,000. So quite a substantial positive if things stay where they are right now. Then order backlog.
We had a total order backlog per end of the year of $22,300,000,000 representing and that is including Frank Mown approximately 7.5 months of the last 12 months sales. Excluding Frank Mone about 6 plus months of LTM sales. But what is more important is that on a like for like basis, the order backlog to be shipped in the current year is about €1,000,000,000 above the end of December 2013. So an improvement in backlog year on year. Having said that, let's move on to the bridge for whole year's date 14 to 15.
Starting with €35,100,000,000 in 2014, The order backlog like for like provides an opportunity for an increase in sales of €1,000,000,000 in 20 15. FX translation, we estimate to be positive €1,000,000,000,015,000,000 over €14,000,000 And we estimate that Frank Mon will add €1,600,000,000 on top of the sales of €3,300,000,000 in 2014 giving total sales of €5,000,000,000 for Frank Mode in 2015. If I add it all up, there's a subtotal of €38,700,000,000 Then of course, as always, it's up to you to make up your minds when it comes to the unknowns. The orders coming in and shipped before year end, the orders in for out and then price effects. When it comes to prices, I can confirm that we made small adjustments to prices for standard products at the beginning of 2015.
That finalizes my presentation and I hand back to Lars for the outlook and the closing remarks.
And the outlook is as follows. And please note that our reference point is €9,500,000,000 dollars We expect that demand during the Q1 will be somewhat lower than in the Q4. And for each division, our demand expectations for the Q1 is as follows: Process Technology to decrease somewhat due to non repeat large orders Equipment somewhat lower and finally, Marine and Diesel to be unchanged. And that completes our presentation. And now we hand over to the operator for the Q and A session.
Thank you. The first question today comes from the line of Klas Bergland from City Research London. Please go ahead.
Yes. Hi, guys. It's Klas from Citi. Sorry to labor the point about oil and gas large, but I was just wanted to understand what happens here to your orders outside your direct exposure. I'm thinking about the scrubbers, the heat recovery systems.
I mean, obviously, you could argue that better fuels now become cheaper, which could be negative for scrubbers longer term. And the incentive to invest in heat recovery could go away here with the falling oil price. So are we seeing any weakness here as of yet? Or is this a potential issue further out?
Not at all. We do not see any weakening. On the contrary, when it comes to scrubbers, we had a very strong Q4 and we have a long very active tendering backlog. So we expect growth 2015 over 2014 when it comes to the scrubber systems. And when it comes to waste heat recovery, we see a continued high interest in those applications.
So no concern from our side when it comes to that. Okay.
And then my second question is really on ProcessTech in the service business. I think last time when you highlighted some sequential weakness it was due to lack of large repeats. It seems like you left that commentary out. You talk about the Energy Division potentially seeing some aftermarket pressures. Is that the case?
And is that sort of impacting the margin negatively?
You can see that we could see that in the 4th quarter base business and service declined for the parts addressing let's say for drilling, oil and gas drilling that was whereas when it came to large orders, it continued on a high level in the 3rd quarter.
Thank you.
Your next question today is from the line of Erik Karlsson. Please go ahead.
Hello. I had a question on the service business. I think you said service grew 5% organically in Q4 year on year. Looking forward, is there any reason to believe that wouldn't be sustainable thinking about the focus you have on this business and the increase we have seen in the installed base?
We expect continued growth in 2013 for service. We can see that when it comes to shipowners that there's been a higher activity when it comes to maintenance. So for some of the ship owners, the lower oil prices means better revenues. And where and that will and we have seen, as I said, some decline when it comes to service going into oil and gas drilling. But if we sum it all up, absolutely, we will see a continued positive development in 2015.
Thank you.
The next question today is from the line of Peter Frohnen from Handelsbanken. Please go ahead.
Yes. Thank you. Good morning, Lars. Good morning, Thomas. Thomas, you alluded to the savings program now have in record the expected effect.
What's still to be captured here from sort of the initiatives taken? And also, have you more initiatives ongoing? That's my first question. Thank you.
Hi, Pei Eduardo. Well, we stick to our plan. We realize the €50,000,000 as I alluded to. And of course, we expect to realize €150,000,000 during the course of 2015. And then as we get the effects of the factory closures, we expect another €100,000,000 in 2016 adding it up to the €300,000,000 of the total effect that we presented with the launch of the program.
Okay. Okay. So that's still valid. And you mentioned also the gross profit margin effect from the backlog revaluation affecting Q1 but also the entire 15%. Is this gradually diminishing?
Or is it sort of flattish over the year? And could you also help us understand the magnitude here? Thank you.
Yes. Well, you alluded to the backlog revaluation for the effect in 20 in quarter 4. The 0.8% adverse effect in quarter 4 has to do with revaluation of working capital items. And of course, if exchange rates stay about where they are today that will not reoccur. Going into 2015, the revaluation, the increase in the order backlog will mean that we, if you like, inflate the top line, but there is no corresponding or not the corresponding effect on gross profit as there is still hedging in place.
And that of course with a bigger denominator you will have a lower margin as a consequence.
Okay. I get back in line. Thank you.
The next
Firstly, Framo. I Firstly, Framo. I think as you said, Thomas, it has stronger revenues than you guided for us in the quarter, I think around SEK 300,000,000 better than you suggested at the Capital Markets Day. But just give us a sense and I know you won't give us the margin, but just what's the seasonality on Framo as we go through the year? Was Q4 particularly strong in terms of the margin so that, that extra SEK 300,000,000 of revenues would have had a disproportionate positive effect on group EBIT?
Or is it fairly flat? What's the profile? So I guess if we don't get that right, we just start extrapolating the wrong number? That's the first question. Thank you.
Honestly, we cannot see any seasonality in the business promo. This is simply a matter of delivery schedules to the shipyards. That's really what decides the level of revenue. Then of course to the extent we're looking at the offshore business, we're applying percentage of completion. And there of course you have a smooth revenue recognition.
There is no particular impact on in the margin as such in the gross profit margin in franc mode. But of course with bigger volumes there was a good drop through particularly considering the very low overhead levels you have in Frank Moen being very much a kind of OEM business, if you know what I mean.
Yes. No, so I was more getting at EBITA margin yet than gross margin.
Yes. So of course, a large amount of drop through,
the increment becomes quite
the level of the margin?
We are not specific as far as the operating margin in pharma is concerned. No. But an adverse growth effect, but the positive operating margin effect.
Great. Thank you. And then on the order intake for Framo, I mean, it looks like if you strip out the €1,000,000,000 of revaluation, the orders were about €730,000,000 in Framo for the quarter. So run rating €3,000,000,000 And you've guided €5,000,000,000 of sales I think for 2015. Was there anything exceptional in that order intake in Framo?
Are there any cancellations? That's the first question. And then if we if the Framo order rate carries on at this level, at what point would you expect revenues in Framo to start to be negatively affected? Thank you.
There were no cancellations in the order intake of Fromo. And the nature of the business in Fromo is very much project related. So there are big swings in the order intake between the quarters and they have a very solid backlog for 2015 2016.
Okay. So you need a prolonged period of order weakness for Framo revenues to start to be under pressure? Correct. Okay. Thank you.
And the next question today is from the line of Colin Gibson from HSBC. Please go
ahead. Hi, there. Good morning, everybody. A couple
of questions from my side, please. Both are on the regional comments. You talked about orders in Asia saying they were slightly lower on the effect from shipyard contracting. Obviously, we saw quite a lot of downside in shipyard contracting as we went through 2014. And I guess that would hit your order book as a Tier 2 supplier with a delay.
So should we expect declining orders for that same reason as we go through 2015 or at least the first half of twenty fifteen? That was my first question. And then my second question, please, again, a regional question. That was on Russia, where you were talking quite positively. And obviously, that's running counter to the flow of most things we hear about Russia nowadays.
So I'm just wondering, how you see the outlook for Russian business in 2015? Thank you.
When it comes to the order intake for Marine, we will see a somewhat lower level in 2015 compared to 2014 when it comes to capital sales. However, you should notice that we say in the outlook for the Q1, we expect the order intake to be unchanged between Q4 and Q1. So we see a good backlog of orders for the Q1. And when it comes to Russia, we had a very strong quarter in Russia and it's a very mixed picture. You can see that for customers that rely on public financing, there seems to be plenty of funds available.
For instance, if you take District Heating had a fantastic quarter, whereas it's a bit tougher for customers that rely on foreign financing. So for the full year, Russia came out significantly better than what we anticipated in the beginning of the year. However, we expect to see a decline for in Russia 2015 over 2014.
Okay. Thank
you. The next question today is from the line of Nick Wilson from BESI. Please go ahead.
Good morning. Two quick questions from me please. With apologies coming back to the gross margin, If I just want to recap maybe the 3 moving parts there. So potentially there's a price mix effect, which you said in the near term is a positive. Then we've got obviously the underlying FX effect, which at the Capital Markets Day looks like a positive impact on the gross margin.
And then offsetting that obviously is the Framo impact, which you've tried to outline. So I guess my very simplistic question is in the mix, in your view, do you think that gives you either higher or lower gross margin 15% on 14% just in terms of the scale? And then the second question on the cost savings. You've been very predictable and managed to achieve very nicely your Q4 expected savings. As you work through the program, is there any opportunity actually for the program to deliver slightly in excess of what you were expecting?
Or are you very much still sticking to just the €300,000,000 potential yield?
Thanks, Nick. Well, your first question on gross profit margin. I commented on one item that really was to do with the entire 2015 and that was the Frano order backlog revaluation that's in place the denominator. That's a negative as you rightly said. That was a comment for the full year 2015.
That will be valid for the whole year. Then quarter 1, you're right. We expect a positive effect from mix as we anticipate capital sales will go down sequentially. And of course, there is a positive transaction effect in FX as well. You see the magnitude for the full year on the slide.
So there are 2 positives and we expect them to happen in quarter 1. As far as the negative one, we will have an adverse effect throughout the year as it looks now. Then on the cost savings program, well, as you all know, we try to do our best and we try to do better all the time. But we cannot at this juncture promise that we will come out with a saving bigger than the 300,000,000 euros So, yes, that's my comments.
Thank you.
The next question today is from the line of Sven Wehr from UBS. Please go ahead.
Yes. Good morning, Thomas. Good morning, Lars. Just two housekeeping questions left. The first one is just on the EBIT impact of the Frank Mon revaluation and the pension.
So if I'm getting this right, you have a net negative impact on your adjusted EBIT of €9,000,000 because you said €80,000,000 for the pensions and the positive other operating costs and €89,000,000 for gross profit. So I guess net it's €9,000,000 And then I was just wondering if you could give us the full year sales and order intake number for francmont for last year. Thank you.
Okay. I wasn't quite sure if I understood you correctly on the EBIT impact of the other costs and income items. What I said was from accounting adjustments that did hit the other cost other income lines was a net positive of 34,000,000 euros In addition to that, we have further positive effects coming out of 2 pension plans in the Netherlands and in Sweden giving another say 45 about positive. That gives 3 items being positive to other cost and income. Starting with a net positive 2019, the €80,000,000 deducted then we're at negative €60,000,000 Of course, we still have some further positive effects compared to say a norm of a negative about €100,000,000 That's what I meant really.
And of course some of these elements they are to be considered nonrecurring. For instance, the Dutch pension plan issue.
I mean you said in the bridge that the negative impact from Brahma on EBIT was €55,000,000
I would 34,000,000 positive on other cost of income and negative €89,000,000 on gross profit.
But if I would subtract from the minus €55,000,000 to €45,000,000 46,000,000 from the pensions that would brings me to a net negative impact on EBIT of around Yes.
But now you're that's separate. It has nothing to do with pharma.
No. But I'm just trying to get my arms around about your overall one off effect and I arrive at I still arrive at minus 10% despite the pension plan benefit.
Yes. That's one way to look at it, Sven. I agree to that. Okay. Then full year sales EUR 3,300,000,000 for 2014.
And in my bridge, I said another EUR 1.6 €5,000,000,000 full year 2015, €3,300,000,000
and €5,000,000,000 And that was also the sales number for 2014 for Frama?
It was for 7.5 months, it was EUR 3.3
billion. But you won't provide us with the 12 month number?
Simply because I don't know it by heart Sven. I'm sorry. I can't give you I don't want to give you a number because I'm not totally sure and I want to provide you with the right data.
So the EUR 1,600,000,000 for this year from Frank Mon
is not just simply the pro rata share of last year. So it is really based on your specific backlog? It's based on our specific backlog and valued as per end of 2014. Okay. Understood.
Thank you.
The next question is from Max Yates from Credit Suisse. Please go ahead.
Hi, good morning. Just two more detail as to why that was so strong given organic growth didn't appear to pick up hugely? And the second question was just on the francmoan margins historically. If the order environment is getting a bit tougher as it is likely to do with marine getting a bit softer. Could you give us an idea of how the margins have performed historically in that business now you've spent more time looking through the numbers?
Thank you.
Yeah. Okay, Max. Well, when it comes to equipment, there was a sales increase that of course contributed. Equipment has done well when it comes to the savings program and then a slight increase in R and D. And of course equipment is putting a lot of focus in increasing its challenge to the market, making more use of e business and they put a lot of effort on service as losses as alluded to earlier on.
So that's really the combination of all of these effects that has given them a good result in the quarter. Then moving on to pharma. Remember that this business is as I commented before a kind of an OEM business. So a very, very low level of overhead. So of course a high level of drop through when you have good sales.
But then again eventually when sales goes down, of course, you have the opposite effect. I think it's very important to remember that the backlog today in frank mode will mean that there will not be any material impact to revenues even if there is a decline in orders received until I would say towards mid-twenty 16. As far as capital sales is concerned, the backlog for full year 2015 and well into 2016 is in the books today. So with no other changes, we are well taken care of. But the way that the company is set up very low level of overheads overheads and OEM business.
Okay. Maybe just one follow-up on that. Would you say if I looked at the sort of 7 or 8 year margin history of francmoan, at any point in that has the margin fallen below the Alfa Laval margin, the current Alfa Laval margin?
That is we have not seen that in the historical records that we looked at in our due diligence. And of course, that goes back a number of years. Even if we did not go back 7 years, we went back a number of years and we've seen a very good level of margin even in troughs in franc mode.
Okay. That's great. Thank you very much.
The next question today is from Lars Borson from Barclays. Please go ahead.
Thanks very much. Good morning, Thomas. Good morning, Lars. Maybe I could just ask to the demand outlook and Lars for you to perhaps give a little more granularity divisionally here. I'm particularly interested in PETD and marine and diesel.
On PETD, you've talked about it slowing down sequentially due to non recurrence in last orders. You also talk in the report about the base business declining somewhat, particularly in North America, as customers are slowing down their activities following the lower oil price. I wonder whether you could give us a sense of what you see in the underlying base business in PTD as you move into Q1? And then secondly on Marine and Diesel, keeping your outlook flat, I guess I'd love to understand what's holding up Q1 here. Is it still large orders coming through?
And is that more so on the boiler side perhaps the aftermarket? I mean Q4 order intake in Framo was down 50% sequentially on an underlying basis perhaps unsurprisingly given the shorter lack here to vessel contracting. But what are you seeing in your boiler business and your legacy Alpha business? You talked about marine and diesel you're seeing somewhat lower in when do you expect that weakness to come through?
Thanks. Well, talking about the Q1 and Marine and Diesel, we see good backlog of orders on its way to come in from FPSO vessels, from LNG ships, from yes, to take 2 examples. And so we see a good level of activity. And of course, over the year, we will see a somewhat lower level. And then when it comes to process technology, we see we still see a good level of activity in most areas.
And as I already mentioned, it's a given that oil and gas drilling goes down swiftly and that we have already seen in the Q4 both for base and for service and that we have recognized from previous downturns. So it's no surprise to us. And when it comes to we see a continued good activity level in petrochemicals for instance where the reindustrialization in the U. S. When it comes to petrochem is going on at a continued good pace.
So and as you could see on the large orders in the Q4 that we had a good activity level in the food related business. We had one large order for starch. We had another large order from pulp and paper for tall oil distillation. So that's the strength of Alfa Laval is that we are present in so many end markets and so many geographies that gives us a good stability in both order intake and in invoicing. I think that's as far as I can take it for the time being.
Okay. Thanks.
The next question today is from the line of Rux Maiti from Barclays. Please go ahead.
Hello?
Hello?
Rizk Smidi, your line is now open. Please ask Your next question is from the line of Nathalie Voelkmann from Carnegie. Please go ahead. Good morning Lars, good morning Thomas. Thank you for the good report.
I have two questions. The first one in the Capital Markets Day you mentioned that in your oil and gas exposure, the uptrim or trailing exposure 4% is the key risk area. While you said that the midstream and transportation, I think it was 9% was you didn't see as it's as any larger risk to that with the lower oil prices. Have you changed your view on that? Or do you feel the same that is the 4% that is still at risk?
That was the first question.
Well, our view from the Capital Markets Day is still remaining and we can see also in the Q4 that our view that we expressed has also been confirmed by reality in the Q4. So we feel confident with our statement from that point in time. And just to give you a little bit of flavor, this what we call processing and transportation, I just mentioned that we expect good order intake from LNG vessels now in the Q1 of 2015.
Thank you. And the second question I had on the equipment division. You have had 2 quarters now with negative organic sales growth there. And you have talked for 1, 2 quarters about the growth initiatives foremost in the distribution channels. Could you give some just color on what you do and when do you think that could start to show in the numbers?
Well, with activities of when we are increasing the number of distribution channels, of course, we build a better local presence that over time will give us an organic growth. And then what has held back the growth in the last two quarters is, let's say, the slowdown in the construction industry in East Asia and to some extent also here in Europe. But we maintain our view that this will start to pay off in the future. That's it. During 2015, we expect that to pay off.
I think it's important to remember the seasonality effect here. We have the heating and cooling installations that typically major in the autumn season towards the
negative impact on quarter 4 as well.
Thank you for taking my questions. And we do have a follow-up question from the line of Peter Froelen from Handelsbanken. Please go ahead.
And that has to be the last question because then after that we have to take off.
Okay, Lars. Let's make it a fast question then. You mentioned the base in oil and gas being down in sales during the quarter sequentially. Could you please help us within the magnitude of numbers? You talked about significant in the Americas, but on total, that's my first question.
The second, Thomas, very briefly on FX. Looking into 2015, are you still having a significant net negative transaction exposure to euro? Is that one of the reasons why the effect is rather limited? Or have you prolonged your hedge decision further?
Well, remember as far as FX is concerned, the main element of our exposure is being long in dollar and short in Swedish krona. And of course, with the strengthening of the dollar and then applying our hedging practices of 12 months revolving forward. This is the number we're coming to given what we have of contracts and given the amount of open exposures. So as the dollar continues to strengthen, if we assume that that would be the case eventually there will be further effect obviously from transaction.
Yes. Okay. All right. And then when
it comes to drilling, it's too early to make an assessment of what the magnitude of the downturn could be. But remember, it's in total only 4% of Alfa Laval.
Yes. I hear you. I just wanted to get the feeling for the size of the downturn in sales sequentially in the Q4. Was that mean double digit? Is it sort of I would say around 25%.
Yes. That sounds logical. Thank you very much gentlemen. Have a good day. Thank you.
Bye bye. Bye.
There are no further questions at this time. Okay.
I guess Lars, we thank you all so much for the attention.
Do you have the number of participants?
That does conclude the call for today. Thank you for participating. You may now disconnect.