Welcome to the Alfa Laval Q3 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. At which time, if you do wish to ask a question, you will need to press star one on your telephone keypad. I must advise you that this conference is being recorded today, Tuesday, October 23rd of October, at 8:30 A.M., Central European Time. I would now like to hand the conference over to your speaker today, Mr. Lars Renström. Please go ahead, sir.
Good morning, most welcome to the presentation of the third quarter report. I will start by giving you my three highlights. Order intake decreased both year-on-year and sequentially. The vast majority of the decline came from the Marine & Diesel division, reflecting the low contracting levels at the yards earlier in the year. Both Process Technology and Equipment Division had a good quarter. Both North and South America delivered growth. It's, of course, positive that China continues to grow. The other item is the operating margin, that was slightly up sequentially, but down year-on-year, due to lower margin in marine capital sales and product mix. We are very pleased to report that the sales and admin costs in the quarter were 6% lower, showing that the savings initiatives announced at the end of last year are effective.
The operating cash flow in the quarter was also very good. Finally, we expect demand in the fourth quarter to be in line with or somewhat lower than in the third quarter. Let us now take a look at the key figures. In the quarter, orders received declined 9% to SEK 7.3 billion. Net sales dropped 7% to SEK 7.1 billion. Adjusted EBITA declined 18% to SEK 1.2 billion. Finally, adjusted EBITA margin reached 16.7% versus 18.9% a year ago. Looking at the numbers year-to-date, orders received rose 5% to SEK 23.1 billion, net sales increased 6% to SEK 21.7 billion. Adjusted EBITA declined 8% to SEK 3.6 billion. Finally, adjusted EBITA margin reached 16.6% versus 19% a year ago. Now we move on to orders received and margins. There you can see that orders received on rolling 12 months declined to SEK 29.9 billion.
The decline in order intake was 6% year-on-year at constant exchange rates. Large orders that are marked in orange declined from more than SEK 600 million to SEK 475 million in the quarter. Still, a very good level. Moving over to the next slide. From the order analysis, you find that year-on-year, acquisitions contributed with one percentage unit, organic growth was -7%. We had negative currency effects of 3.3%. Sequentially, acquisitions contributed with 1% and organic growth was -5%. Two-thirds of the decline came from the Marine & Diesel division, as a result of the lower contracting at the yards earlier in the year. The negative currency effect was 4%, giving a grand total of -8%. On the next slide, we have the EBITA margin that reached 16.7%, which is a slight increase sequentially, but a decline year-on-year.
The operating result was SEK 1.2 billion. Now we move over to the development per segment. For the third quarter, we see that year-on-year, the majority of the segments have declined. Here, the Equipment Division stands out with three out of four segments in positive territory. Now we take a closer look at divisions. Please note that now all comments are sequential, and we start with Equipment Division. In sanitary, food and beverages were strong, while personal care saw lower demand. In industrial equipment, HVAC did generally well while refrigeration was down. OEM declined on lower demand for air condition and heat pump applications, while parts and service was unchanged. Moving over to the Process Technology Division. Foods saw fewer large vegetable oil projects while brewery developed favorably.
Environment grew, power saw a strong upturn in demand from both conventional and nuclear. In Russia and China, nuclear investments are back again. Process Industry was down due to non-repeats, parts and service was unchanged, with good demand from energy and oil and gas. On the next slide, you see our strengthened position. We strengthen our position in wastewater treatment within segment Energy and Environment. We have opened a new decanter factory in China focusing on the domestic market. In the quarter we also acquired Ashbrook Simon-Hartley based in the U.S. That is a leading global supplier of belt filter presses that is both an alternative and complementary to our decanters, where we are number 1 globally. Moving over to the next slide.
There we see that in the Marine & Diesel division, equipment declined due to lower order intake at the yards earlier in the year and lower demand for land-based diesel power. There was, however, an increased demand for environmental solutions. Segment Marine & Offshore Systems remained unchanged. Parts and service declined due to less retrofits and ship owners being more cautious with maintenance spending. Now we move over to the next slide. Since the Marine & Diesel division is new, we will take a closer look at what drives demand. Here you can see that year-to-date, 41% of orders received come from shipbuilding and offshore. 7% comes from environmental solutions, 13% from land-based diesel power stations, and 39% from parts and service. On the next slide, you see the first nine months, year-on-year and like-for-like.
There you can see that segments Process Industry, Energy and Environment and Equipment Parts and Service have been growing, whereas the majority have been stable or declining. Here, now I will give some forward-looking sequential statements for the fourth quarter demand for the divisions. The Equipment Division, there we expect somewhat lower demand due to seasonality. The Marine & Diesel division, we expect to be on about the same level, and we believe we are at the bottom when it comes to demand from shipbuilding. Finally, Process Technology, possibly somewhat lower due to lower tendering activity in the third quarter and slower decision making. By that, we move over to the geographical developments. There you can see that order intake for the quarter shows that year-on-year, Central and Eastern Europe had an outstanding growth of 34%, followed by North and South America with 7% growth.
Western Europe, including Nordic, has held up well, the big decline in Asia is mainly related to Marine. Let's take a closer look at the pie chart. There I want to highlight that North America has grown its share from 14% to 20% in a few years through acquisitions and good demand. Also, Latin America and Central and Eastern Europe have grown their share, and we have a good balance between the regions. Moving on to the next slide. We take a deeper look into Asia and now all comments are sequential. We had a decline of 11%. Contributing to the decline were non-repeat large orders and Marine & Diesel equipment due to low contracting at the yards earlier in the year.
It's positive that base business remained on the same level, and China continued to grow, partly due to our increased presence On the next slide, we see that in Western Europe, including the Nordic countries, we had a significant drop when large orders, base business declined, while parts and service was stable. Only segment sanitary and industrial equipment reported growth. In Central and Eastern Europe, order intake dropped 5% from a very high level. Large orders continued to grow, but base business declined. Process Technology saw good demand from power and refinery. Moving over to the next slide, you can see that North America grew 13%, when large orders, base business, and parts and service increased. In Latin America, growth was 9%, supported by large orders while base business declined. Energy and environment and industrial equipment did well.
In Brazil, we enjoyed strong demand within oil and gas and parts and service. Moving over to the next slide. There we can see that order intake year to date is excellent for Central and Eastern Europe, boosted by Russia. We have had double-digit growth in North America and Latin America and Nordic, to some extent supported by acquisitions. Western Europe has held up well, and Asia's decline is mainly due to Marine and the slow India. Moving over to the next slide, you see the top 10 ranking. There, the yellow bar is last 12 months order intake, and the green bar is whole year 2011. There you can see that the U.S. has strengthened its number 1 position and China has declined mainly due to Marine. The growth in Nordic is partly driven by the acquisition of Aalborg.
South Korea stands out and it's driven by Marine and Korean EPC contractors being successful on export. Russia stands out since it has had a great year and advanced to the number 5 position, boosted by refinery and power. India has suffered from a slow domestic investment climate. However, in the third quarter, we saw sequential growth. Now we move over to Thomas for the financials.
Thank you, Lars. Good morning, all of you. Let me start by providing a bi-sequential bridge for orders specifying the main elements. Large orders were down from SEK 600 million to SEK 475 million in Q3, a known deviation to everybody. If we look at other capital sales orders, they were down some 5.1% sequentially. Looking at the individual divisions, Marine & Diesel showed a reduction in orders because of, as Lars has mentioned earlier, the recontracting to the yards and also diesel being somewhat down from a very high level in the second quarter. Moving on to the Process Technology Division, we recognized a lower base business. That is to say, a lower order intake from orders with an order value below half a million EUR. This we take as a reflection of slower decision-making. Finally, the Equipment Division.
The Equipment Division reported flatter orders with the exception of the OEM segment, where we saw a lower demand from applications like air conditioning and heat pumps. Moving on to parts and service. Parts and service was down 3.3%. That is in its entirety due to Marine. The explanations for the downturn in aftermarket in Marine is less of retrofit orders and owners pushing back on maintenance and spares because of the difficult conditions and low cash flows for owners. Of course, new acquisitions added volume to the tune of SEK 110 million. We had some quite substantial swings in currencies, during the quarter, they caused a negative effect of SEK 270 million, where, of course, the strengthening of the Swedish krona is a very important factor. In summary, I would argue that a very significant part of the total deviation was known explicitly or implicitly.
I'm, of course, referring to the large order deviation as well as the adverse translation effects coming from swings in foreign exchange. Let's move on to a couple of comments on sales. In the quarter, we realized sales of SEK 7.1 billion, let me confirm that this was slightly below our own expectations. However, this shortfall in Q3, we expect to be largely recovered in Q4. The reasons for this shortfall can be attributed to customers pushing back delivery, that is particularly prevalent in Marine, as well as delays in output from a couple of our manufacturing locations. Looking at our comps, sales was down 5.4% over Q3 last year, sequentially, we had a decline like-for-like of just over 7%. Moving on to the next slide. Gross profit margin for the quarter was 37%, which was exactly on the same level as in Q3.
However, 1.3% below the 38.3% we generated in Q3 2011. Let me remind you of what I said with the second quarter report. I said, in the near term, we expect conditions to be largely similar to those that prevailed in Q2. However, the order levels of Q1 and Q2 can support load somewhat, while gross profit margin is expected to be adversely affected by mix inside of capital sales. I can now confirm that that was actually what happened in Q3. Price mix caused an adverse effect sequentially, as well as year-on-year. Currency was negative with about 0.5% year-on-year. Finally, we had a slightly positive impact from load sequentially. Looking into the near term future, we expect a relative increase of capital sales in Q4, that will have an adverse effect on gross profit margin.
We do not foresee any price effects. As far as load is concerned, it is dependent on the inflow of short lead time orders. There, of course, I would like to refer to the outlook that Lars will be presenting at the end of this presentation. Moving on to the next slide. If we look at the overhead costs, we can report the following. R&D ended at SEK 160 million second quarter, which is an increase of 4.4% year-on-year on a like-for-like basis. Of course, this continues to be evidence that we invest in future products. If we look at the R&D spend, it represents some 2.3% of sales. Sales and admin amounted to SEK 1.17 billion in the quarter, representing a reduction like for like of 6.4% compared to Q3 of last year.
I think this is evidence that the implementation of the savings program that we launched at the end of 2011 is progressing and effects are realized. The outcoming Q3 effectively means a saving of some SEK 80 million over last year. I think we can already now conclude that we are well on the way to deliver the savings of SEK a couple of hundred million, as communicated with the Q4 2011 report. EBITA margin, as a result, ended 16.7% in the quarter, which is then obviously slightly above the level of Q1 and Q2. Profit before tax was influenced by significant positive exchange differences. For the first nine months, we had positive FX differences of SEK 233 million. Of course, a result of the significant changes in particularly the Swedish krona to other currencies.
Profit before tax was following from above SEK 1.23 billion in the quarter. We saw an increase of some 11%, some over profit before tax last year. EPS for the first nine months is exactly the same as in 2011, SEK 547. If we then adjust and exclude for amortization on step up, EPS was effectively 10% up for the first nine months compared to 2011. Before leaving the P&L, tax is ended with a charge of SEK 381 million, which was 31% of profit before tax. However, our guidance remains 30% taxes based on profit before tax. Excuse me. With regard to return on capital employed, we reached 26%, which is slightly lower than quarter two. As for return on equity, we reached 22%, which is just above the quarter two level. Moving on to the cash flow statement.
We can conclude the following for the cash flow from the first nine months. We had an increase in cash flow from operations to the tune of 25%. That is despite lower EBITDA and bigger tax payments. As an explanation for that, working capital has increased less in the first nine months than in 2011. In fact, we reduced working capital with just under SEK 100 million in quarter three. Acquisitions, we have spent cash on to the tune of SEK 1.62 billion, just over SEK 800 million related to the delisting in India. Then in just under SEK 800 million, mainly related to the three new acquisitions that we realized during the summer. Free cash flow reached almost SEK 2.3 billion for the first nine months, an increase of some 15% over last year. In quarter three, cash flow was SEK 912 million against SEK 783 million in quarter three of 2011.
I think it's fair to say, again, that we enjoyed another good quarter and first nine months in terms of cash generation, and that is despite the lower EBITDA and bigger tax payments. Next slide deals with FX. FX effect in the quarter were negative on an EBITA level to the tune of SEK 63 million coming from both translation and transaction effects. For 2012, we anticipate a net FX effect of negative SEK 155 million, and that is totally to be generated from transaction effects. This is a deterioration compared to the projection of the quarter two, and this deterioration is coming from both translation as well as transaction. Of course, the strengthening of the SEK is one of the main reasons.
However, looking at these numbers, I'm sure you've noted that the SEK has lost again in the last couple of weeks, and this implies that we would see a less negative whole year total applying today's rates. Moving on, we had a total order backlog as per end of September amounting to SEK 15.5 billion, representing approximately 6.2 months of LTM sales. Looking at the backlog development by division, you find an increase in Process Technology, a reduction in Marine & Diesel, and at constant rates, a marginal increase in Equipment. That is compared to end of September last year. Looking at the order backlog to be shipped during the rest of this year, this backlog amounted to SEK 6.7 billion, which also means an increase compared to end of quarter three 2011 with some SEK 300 million. With this backlog slide in mind, let's move on to the next slide.
This summarizes the known and the unknown parameters for projecting full-year sales for 2012. Like for like, the backlog gives us an increase of SEK 400 million. Aalborg was owned for eight months in 2011, so we have to add four months. Then, of course, in addition to that, SEK 200 million for the new acquisitions that we realized during the summer. That gives a total addition of SEK 900 million. Based on the exchange rates applied in the quarter three closing, we expect a negative translation effect of some SEK 200 million. Please note that we anticipated a positive translation effect of some SEK 200 million at the quarter two closing. An adverse change to sales of SEK 400 million. This gives a subtotal for known parameters of SEK 29.8 billion. Again, a reduction of some SEK 400 million compared to the quarter two summary.
As always, it's up to you to form an opinion about the demand of short lead time orders in the last quarter. Please consider our outlook when you make your estimate. With regard to price effect, as I stated earlier, prices are broadly for metals and somewhat lower than in 2011. We made some adjustments to prices for standard product in the beginning of the year. However, they were very limited. With that, I give the word back to Lars for the outlook and closing the remarks.
The outlook is as follows. We expect that demand during the fourth quarter will be in line with or somewhat lower than in the third quarter. Remember my comments on fourth quarter demand for the divisions, which I repeat. Equipment Division will be somewhat lower due to seasonality. Marine & Diesel division will be on about the same level. Process Technology, possibly somewhat lower due to lower tendering activity within the third quarter and slower decision-making. That completes our presentation, and now we hand over to Petram for the Q&A session.
Thank you, sir. 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 Lars Brorson. Please go ahead and announce the company name.
Thank you very much. Good morning, gentlemen. It's Lars Brorson from DNB. I had three questions, if I could. First of all, on outlook, could I ask you to give a little more granularity around the outlook, particularly in the Equipment Division, specifically as it relates to perhaps your geographical assumptions, most notably in Europe and China? Within outlook as well on the Process Technology Division, can you talk about your comments on the fact that it's going to be lower due to decision-making? How did that progress during the quarter? Have you seen a notable difference in September versus the early part of Q3, and maybe some comments on October as well? That will be useful. Thanks.
Thank you. First of all, we don't give comments on a single month, so therefore, we have nothing to communicate regarding October. When it comes to the Equipment Division, there is a lower seasonal demand, and that is coming from, for instance, comfort, which is district heating, district cooling, air conditioning. Those are typically applications with a lower activity in the fourth quarter. When it comes to the Process Technology Division, there we saw a lower tendering activity in the third quarter. There was no difference within the quarter. We can just confirm that it was a lower tendering activity and that decisions started to take longer time, and given the increased uncertainty that people perceive regarding the macroeconomic climate. That is as far as we will go in our comments on the divisions.
Thank you, Lars. Secondly, on Marine and Diesel, can you elaborate a little bit on the order development year to date and also in Q3 by segment? You were kind enough to show us a slide with the different segments. I'd be particularly interested in understanding how your parts and services developed through Q3. I'd also be interested to understand on your environmental orders, have you seen any material changes in activity levels post the EU adoption of the new sulfur emission regulations in Q3 as it relates to your scrubbers? Thirdly, within that, on your capital equipment segment, can you elaborate a little bit on the pricing trends that you've seen in 2012 in light of the low raw material prices?
First of all, when it comes to parts and service, that makes up 39% of our business. That was down sequentially with about 3%, and that was due to fewer retrofits and that ship owners were more cautious with spending on maintenance. When it comes to the environmental applications, there we had growth, and we continue to book orders for ballast water treatment, and we see also a higher activity level when it comes to what we call SOx to reduce sulfur emissions. There we have a good tender backlog, and we see that some customers are approaching the decision point. In general, it's a good activity level within the environment. When it came to the land-based diesel power stations, we had an outstanding second quarter. Compared to that land-based diesel stations, power stations was down.
If I should say in general terms, it's still a good activity level in that area.
The current pricing trends as far as your current negotiations with your customers on particularly the Marine segment is concerned.
I would say it's a stable price environment. Of course, it varies a little bit with products, but for our main products where we have a strong position, prices are stable.
A final question, if I could, on Marine and Diesel. Beyond the cost-saving program that you launched at the end of 2011, are you looking to adjust your cost structure, in Marine and Diesel, based on the lower demand that you're currently seeing?
No, we have no plans to adjust the cost structure. Sequentially, it was lower demand. In general, it is still a good level of demand. We have good load in our factories. We still have a positive view on land-based diesel power stations. We have no plans whatsoever to make any adjustments regarding land-based diesel power.
Thank you.
Your next question comes from Sven Weier. Please announce the company name and go ahead with your question.
Yeah, good morning. It's Sven from UBS. Three questions from my side. On your outlook on Marine & Diesel, I was just wondering if you see yourself in a position to benefit from Wärtsilä's Jordan order, if you would see yourself as in a good competitive position to win a follow-on order from that big project. A second question, was on your pie chart, Marine & Diesel, where you say offshore and shipyards, 41% of the order intake. I was just wondering why you're not benefiting more from the offshore boom that we've also seen at the likes of Wärtsilä. Is offshore, out of the 41%, just a very small fraction, or is it because you book a lot of offshore platform business in your Process Technology Division? Can you give us some color on that?
Just finally on your cost savings, if I understood it correctly, you've achieved SEK 80 million so far, does that mean there's another SEK 120 left for Q4? Thank you.
Thank you for the questions. Well, you have almost given the reply as well. When it comes to the land-based diesel power stations, we are one supplier to Wärtsilä on the order. Who finally gets the order, that remains to be seen. We have a very good relation with Wärtsilä. You never know until the ink has dried whether you have the order or not. Hopefully we can report something in the next quarterly report. When it comes to offshore, in our offshore book in the Marine & Diesel division is only 10% of the 41%. It's a fairly small portion there. A significantly bigger portion is booked in Process Technology Division under segment energy and environment.
You have seen a number of press releases that we have sent out on large orders that have been connected to offshore, both desalination and several other applications. We are benefiting well from offshore. Finally, your question on cost savings. We generated a saving of SEK 80 million in the quarter. First half, we saved some SEK 40 million to SEK 50 million, so the year-to-date total is more like SEK 130 million. The full year expectation is to save the couple of hundred million SEK. A saving in quarter four to the tune of what we saw in quarter three, that is our best estimate.
Thank you.
I'm just looking at our large orders that we communicated, Sven. We have communicated in the quarter seven or six large orders, and three out of them were related to offshore.
Understood. Thank you.
Your next question comes from Martin Prozesky. Please go ahead with your question, announcing the company name.
Good morning, gentlemen. It's Martin from Bernstein. Two questions, please. In terms of the cost savings, I think given the top-line pressure, clearly a good margin performance in the quarter. Can you give us a bit more details of the steps that you took in the quarter to manage the cost base, and how much more there is to do, what actions can you take? If the environment gets worse, how does that change? The first question. The second question, in terms of marine and the order intake there I understand that activity into the shipyards was pretty weak. In terms of the service business, was there also a consequence of the slower steaming of ships, which means that your service business orders are also under pressure?
Martin, steps taken in the quarter. What we see now in quarter three is the effects of the measures taken, depending on country, from the very beginning of 2012 and through the second quarter of 2012. Depending on country, again, it takes different amounts of time to realize savings, to part with some personnel and implement other measures. No particular measures in the quarter, it was simply to see the effects of measures taken during first half. Your second question was what more can be done. Of course, in line with the program that we launched at the back end of last year, we are very cost conscious. We are very selective when it comes to replacement and certainly when it comes to the addition of new resources in the overhead area.
Of course, if we look at cost of goods, we are continuously adjusting capacity when it comes to personnel. We are adjusting continuously thanks to the fact that we have some 12%-15% of labor as temporary staff, so we can make some quite short-term adjustments. That is, again, happening continuously. For service in marine, of course, with the weak cash flows in the shipping industries, the owners, they are constantly trying to push back on service and maintenance to the biggest possible degree, and that's something that we see the effects of. We also commented that we had less of retrofit orders. Of course, to upgrade equipment in a time where earnings are so poor or many are really in the red is, of course, very difficult to justify. That's another reason for this decline in marine service.
Thank you very much. Just one follow-up on the gross margin comments. I think you commented earlier that you didn't see any real material effect in the quarter. In terms of your key purchases, I think chromium, titanium in terms of the surcharges, what is your expectation into the next year around how the gross margin will be affected by input costs?
I'm sorry, we are not providing any projection for the alloys or the steel as a whole publicly. We've seen the alloy metals and also copper and aluminum swinging quite a bit over the last couple of months. If we take nickel as an example, we've been between $16,500 and $19,000 per ton over the last couple of months. We've seen some quite big swings in copper and aluminum as well. It's in a fairly tight range if we compare to the size of the swings that we saw during 2006 through 2009, say.
Thank you very much.
The next question comes from Kenneth Teunissen. Please announce the company name, and go ahead with your question.
I'm from Carnegie. First, on the Marine & Diesel side, on the environmental solutions, I know it's early days, but do you have any feeling for what kind of market shares you can have in those product ranges, please?
When it comes to ballast water, there are, I would say today, 15, 20 suppliers in the market, and we have the ambition to be the leading. What that means in market share remains to be seen. We were early out, so we have a strong reference list. When it comes to SOx and NOx reducing sulfur, there are few suppliers. The two major suppliers are ourselves and Wärtsilä. That market is emerging right now. We are confident that we will have a leading position. That's as far as we can go.
Okay. Then finally, you've made three acquisitions over the summer here. Now, when you see quite poor organic sales development, will you step up the acquisition activities in order to compensate for poor sales growth organically?
We would be happy to do that. We have during the last six months, we have been in a number of sales processes that has failed, where sellers and buyers have not agreed on the price level. We can see that sellers have too high expectations Because we have stepped out of the process and so have all the others. The sellers are still sitting with their assets. The gap has to close between sellers and buyers, and it's the sellers that has to move.
Okay, thank you.
Once again, if you wish to ask a question, please press star one on your telephone keypad, and if you would like to cancel your request, please press the hash key. Your next question comes from Johan Hultén. Please go ahead, announcing the company name.
Thank you. This is Johan Hultén with Handelsbanken, can you hear me?
Yes.
A couple of questions, please. Firstly, on your gross margin discussion earlier on, did I hear you correctly that you said that you had a 0.5% dilution from FX in the quarter year-over-year? Also, if we could get some guidance on what the impact on price mix and load was year-over-year in the quarter. Then my second question is on your FX guidance. You said that with current FX rates, the projection for the full year will be lower. Could you give us any magnitude of how much lower the negative impact on FX would be with current rates and also what the projection would be for next year? That's it, please.
Okay. Well, what I said, when it comes to FX effect year-on-year, was that we had a 0.5% transaction effect year-on-year. It was pretty much the same if we look at it sequentially. When it comes to details of other parameters, no, we're not providing any basis points impact. We're not getting into those details. We merely speak to a negative price mix and a positive load, as I commented before. When it comes to FX effect, please, I would like to refer you to the specification on the slide in the presentation. There you find assumptions for some of the currency pairs, as well as the full year forecast and estimated transaction effects for 2013. I think you'll find the details you're after in the presentation.
All right. Just the final question on market share. Do you perceive that you gained or lost or had a neutral development in market share during the quarter?
We are present in so many markets, but if I should summarize it, we kept our market shares.
All right. Thank you.
Thank you.
We have a follow-up question from Sven Weier. Please go ahead.
Yeah, just wanted to follow up on the marine environment. I think on last call you told us, obviously, you're profit-sharing with Wallenius on ballast water. I was just wondering how scrubber revenues would be impacting divisional profitability. Are there any reasons to believe in a big variance to the average of the division, or how would you qualify that? The second follow-up is just, you kindly said that 10% of the 41 are offshore. Is it also fair to assume that orders for container tanker bulk have also reached a very low level of that 41% now, or how should we look at that? Thank you.
Okay. If we start with the question on scrubbers, well, Sven, this is our own product. It's not involved in any joint ventures, so we get it all of the volume and all of the results. As far as profitability of this future product, we have, of course, no comments to that at this juncture. If we look at marine and traditional shipbuilding, we are currently of the belief that we are at the bottom, at the trough, when it comes to orders. The basis for that statement is really that we have seen quite a number of quarters of low contracting to the yards. As you know, with a lag of some six to nine months, that hits Alfa Laval. That leads us to believe we are somewhere, if not on, close to the bottom.
Thank you.
Your next question comes from Andre Kuken. Please go ahead, announcing the company name.
Good morning. It is Andre from Credit Suisse. I wanted to follow up on the comment you made about sales slipping in Q3 into Q4. Could you quantify this effect at all?
Yeah. It is to the tune of SEK 200 million-SEK 300 million, out of which a majority relates to customers pushing back delivery. That is predominantly coming from, again, the shipbuilding segment, where ship owners are pushing back delivery of ships. Of course, as a consequence, the yards are pushing back delivery of equipment from equipment suppliers. As I commented as well, we have suffered some issues with output from a couple of manufacturing locations as well.
Okay. In terms of level of confidence of that being regained in Q4, I guess on your own kind of manufacturing issues, that's something that you can control. What gives you confidence that these customers will not push out another quarter?
Well, that's our assessment of the abilities to continue to push back. We've, of course, looked at the order backlog and come to this conclusion.
Great.
It's still an assumption, so we can be proven wrong.
Absolutely. Understandable. I just wondered then, if those orders were to materialize, then would you say it would be sort of the normal marine margin and therefore kind of resulting in a normal positive mix?
Well, let me come back to the prediction I gave you in the presentation. Capital sales will, as a share of total sales, go up in quarter four irrespective, and that will have an adverse effect on gross profit margins.
Okay. That implies that the slippage actually resulted in a positive mix in margins for Q3.
We had, again, all in all, an adverse price mix effect in quarter three over quarter two.
All right. Just a separate question on kind of stocking, de-stocking at your customer levels. Obviously, in for out business is pretty fluid. Can you comment at all what you've seen? Have customers been de-stocking, restocking, not doing anything?
We have no significant changes in stock levels at channels to report at this juncture.
Great. Thanks very much.
Thank you.
Once again, please press star one if you would like to register for a question. Your next question comes from Alex Dineo. Please announce the company name and go ahead with your question.
Yes, good morning. It's Alex Dineo from Exane BNP Paribas. On this SEK 200 million-SEK 300 million of postponed sales in Q4, just to be clear at the moment, is that products that are sitting in your inventory, or are you expected to produce them in your Q4 and therefore help on the load side? Thank you.
If we look at the issues in our manufacturing location, that has led to somewhat of an increase in work in progress. For the pushback by customers, yes, that has had an adverse impact to inventories. Inventories of finished goods are somewhat bigger than they otherwise would have been.
Okay.
It's not really having any impact on the load other than the fact that we've had issues with output in a couple of manufacturing locations. That, of course, are considered in the outlook for load. For the comments on load.
Thank you.
Your next question comes from Ben Messlin. Please go ahead announcing the company name.
Morning, everyone. It's Ben from Merrill Lynch. Just one question, please, Thomas, can you just clarify your comments a little bit on price mix, which you say is negative? I'm trying to understand the price and mix component, if you like. On the price side, are you seeing price declines on a like for like basis on any of your equipment and products? Or is it mainly just mix that is the issue across the business? You may know that one of your competitors claims that price pressure in plate heat exchangers has been picking up in some markets just because of more capacity coming into them. Very difficult to kind of prove or take a view on. Just what is your view on that? Thank you.
It's to a very large majority mix, very limited price. Remember the comments I made over a couple of quarters now when it comes to normalization of price levels in the order range. For the rest, it's really mix. As far as price pressure is concerned, we have not seen any change in behavior in recent months.
It might be that our position in the market is different than to the others complaining.
Great. Just so I clarify that. Thank you.
We appear to have no further questions. Please continue.
Thank you very much for a lot of interesting questions. Wishing you continued good day. Thank you, and goodbye from us.
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