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. I must advise you that this conference is being recorded today, Tuesday October 23rd at 8:30 a. M.
Central European Time. I would now like to hand the conference over to your speaker today, Mr. Lars Van Schrum. Please go ahead, sir. [SPEAKER LAARS FRANCOIS VAN BOXMEER:]
Good morning and most welcome to the presentation of the Q3 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 and Diesel division, reflecting the low contracting levels at the yards earlier in the year. Both Process Technology and Equipment division had a good quarter And both North and South America delivered growth.
And 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. And finally, we expect demand in the 4th quarter to be in line with or somewhat lower than in the 3rd quarter.
Let us now take a look at the key figures. In the quarter, orders received declined 9% to EUR 7,300,000,000 net sales dropped 7% to EUR 7,100,000,000 and adjusted EBITA declined 18% to SEK 1,200,000,000 And 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 €23,100,000,000 and net sales increased 6% to €21,700,000,000 Adjusted EBITA declined 8% to SEK 3,600,000,000 And 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 €29,900,000,000 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 EUR 600,000,000 to EUR 475,000,000 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 1 percentage unit and organic growth was minus 7%. We had negative currency effects of 3.3%. Sequentially, acquisitions contributed with 1% and organic growth was minus 5%.
And 2 thirds of the decline came from the Marine and 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 minus 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. And the operating result was SEK 1,200,000,000. And now we move over to the Development Per Segment.
And for the Q3, we see that year on year, the majority of the segments have declined. Here the Equipment division stands out with 3 out of 4 segments in positive territory. And now we take a closer look at divisions. And please note that now all comments are sequential and we start with the Equipment division. For 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 and 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 and parts and service was unchanged with good demand from energy and oil and gas. On the next slide, you see that our strengthened position since we strengthened our position in wastewater treatment within segment Energy and Environment. We have opened a new decanter factory in China focusing on the domestic markets. And in the quarter, we also acquired Ashbrook's 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 recanters where we are number 1 globally. Moving over to the next slide. There we see that in the Marine and 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 and 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. And since the Marine and Diesel division is new, I will take a close 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 1st 9 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. Now I will give some forward looking sequential statements for the Q4 for the Q4 demand for the divisions. The Equipment Division there we expect somewhat lower demand due to seasonality. The Marine and 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 Q3 and slower decision making. And by that, we move over to the geographical development. 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 and the big decline in Asia is mainly related to Marine. Let's take a closer look at the pie chart.
And 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 launch orders and marine and 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 and while large orders and 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 Technologies 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. And 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 a slow India. Moving on to the next slide. You see the top ten 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 one position and China has declined mainly due to Marine. The growth in Nordic is partly driven by the acquisition of Olborg. 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 Q3, we saw sequential growth. And now we move over to Thomas for the financials. Thank you, Lars. Good morning all of you.
Let me start by providing a high sequential bridge for orders specifying the main elements. Large orders were down from EUR 600,000,000 to EUR 475,000,000 in quarter 3, 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, green and diesel showed a reduction in orders because of as Lars has mentioned earlier, we contract into the yards and also diesel being somewhat down from a very high level in the Q2. 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 €500,000 This we take as a reflection of slower decision making. And 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%.
And that is in its entirety due to Marine. And 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. Then of course, new acquisitions added volume, added volume to the tune of €110,000,000 We then had some quite substantial swings in currencies during the quarter and they caused a negative effect of some €270,000,000 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 then move on to a couple of comments on sales. In the quarter, we realized sales of €7,100,000,000 And let me confirm that this was slightly below our own expectations. However, this short to customers pushing back delivery and 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 quarter 3 last year. And 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 quarter 3. However, 1.3% below the $38,300,000 we generated in quarter 3 of 2011. Let me remind you of what I said with the 2nd quarter report. I said in the near term, we expect conditions to be largely similar to those that prevailed in quarter 2.
However, the order levels of quarter 1 and quarter 2 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 quarter 3. Price mix caused an adverse effect sequentially as well as year on year. Currency was negative with about 0.5% year on year. And then 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 quarter 4 and 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. And 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 and D ended at EUR 160,000,000 2nd quarter, which is an increase of 4.4% year on year on a like for like basis. And of course, this continues to be evidence that we invest in future products. If we look at the R and D spend, it represents some 2.3% of sales. Sales and admin amounted to €1,170,000,000 in the quarter, representing a reduction like for like of 6.4% compared to quarter 3 of last year.
Again, I think this is evidence that the implementation of the Savrinx program that we launched at the end of 2011 is progressing and effects are realized. The outcome in quarter 3 saving of some €80,000,000 over last year. And I think we can already now conclude that we are well on the way to deliver the savings of a couple of €100,000,000 as communicated with the quarter 4 2011 report. EBITA margin as a result ended 16.7% in the quarter, which is then obviously slightly above the level of quarter 1 and quarter 2. Profit before tax was influenced by significant positive exchange differences.
For the 1st 9 months, we had positive FX differences of EUR 233,000,000 of course, a result of the significant changes in particularly the Swedish krona to other currencies. Profit before tax was following from above EUR 1,230,000,000 in the quarter and we saw an increase of some 11% somewhere over profit before tax last year. EPS for the 1st 9 months is exactly the same as in 2011 €5.47 euros If we then adjust and exclude for amortization on step up, EPS was effectively 10% up for the 1st 9 months compared to 2011. Before leaving the P and L, taxes ended with a charge of €381,000,000 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 2. As for return on equity, we reached 22%, which is just above the quarter 2 level. Moving on to the cash flow statement. We can conclude the following for the cash flow from the 1st 9 months.
We had an increase in cash flow from operations to the tune of 25%. That is despite lower EBITDA and bigger tax payments. But as an explanation for that working capital has increased less in the 1st 9 months than in 2011. And in fact, we reduced working capital with just under €100,000,000 in quarter 3. Acquisitions, we have spent cash onto the tune of €1,620,000,000 just over EUR 800,000,000 related to the delisting in India.
And then just under EUR 800,000,000 mainly related to the 3 new acquisitions that we realized during the summer. Free cash flow reached almost €2,300,000,000 for the 1st 9 months, an increase of some 15% over last year. In quarter 3, cash flow was €912,000,000 against €783,000,000 in quarter 3 of 2011. So I think it's fair to say again that we enjoyed another good quarter and 1st 9 months in terms of cash generation and that is despite the lower EBITDA and bigger tax payments. Next slide deals with ForEx.
FX effect in the quarter were negative on an EBITA level to the tune of EUR 63,000,000 coming from both transaction and transaction effects. For 2012, we anticipate a net FX effect of negative €155,000,000 and that is totally to be generated from transaction effects. This is a deterioration compared to the projection after quarter 2. And this deterioration is coming from both translation as well as transaction. And 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 €15,500,000,000 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 and 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 €6,700,000,000 which also means an increase compared to end of quarter 3, 2011 with some €300,000,000 With this backlog slide in mind, let's move on to the next slide then. 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 €400,000,000 Allboy is was known for 8 months in 2011, so we have to add 4 months. And then of course, in addition to that, a couple of €100,000,000 for the new acquisitions that we realized during the summer. So that gives a total addition of €900,000,000 Based on the exchange rates applied in the quarter three closing, we expect a negative translation effect of some €200,000,000 Please note that we anticipated a positive translation effect of some €200,000,000 at the quarter 2 closing.
So an adverse change to sales of €400,000,000 This gives a subtotal for known parameters of €29,800,000,000 again a reduction of some €29,800,000,000 €1,000,000,000 again a reduction of some €400,000,000 compared to the quarter 2 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 effects, as I've stated earlier, prices are broadly for metals 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.
[SPEAKER STEPHEN ROBERT BINNIE:] And the outlook is as follows. We expect that demand during the Q4 will be in line with or somewhat lower than in the Q3. And remember my 4th quarter my comments on 4th quarter demand for the divisions, which I repeat. Equipment division will be somewhat lower due to seasonality. Marine and Diesel Division will be on about the same level.
And Process Technology possibly somewhat lower due to lower tendering activity within the Q3 and slower decision making. And that completes our presentation. And now we hand over to Petra for the Q and A session.
Thank you,
It's Lars Braulten from DNB. I had 3 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 divisions, specifically as it relates to perhaps your geographical assumptions most notably in Europe and China? And then within outlook as well on the Process Technology division, can you talk about your comments on lower 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.
Well, thank you. First of all, we don't give comments on a single month. So therefore, we have nothing to communicate on regarding October. But 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 Q4. And when it comes to the Process Technology Division there we saw a lower tendering activity in the 3rd 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 yes, 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. And 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 a different segment. 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 Q3 as it relates to your scrubbers?
And then 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 low raw material prices?
Well, it's 1st 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. And when it comes to the environmental applications that we had the growth. And we saw we continue to book orders for ballast water treatment.
And we see also higher activity level when it comes to low what we call SOX to reduce sulfur emissions. And there we have a good tender backlog, and we see that some customers are approaching the decision points. So in general, it's a good activity level within the environment. And when it came to the land based diesel power stations, we had an outstanding second quarter. And compared to that land based diesel stations power stations was down.
But if I should say in general terms, it's still a good activity level in that area.
And the current pricing trends as far as your current negotiations with your customers on marine and particularly on the marine segment is concerned?
We are 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.
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? [SPEAKER JEAN FRANCOIS
VAN BOXMEER:] No. Well, let's say, no, we have no plans to adjust the cost structure. And sequentially, it was lower demand. But in general, it is still a good level of demand. We have good load in our factories.
And so we still have a positive view on land based diesel power stations. So we have no plans whatsoever to adjust make any adjustments regarding land based diesel power.
Thank you.
Your next question comes from Sven Meyer. Please announce the company name and go ahead with your question.
Good morning. It's Sven from UBS. Three questions from my side. On your outlook on marine and diesel, I was just wondering if you see yourself in a position to benefit from Wartsila's Jordan order, if you would see yourself as in a competitive position to win a follow on order from that big project? A second question was on your pie chart Marine and Diesel where you stay 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 see at the likes of Wartsila. Is offshore out of the 41 percent just a very small fraction? Or is it because do you book a lot of offshore platform business in your Process Technology division? Can you give us some color on that? And then just finally on your cost savings, if I understood it correctly, you've achieved €80,000,000 so far.
So does that mean there's another €120,000,000 left for Q4? Thank you.
Thank you for the questions. And well, you have almost given the reply as well. It's when it comes to the land based diesel power stations there, well, we are 1 supplier to Wartsila on the order. And who finally gets the order that remains to be seen. But we have a very good relation with Wartsila.
But you never know until the ink has dried whether you have the order or not. So hopefully, we can report something in the next quarterly report. And then when it comes to offshore, in our offshore booked in the Marine and Diesel division is only 10% of the 41%. So it's a fairly small portion there. A significantly bigger portion is booked in Process Technology Division under segment Energy and Environment.
And 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. So we are benefiting well from
offshore. [SPEAKER JAIME SAENZ DE TEJADA:] Then finally your question on cost savings then. We generated a saving of €80,000,000 in the quarter. First half, we saved some €40,000,000 to €50,000,000 So the year to date total is more like €130,000,000 And the full year expectation is to save the couple of €100,000,000 So it's saving in quarter 4 to the tune of what we saw in quarter 3. That is our best estimate.
Thank you.
It's I'm just looking at our large orders that we communicated Sven. We have communicated in the quarter 7 or 6 large orders and 3 out of them were from were related to offshore. Understood. Thank you.
Your next question comes from Martin Brzeski. 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, good margin performance in the quarter. Can you give us a bit more detail of the steps that you took in the quarter to manage the cost base and how much more there is to do?
Kind of what actions can you take? And if the environment gets worse, how does that change? The first question. And then 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?
[SPEAKER JAIME SAENZ
DE TEJADA:] Well, Martin, steps taken in the quarter. Well, what we see now in quarter 3 is the effects of the measures taken depending on country from the very beginning of 2012 and through the Q2 of 2012. Depending on country, again, it takes different amounts of time to realize savings part with some personnel and make implement other measures. So no particular measures in the quarter was simply to get the see the effects of measures taken during the first half. Then your second question was what more can be done.
Well, 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, very selective when it comes to replacement replacement and certainly when it comes to addition of new resources in the overhead area. Then 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% to 15% of labor at temporary staff. So we can make some quite short term adjustments.
And that is again happening continuously. Then for Service and 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. And then 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 is of course very, very difficult to justify. So 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 effects in the quarter. In terms of your key purchases, I think, if chromium titanium in terms of surcharges, what is your expectation into the next year around how the gross margin would be affected by input costs?
Well, we are not I'm sorry we're not providing any projection for the alloys or the steel as a whole publicly. But I mean 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 $19,000 per ton over the last couple of months. And we've seen some quite big swings in copper and aluminum as well. But then it's in a fairly tight range if we compare to the size of the swings that we saw during 2006 through 2,009 say.
Okay. Thank you very much.
The next question comes from Kenneth Tonjansen. Please announce the company name. Please go ahead with your question.
I'm from Carnegie. First on the Marine and 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? Yes. Well, 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. And then when it comes to SOX and NOX reducing sulfur. There we are there are few suppliers. The 2 major suppliers are ourselves and Bergele. And that market is emerging right now.
So we are confident that we will have a leading position. That's as far as we can go.
Okay. And then finally, you've made 3 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. And we have but we have during the last 6 months, we have been in a number of processes sales processes that has failed where sellers and buyers have not agreed on the price level. And we can see that sellers have too high expectations because we have stepped out of the process and so have all the others. So the sellers are still sitting with their assets. So the gap has to close between sellers and buyers and it's the sellers that has to move.
Okay.
Thank
Your next question comes from Jon Hiltner. Please go ahead announcing the company name.
Thank you. This is Jon Hiltner with Hansbanken. 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 percent dilution from FX in the quarter year over year? And also what if we could get some guidance on what the impact on pricemix and load was year over year in the quarter? And 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 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. Then 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 stick to a negative price mix and a positive load as I commented before. When it comes to FX effects, please I would like to refer you to the specification on the slide in the presentation. There you find assumptions for some of the currencies currency pairs as well as full year forecast and estimated transaction effects for 2013. So I think you find the details we're after in the presentation.
All right. And then just a final question on market share. Do you perceive that you gained or lost or had a neutral development in market share during the quarter?
It's I mean, 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 Beyers. Please go ahead.
Yes. Just wanted to follow-up on the Marine Environment. I think on last call you told us obviously your profit sharing with Valenius on ballast water. I was just wondering how scrubber revenues would be impacting the divisional profitability. Are there any reasons to believe in a big variance to the average of the division?
Or how would you qualify that? And the second follow-up is just follow-up. 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.
Then 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. And the basis for that statement is really that we have seen quite a number of quarters of low contracting to the yards. And as you know with a lag of some 6 to 9 months that hits Alfa Laval. So that leads us to believe we are somewhere if not on close to the bottom. Thank you.
Your next question comes from Andre Kukhn. Please go ahead, announcing the company name.
Good morning. It's 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?
Yes. It's to the tune of EUR 200,000,000 to EUR 300,000,000 out of which a majority relates to customers pushing back delivery. And that is predominantly coming from again the shipbuilding segment where ship owners are pushing back delivery of ships. And of course, as a consequence, the yards are pushing back delivery of equipment from equipment suppliers. But as I commented as well, we have suffered some issues with output from the capital manufacturing locations as well.
Okay. And in terms of sort of level of confidence of that being regained in Q4, I mean, I guess, on your own kind of manufacturing issues, is that something that you can control. But what gives you confidence that these customers will not push out another quarter?
Well, that's our assessment of the abilities to push to continue to push back. We've, of is to push to continue to push back. We've of course looked at the order backlog and come to this conclusion. Great. And It's still an assumption.
So we can be proven wrong.
Absolutely. Understandable. I just wondered then if those orders were materialized 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 4 irrespective and that will have an adverse effect on gross profit margin.
Okay. So that implies that the slippage actually resulted in sort of in a positive mix in margins for Q3?
We had again all in all an adverse price mix effect in quarter 3 over quarter 2.
All right. And just a separate question on kind of stocking, destocking at your customer levels. Obviously, in for our business is pretty fluid. Can you comment at all what you've seen? Have customers been destocking, 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.
Your next question comes from Alex Denon. Please announce the company name and go ahead with your question.
Yes. Good morning. It's Alex Denon from Exane BNP Paribas, on this €200,000,000 €300,000,000 of postponed sales in Q4, just to be clear at the moment is that products that are sitting in your inventory? Or is that so expected to I'd say so are you expected to produce them in Q4 and therefore help on the load side? Thank you.
So I mean if we look at the issues in our manufacturing locations that has led to somewhat of an increase in work in progress. And 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.
So 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. But that of course I've considered in the outlook for load the comments on that.
Thank you.
Your next question comes from Ben Mertelin. Please go ahead announcing the company name.
Yeah. Good morning, everyone. It's Ben from Merrill Lynch. Just one question please, Thomas. Can you just clarify your comments a little bit on pricemix, which you say is negative?
I'm trying to understand the kind of 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? 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 exchanger 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.
Well,
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 the of price levels in the overall range. For the rest, it's really mixed. 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 I clarify that. Thank you.
We appear to have no further questions. Please continue.
So thank you very much for a lot of interesting questions and wishing you a continued good day. So thank you and goodbye from us.
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