Thank you very much, and most welcome to the Presentation on the First Quarter Report. I will start by giving you my three highlights. First of all, we made a strong recovery from the previous quarter. Order intake in the quarter increased by 22% to SEK 7.9 billion, the second best quarter ever. The sequential increase was 17%. Large orders increased to a new record level of SEK 950 million in the quarter, with a high portion of Alfa Laval products. The main contributor to the strong order intake was the process technology division, that enjoyed a solid demand. The second highlight concerns the operating margin, and it was negatively affected year- on- year by lower capacity utilization in some of our factories, as well as product mix, and a higher level of sales and administration costs.
The third highlight concerns demand, and we expect demand in the second quarter to be on about the same high level as in the first quarter, excluding large orders where we expect a more normal intake. After that, we move over to the key figures. Order intake up 22% to SEK 7.9 billion, net sales increased 16% to SEK 6.8 billion, and adjusted EBITDA declined 1% to SEK 1.1 billion. Adjusted EBITDA margin reached 16.5% versus 19.2% a year ago. Now we move over to orders received and margins. On orders received on rolling 12 months, we are now at SEK 30 billion, and the increase in order intake was 21% year- on- year at constant exchange rates. Large orders reached the record level of SEK 950 million, with some orders spilling over from the fourth quarter.
Moving over to the order analysis, you find that year- on- year acquisitions contributed with 14 percentage units, and organic growth was 6.6 percentage units. We had positive tariff effects of 1%. Sequentially, we had a strong recovery, and the organic growth was 17%. Moving over to EBITDA margin, we see that it declined to 16.5%, and the operating result was SEK 1.1 billion. Now we move over to the development per segment. Here you see the new setup with three divisions and their segments. It's a mixed picture year- on- year, with about the same number of plus as minus. Let's take a deeper look at the division. We move on to the next slide, and we start with the Equipment division. Please note that all comments for the divisions are sequential.
There you see that sanity improved from demand for prepared food, and industrial equipment declined somewhat due to seasonality. OEM was slightly positive on demand from air conditioning and industrial refrigeration customers. Finally, partner service reached an all-time high level. In the table, you see that the order intake was unchanged year- on- year. We move over to the Marine & Diesel division on the next slide. There you see that demand for environmental solutions continued to grow, while demand for other marine equipment stayed on the fourth quarter level. Diesel was down due to non-repeats. Marine & O ffshore Systems were lifted by demand for boiler systems. We received a SEK 230 million order from A.P. Moller for waste heat recovery on their newly ordered huge container vessels. The comparison in the table is influenced by the Aalborg acquisition.
Moving over to the process technology division, food technology was supported by further investments in brewery and vegetable oil. Large orders for newly developed decanters boosted energy and environment. Process industry was affected by lower order intake in refinery and life science. Finally, good activity in end markets supported parts and service. From the table, you see that order intake was up 26% year- on- year. Excluding Aalborg, it was up 24%. Now we move over to the geographical developments. On the first slide, you see that all regions except Western Europe had double-digit growth year- on- year, with Central and Eastern Europe and North America performing the best. Let's take a deeper look at the regions. Please note that all comments are sequential. Orders increased 29% due to strong performance in the project business of the process technology division, as well as part of the Marine Diesel division.
Marine & Offshore Systems, food technology, and process industry performed the best. Moving over to Europe, we see that Western Europe and Nordic grew sequentially with 10% and 7% respectively, supported by large orders. Sanitary and energy and environment did particularly well. In Central and Eastern Europe, demand remained on a good level, supported by strong development for large orders in Process Technology. Equipment division showed a small decline. Moving over to North America, we grew sequentially with 38%. Sanitary did very well, as did energy and environment, boosted by orders for new decanter for industrial wastewater cleaning. Demand for parts and service was up. Base business rose slightly from previous quarter. Latin America grew sequentially with 10%. It was good growth across the line. Energy and environment and industrial equipment did particularly well.
Parts and service benefited from a high activity level in the end markets of the process technology division. We move over to the next slide, where you see our top 10 markets. In that slide, we compare the last 12 months with 2011, year- on- year. What stands out is our growth in South Korea and Russia. By that, we move over to the financials.
Good afternoon, all of you. This is Thomas Thuresson. Let's then take a slightly deeper dive into the numbers if we move on to the next slide. As Morris has covered orders, let's not dwell more on that and move on to sales. As I'm sure you have noted, we have realized sales of SEK 6.8 billion in the quarter. Sales were then organically up some 3.6% over Q1 2011.
Including acquisitions, adding 11.1% and positive FX effects of 1.1%, we had an absolute increase of almost 16%. Sequentially, however, sales were down almost 16% compared to Q4. To a very large extent, of course, explained by seasonality as we have less of revenue recognition on contract-based sales, typically in Q1 as opposed to Q4. Moving on to the next slide, gross profit margin. The quarter ended at 38.5% compared to 40.4% Q1 2011 and 37.8% in Q4 2011. Let me remind you about what I said with the Q4 report. I said, in the near term, we do not see conditions being much different other than that mix will likely be positive sequentially. I think with what we have reported today, the outcome for Q1 actually came out as predicted. Mix gave a positive effect sequentially, but an adverse effect year- on- year.
Currency was negative year- on- year to the tune of 0.6%. The impact from load was negative year as well as sequentially. In addition, we had a limited negative impact from the margins in contract-based sales. Let me give you our first forward-looking statement. In the near term, we do not see conditions again being much different than those that prevailed in Q1. However, with the order levels of Q1, load is likely to improve somewhat, and mix to deteriorate with a relative increase of capital sales revenues. Moving on, looking at overhead costs, we can report the following. R&D ended at SEK 158 million, which is an increase of a mere 1.3% like for like, and continues to represent 2.3% of sales. Looking at sales and admin, that amounted to SEK 1,123,000,000 , which then represents an increase of 5.7% year- on- year.
Even more important, a reduction of 17%- 18% sequentially. Coming back to the increase year- on- year, this is explained by a generally high level of activity and our buildup of the organization in emerging markets and extended break, if you like. EBITDA margin for the quarter then ended, as you have seen, 16.5%, which is down 0.5% sequentially. In summary, explained by lower sales compensated by gross margin being higher and overheads being lower. The implementation of the savings program that we launched at the end of 2011 is progressing. Effects will be seen in quarter two as regards particularly overheads in Western Europe. Moving on to profit before tax, they were influenced by positive exchange variations in the quarter to an amount of almost SEK 60 million. Profit before tax was, as a consequence, SEK 1,020,000,000 , an increase of just over 1% year- on- year.
Looking at the EPS, it was up marginally irrespective of whether we include step-up amortization or have them included. Before leaving the P&L, let me just point out as well that taxes ended with a charge of SEK 295 million, representing just under 28% of profit before tax, the same level as in Q1 of 2011. Let me then remind you that our guidance remains 30% taxes based on profit before tax. Cash flow from operations is specified in the slide as well, SEK 1,037,000,000 . It's an increase with 137% over Q1 of 2011. I'll get back to this cash flow in a moment. Return on capital employed plus over 28%, a reduction from 2011, of course, mainly influenced by the value coming from the acquisition of Aalborg. Return on equity, 22.5%, a reduction of about 2 percentage units.
Of course, again, the Aalborg acquisition and the capital connected is having an important role. Moving on to cash flow in the next slide. As I just mentioned, an increase in cash flow from operating activities of 137%, coming partly from a reduction in working capital of SEK 100 million exactly. In investing activities, we have charges for acquisitions of exactly SEK 600 million, of course, coming from the delisting in India. Free cash flow, that is exclusive of acquisitions, dividends, was almost SEK 1 billion, a substantial increase from 2011's first quarter. I think it's fair to say that, again, we've had another good quarter in terms of cash generation in Alfa Laval. On the next slide, just a summary of the delisting of Alfa Laval India Limited. You may have noted from our press releases that we passed also the second hurdle in the delisting process.
We got just over 50% of outstanding minority shares tendered at the price of INR 4,000 per share. Certainly more than we hoped for, but again, it was really the sole opportunity to increase ownership and achieve delisting. We offer remaining shareholders to sell their shares at this price, INR 4,000, for a period of 12 months following the delisting. This is, of course, entirely as per Indian rules. This may mean, if all of the outstanding shares are tendered, a cash outlay of another SEK 415 million. Moving on, CapEx in the quarter, -SEK 25 million. If we look at the full-year forecast based on a EUR 90 , sorry, Euro Tech and EUR 130 , we expect an adverse effect for the full year of SEK 105 million.
Clearly, a projection worse than what we reported with the Q4 report of some SEK 100 million following updated exposures as well as updated exchange rates. Moving on, on the next slide, you find the evolution of our order backlog over the last few years. You find the breakup between order backlog for shipment in the current year and for shipment in later years. Total backlog as per end of March, SEK 14.9 billion, out of which SEK 10.7 billion is expected to be shipped in 2012. Let me also point out that the backlog of SEK 14.9 billion for end of March represents approximately six months of LTM sales. What is important is also that on a like-for-like basis, our backlog is still some SEK 100 million lower than at the end of Q1 2011.
This also means that we have improved the backlog for shipment this year with some SEK 200 million compared to the status as per end of 2011 following the good order intake in Q1. With that as a base, let's move on to the sales bridge in the next slide and take a look at the summary of the knowns and the unknown parameters making up sales for 2012. Like for like, again, the backlog will give lower sales in the coming three quarters of some SEK 100 million compared to 2011. The translation effect is estimated to SEK 100 million, which is less, again, than the SEK 500 million that we projected with the Q4 report. There is certainly an impact from the Aalborg acquisition. Similar to our last report, we expect an additional SEK 800 million of sales from the first five months coming from Aalborg.
This gives us a subtotal for the known parameters of SEK 29.5 billion, a reduction of the number from last reporting with some SEK 200 million. Then, as always, it's up to you to form an opinion on demand for the full year, which then would give you a basis for estimating infra-out orders in 2012. The number for infra-out orders in 2011 was SEK 13.7 billion, a year with a very strong demand situation for the first nine months. With regard to prices, let me just repeat what I said last time. Prices for metals have been going down compared to early 2011. We have adjusted prices as we typically do as per the beginning of the year. These adjustments have been very limited and, of course, limited to standard products. With that, I give the word back to Lars for the outlook statement and closing remarks.
The outlook for the second quarter is as follows. We expect that demand during the second quarter of 2012 will be on about the same level as in the first quarter, excluding large orders, where we expect a more normal level. I have some comments. We expect the lower level of capital sales to the shipyards to continue, given the contracting at the yards in 2011 and 2012. This affects about 10% of Alfa Laval totally. We expect the high activity level in the Process Technology division to continue, especially in oil and gas. That completes our presentation. Now I hand over to the operator for the Q&A session. Is the operator there?
Are you ready to take questions, sir?
Yes, we are ready to take questions.
Ladies and gentlemen, if you do have a question at this time, just dial one on your telephone keypad. To cancel your question, please press the hash or hand key. Once again, dial one to register a question and the hash or hand key to cancel. The first question comes from the line of (Guillermo Pignet) from Morgan Stanley in London. Please go ahead with your question.
Hi, good morning. (Guillermo Pignet) from Morgan Stanley. A couple of questions regarding, first, the pricing involved in these large orders you captured during the first quarter, or otherwise, let's say the backlog margin of those, whether it is improving from the levels probably we've seen so far throughout 2011 or is just at the same level. Second question regarding investment. How far are you on your investment in the SaaS organization on emerging markets process? Will you continue throughout the year or are you okay at the moment in terms of investment?
If we look at the mix by application of the large orders compared to what we've seen during 2011, we have a heavier weight going into applications like oil and gas as opposed to a heavier weight into, for instance, vegetable oil during 2011. That represents a distinct difference in terms of scope of supply. With vegetable oil, we tend to have a wider scope of supply, giving a lower margin as opposed to oil and gas, a more narrow scope of supply, and as a consequence, a somewhat higher margin.
Thank you.
When it comes to investments in emerging markets and sales resources, our approach now is selective. Let me repeat, we're cutting back in established markets and we are selectively adding resources in not only BRICS, but in emerging markets in general. Based on the assessed opportunity in different end-user industries, we are adding resources in the local organizations. Of course, following that, we are also selectively adding support resources for the quotation activities and for the order handling of specifically contracts, larger contracts.
Can I follow up? Are you growing your net headcount?
We are net, as we see it, we expect to reduce headcount in the overhead area still with this selective approach. If we look at cost of goods sold, it is continuously adjusted to the demand situation, obviously. Our assumption when we launched the savings program, you may recall, we expected to take out $250 million- $300 million in cost of goods. With the order levels we have seen now, the situation will be different. For instance, job sharing is no longer on the agenda in Denmark. We had job sharing in the first quarter. That has come to an end. We have a higher load in, for instance, our air factory in Italy compared to quarter one. Right now, we see less of an impact in cost of goods sold.
Thank you very much.
The next question comes from the line of Ben Maslen from Bank of America. Please go ahead with your question.
Good afternoon, everyone. It's Ben from Merrill Lynch. Firstly, on Marine & Diesel, which I guess is a new business for us in terms of the breakout or the disclosure. Can you give us a little bit of help around the seasonality in this business? How pronounced are the swings that we like to see over the year in terms of orders, sales, and margins? Particularly on margins, I think you do close to a 30% margin in Q3 in Marine & Diesel. That's come down to 20%. How much of that is seasonal? How much of that is the underlying business trend? That's the first question. Secondly, just on net financial, which I think was overall positive for the quarter. What, if any, gains you saw in there and what you would guide for the rest of the year? Thank you.
When it comes to the seasonality of Marine & Diesel, the answer is simple. There is no seasonality in the order intake of Marine & Diesel. The order intake by its nature is a bit cyclic. Whereas if you come to sales, to invoicing, that is much more stable since we have quite a long backlog. That is the situation. When it comes to margin, two comments. The first one is that in Aalborg, there was a routine of recognizing discounts from certain suppliers at the back end of the year, and that gave a boost to the margin in the fourth quarter for the Aalborg activities. Of course, we will account for input materials in a more appropriate manner, at least try applying the Alfa Laval principles for costing. Secondly, of course, there is an underlying impact as volumes have come down in the traditional marine shipbuilding markets.
Lots of revenues is, of course, having an impact on Marine as a whole.
Thank you.
Interest net, Ben, to finish up with, you should model with an interest net of, say, SEK 40 million per quarter as far as FX variations are concerned. I have to say that your guess is as good as ours.
Okay, thanks. Maybe if I can just follow up on the margin comment there in the Marine & Diesel. If you did just over 20% for this quarter, as far as you're concerned, that's fairly reflective of what the business should do, and it's not seasonally depressed or just low loading this quarter and it ramps up over the year. That is what it is, basically.
Two comments to that. One is we're doing our best to apply Alfa Laval costing principles. Secondly, I am not providing a forecast. I'm just stating the fact when it comes to margin.
Got it. Thanks very much. Thank you.
Yeah.
The next question comes from the line of Sven Weier from UBS. Please go ahead with your questions.
Yeah, good afternoon, gentlemen. Three questions, please, from my side. First one is coming back to the emerging markets headcount. Given that your order intake in the quarter was quite solid, the outlook is okay. Do you see that investment actually already paying off in the order intake? Is that what we actually see already, or is that still something in terms of sales force efficiency that you would expect further down the line? The second question is basically, I think last quarter you mentioned there was some extra IT cost in the other expense line, but other expense was again relatively high at over SEK 200 million this quarter. Was there still some cost related to that? Finally, just getting your sales cost right, you had about SEK 900 million in Q1. What was the like-for-like number in Q4? I think Q4 was impacted by reallocation within Aalborg.
What's the like-for-like comparison there? Thank you.
Your first question on payoff in the emerging markets. The investments that we are making both in the local manufacturing and in sales presence in the emerging markets, that will pay off during 2012 and 2013. We haven't seen the full effects of that.
To the other two quotes, to begin with the extraordinary IT costs in Q4, we said at the time that they will continue into the first couple of quarters in 2012. They have continued on a somewhat lower level as we anticipated. These costs are charged not to other costs and income. They are into the costs of sales and admin. Finally, if I understood your question correctly, on a like-for-like basis, sales and admin were sequentially down between 17% and 18%.
Maybe one follow-up question. There was probably, as you said, on the pre-close cost, still a negative impact from Olmi on margins as well, right?
Yes, Olmi is dragging down margins, yes.
Thank you.
The next question comes from the line of (Peter Torstensson). Please go ahead with your question.
Thank you. Good afternoon, ladies and gentlemen. If you look at the base orders and sort of take out the large size orders, we see a flat situation in the quarter. Is that actually, are you surprised to that level because of the very strong orders in large size orders? Maybe you could also, in that answer, try to explain the seasonality ahead. You showed the books built per quarter in the slide pack. Typically, is that a seasonality you think will prevail ahead given new businesses? That's my first question. Secondly, on the savings, you talk about the European overhead coming down, Thomas. Is it possible to quantify the savings here? Give us an update. Is that all on the overhead side in terms of overhead production or overhead administration?
Finally, in the outlook, you mentioned flattish demand if you exclude large size orders and allude to a more normal level of large size orders. Should we look at a full-year basis last year and divide it by four to get what you think is normal? I guess there is no normal here, but could you please help us out here? Thank you.
Okay. First of all, there is very limited seasonality in Alfa Laval. It's only in the Equipment division that we have some seasonality. From that perspective, I think you can disregard it when we talk about the order intake here in the first quarter. When you take the order intake in the first quarter, if you deduct the large orders that we have communicated in press releases and do the same for the fourth quarter last year, you get a delta over SEK 400 million. That means that the business that is less than EUR 5 million order intake grew, in fact, with 6% sequentially. I wouldn't call that flattish.
No, I mean, yeah. Okay.
Moving on to.
Yeah, sorry.
Yeah, yeah. The third question was, what is normal when it comes to large orders? We can see, if you look before the drop in the fourth quarter, we were hovering around the level of SEK 500 million. That was the run rate before the downturn or the BRICS or the downturn in the fourth quarter.
To your question about savings, Peter, as I stated before, predominantly Western Europe when it comes to cutting back on overhead. The majority of that is coming in the sales and admin area, and only to a limited extent in cost of goods. Of course, influenced by the strong impact we saw in Q1.
Thank you so much.
The next question comes from the line of Martin Prozesky from Sanford C. Bernstein. Please go ahead with your questions.
Good afternoon, everyone. It's Martin from Bernstein. A few questions, please. Can you just comment on the strength of marine boilers in the quarter? It seems both from the M&A effects and the numbers and comments that that was quite strong. Can you just comment, is that seasonal or what drove that? First question. The second is on marine environmental. Are you seeing any changes in terms of the pickup, especially for SOx scrubbers? We saw a few orders related to marine environmental in the quarter being announced. Can you just give us a read on how that is progressing? Finally, on energy and environment, can you give us a read on how comfortable you are with the strength you're seeing in terms of the order cycle there? You know how long and you know at what pace you can expect that to continue?
All right. If I take the last question first, we only give out, we take one quarter at a time. When it comes to the demand situation for the Process Technology division, we see a solid demand, especially in oil and gas and in power generation. We have also, and there is a high activity level when it comes to tender activities of vital. Given the high price of oil, it looks quite interesting. Moving back to your question on marine boiler systems, the main driver for the order intake was this large order of SEK 230 million that was communicated in a press release. That was waste heat recovery boilers for the huge container ships that A.P. Moller have ordered in Korea. That was the main driver.
Finally, when it comes to the environmental products in marine, we see a continuous good activity level when it comes to ballast water. When it comes to SOx, it's still quite a limited activity.
Just to follow up on the ballast water treatment systems, do you expect the treaty ratification this year? What is your expectation on the treaty and progress there?
Yeah, time will tell. It's hard to give a forecast. It has been dragging on now for several quarters, so it's just, it's hard to know.
Thank you.
The next question comes from the line of (Andreas Koski from Stockholm). Please go ahead with your question.
Good afternoon. This is (Andreas Koski from Stockholm). Just had a couple of questions on the capacity utilization, sort of trying to get a sense of how much lower it was in Q1 versus Q4. Would it be possible to give some quantification on that?
The impact on the margin was in the neighborhood of 40 basis points.
Perfect. Just looking forward, because I think you mentioned that our capacity utilization would be slightly higher sequentially going into Q2. I understand that you can't give any numbers, but are we talking a significant increase or a limited one?
I think that somewhat is a synonym for limited, because somewhat was the word I used in the presentation. Load is likely to improve somewhat, and don't forget, mix deteriorate with a relative increase of capital sales revenue. That's what I said when it comes to forward-looking statements for margin, gross profit margin.
Thank you.
We have a follow-up question coming from the line of Ben Maslen from Bank of America. Please go ahead.
Yeah, hi, thanks. Just had a question on the U.S. gas prices have come down very, very sharply this year. Just wondered what you saw in terms of prospects for higher investment in the petrochemical industry, LNG, and so forth, and whether you'd already seen a pickup in tendering activity or whether it's just happened too quickly and these things take time. Thank you.
We see a high tendering activity in North America, and we are active both in shale gas, where we have seen a high activity for a long time. We also see now that with the plans to start exporting natural gas from North America, they are busy preparing, or let's say, preparing terminals for exports. It's a high activity level, high tendering level.
Thank you. Can you give us a sense on how big U.S. petrochemical or LNG would be as a portion of your sales?
No, I can't break it. We don't provide that information, and we don't have that breakup. Sorry.
Okay, no, thank you.
We have a follow-up question from the line of Sven Weier from UBS. Please go ahead with your question.
Yeah, one follow-up question, please, on Marine & Diesel. Marine Diesel service revenues were up 12% in Q1 for the first time in a while, seeing Europe recovering. Have you witnessed the same already in your marine and diesel division?
No, we have not seen that.
Okay, thank you.
We appear to have no further questions at this time, sir. The conference back to you.
Sure. Thank you very much for your time and your attention. Looking forward to hearing and speaking with you within the quarter's time at the latest. Thank you and goodbye.
Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may now disconnect your lines. Thank you.