Good afternoon and most welcome to the Presentation of the First Quarter Report. I will start by giving you my three highlights. First of all, order intake increased by 27% to SEK 6.5 billion, with all business segments and regions contributing to the growth. My second highlight concerns marine and diesel that had a good development based on the order intake to the shipyards in 2010. Also, in process industry, investments picked up since some of the customers had to go beyond the de-bottlenecking to increase capacity. Finally, Alfa Laval continues to deliver a strong operating margin, 19.2%, despite adverse currency effects and higher raw material prices. Let's take a look at the key figures. Order intake rose 27% to SEK 6.5 billion, and net sales increased 10% to SEK 5.9 billion. Adjusted EBITDA was up 12% to SEK 1.1 billion. The EBITDA margin reached a solid 19.2%.
Moving to the next slide, we see that orders received on rolling 12 months rose to SEK 24.7 billion. The increase in order intake was 38% year-on-year at constant exchange rates. On the next slide, you see from the order analysis that acquisitions contributed with 4.4% and that we had 11% negative currency effects, and we had a very strong increase in organic growth of 34%. Moving to the next slide, we see that we in the quarter reached an operating margin of 19.2%, and the operating result was SEK 1.1 billion. Let's take a look at the highlights in the quarter. In India, we received an order of SEK 50 million for a vegetable oil process line. In Saudi Arabia, we received an order of SEK 75 million for refinery equipment.
From MON in Germany, we received an order of SEK 60 million for oil treatment modules to land-based diesel power plants. When it comes to the acquisition of Aalborg Industries, we have obtained clearance from four out of five authorities. The decision for the Chinese authorities is still pending. Considering that there are no product overlaps, we see no obstacles to completing the deal, but the administrative process takes time. Let's take a look at the development per segment. In the process technology division, demand from oil and gas exploration was boosted by capacity investments, and we saw a recovery in demand for wastewater applications. Further, in process industry, we saw a pickup in investments in most end markets.
Moving over to the next slide with the equipment division, there we find that industrial equipment was up on strong demand from refrigeration applications, and sanitary enjoyed continued increased demand from food and pharma industries. In marine and diesel, we had good order intake supported by last year's contracting at the yards. On the next slide, we see orders received for the first three months, and for the first time in several years, all segments delivered growth. I will give some forward-looking comments. We expect the high activity level in oil and gas exploration to continue. Further, we expect a continued good demand from food and pharma markets benefiting sanitary and food segments. Finally, we expect a continued improvement of the activity level in process industry.
Now we move over to the geographical developments, and there we see that all regions delivered at least 20% growth year-on-year, with Asia and Latin America standing out with 50% growth. We are very pleased to report that Western Europe recovered strongly with 34% growth. Let's look at the regions more in detail. We start with Americas, and in North America, we had a good contribution from the base business, and we saw particularly good development for segments in the process technology division. In Latin America, we had strong development for base business and large orders alike. We had particularly good sales growth in Brazil, Mexico, and Chile. Moving over to Europe, in Western Europe, including the Nordic countries, we had substantial growth in base business, which confirms an improved business climate. The best development was seen in process industry, food technology, and marine and diesel.
In Central and Eastern Europe, we had a strong quarter, particularly for sanitary and food. Russia and the Czech Republic performed well. Moving over to Asia, we find that in Asia, we had a very strong development in China and Korea, and marine and process industries performed the best. The Japanese earthquake has had insignificant effects on the operations. By that, I hand over to Thomas for the financials.
Yeah, good afternoon, all of you. Time for some more numbers. If we start off with a few comments on the sales development, as you have noted already, SEK 5.9 billion in sales. That is to say, on a like-for-like basis, we had an increase in sales of almost 15%. Acquisitions contributed with about 4.5%. Particularly, the weaker U.S. dollar had a big FX effect, so we had a negative FX effect in sales of 9.5%. I would also like to mention at this point that we have not seen any effects worth mentioning on deliveries from the increased pressure on our supply chain. That is our internal supply chain as well as that of suppliers. Let's move on to the gross profit margin. We ended, as you see from the graph, on 40.4% gross profit margin in the quarter, a decline of some 2.3% year-on-year.
Let's look at why on the next slide. With a starting point of 42.7%, as you've noted already, we had adverse FX effects representing 0.5%. That is the transaction part of the FX. In addition, we had an adverse mix effect to a very large extent coming from the increase in capital sales, the relative increase in capital sales of some 3%. That was giving an adverse mix effect of 1.7%, giving a subtotal of 40.5%. The remaining parameters, the remaining main parameters ended net at almost zero, giving the 40.4%. Going forward, to give you a sense of what is to be expected, you will have to expect gradually increasing adverse FX effects.
Given that we will have a continued level of demand similar to the last few quarters, you will also have to anticipate a continued negative mix effect, again, to a very large extent following the relative increase in capital sales to the total. For the rest, going forward, price and leverage continues to be the tools to compensate for more expensive metals and lower margins in contract-based sales. Moving on further down the P&L, R&D increased with 11.4% like-for-like. This is a reflection of the fact that we did increase the project activity in R&D mid-2010, given that we saw the recovery during the spring of last year. With regard to sales and admin, we've realized an increase like-for-like of 8.4%.
That is a result of, of course, the increased activity level in most, if not all, markets, a selective addition of resources, and finally, substantial salary inflation in primarily the large emerging markets. As you have seen, EBITDA margin of 19.2%. That is above last year and, in our view, a very good level. Looking at the profit before tax, SEK 1.007 billion, which is then including a negative FX effect, predominantly unrealized effects of a SEK -23 million, and that is to be compared with a positive of SEK 32 million in the first quarter of 2010. This is largely coming again from the devaluation of the U.S. dollar in relation to most currencies. Moving on to EPS, as you see from the slide, EPS came out stronger, both including as well as excluding step-up, an increase of 18% and 13% respectively.
I think this is a development which clearly very well supports the proposed increase in dividends for the upcoming AGM later this afternoon. Moving on to cash flows, cash flow from operations, SEK 438 million, quite a substantial reduction from the SEK 1.007 billion of last year, but I will get back to that in just a short while. Return on capital employed and return on equity, both reporting an increase of 6.5% and 2.5% respectively, which is, as we see it, going from a good level to an even better level. Getting to the cash flow statement on the next slide, cash flows from operating activities of SEK 438 million. The reduction then compared to last year is coming from an increase in working capital of some SEK 350 million instead of, as last year, a reduction of SEK 150 million. This is a reflection of mainly two elements.
To some extent, the increased activity level, but mainly because of the more expensive metals that we're using in our production. Another factor was an increase in taxes paid, which is more to do with phasing than anything else. We think that the free cash flow generation was strong considering the increase in activity level as well as the metal prices. We ended with SEK 528 million as specified on the slide. A bit of a forward-looking statement or adjustment to a statement we made before.
When it comes to capital expenditure, given the increased scope of manufacturing in emerging economies as well as the general activity level, we expect to further increase our CapEx from the earlier guided about SEK 600 million to a CapEx of somewhere between SEK 650 million and SEK 700 million for 2011. This is an increase in CapEx for this year compared to earlier guidance. Moving on to FX, again, the weakening in the U.S. dollar will further increase adverse FX effects. If we assume today's levels for the rest of the year, we expect adverse effects of totally SEK 425 million, which is an increase of SEK 115 million compared to our guidance of SEK 310 million with the full-year report. Moving on to the status of our order backlog, you find on the slide the status as per March 31, the last three years.
As you can see, the total has come down very much due to the reduction in backlog in marine and diesel. Let me point out that for delivery in the current year, we have SEK 8.9 billion in the bag at this point, which is an increase of some SEK 300+ million compared to last year. With this as a basis, let's take a look at a sales bridge from 2011 over 2010. Starting with the SEK 24.7 billion of sales of last year, we are now with current exchange rate anticipating translation effects of a negative SEK 1.9 billion. That is an increase of SEK 800 million compared to what we showed you with the full-year report, again having to do with dollar and dollar-related currencies. That gives you a subtotal of SEK 22.8 billion.
With the acquisitions already landed and with the assumption that we will be able to close Aalborg round about the very beginning of May, we can add some SEK 2.4 billion to sales for 2011. Of course, what remains is price and volume effects on infra-out orders. Let me, at this point, point out that infra-out orders in 2010, recalculated at current exchange rates, amounted to SEK 14 billion. So infra-out orders of SEK 14 billion in 2010. If we then make an example, just an example, given an increase in infra-out orders of 15% from January 1 until December 31 of 2011, that would mean an addition of another SEK 2.1 billion. That added together will give you SEK 27.3 billion. SEK 22.8 billion + SEK 2.4 billion from acquisitions and SEK 2.1 billion with a 15% increase in infra-out orders, giving SEK 27.3 billion.
Of course, it's up to you to make your assumption whether it's 10%, 15%, or some other percentage increase in 2011 over 2010. I think this is very important to have in mind when forecasts are made. With that, I hand back to Lars for the outlook.
The outlook for the second quarter is as follows. We expect demand during the second quarter of 2011 to be somewhat higher than in the second quarter of 2010 and possibly even somewhat higher than the first quarter of 2011. By that, we have finished our presentation, and now I hand over to the operator for the Q&A session.
Thank you, sir. If you do have a question at this time, please press star then one on your telephone keypad. To cancel your question, please press the hash or pound key. Once again, that's star then one to register a question and the hash or pound key to cancel. There'll be a short silence while participants register for questions. Our first question comes to the line of Peter Frolin, calling from Handelsbanken. Please go ahead with your question.
Yes, good afternoon and good morning. My first question relates to the mix in the order book. You mentioned today that it's mostly on capital sales versus the total that gives you the negative mix. Does that imply that the, call it the sort of the weaker profitable orders there that were taken in after the recession, are they now invoiced? Also, the very, very strong profitable orders that were taken on the marine side before it collapsed, are they also sort of already taken? We have now a more normal mix in terms of the profitability built in the order. We should only look at the mix on aftermarket versus capital sales. That's my first question. My second question is very much related to the marine side. Maybe you could explain that, what's happened sequentially on the marine order side and what you see more in detail here.
Okay. To start off with mixed shifts, you know, if you look at orders received, we had 25% parts and service of the total the first quarter this year. We had almost 32% last year. That is, of course, orders. If we look at net invoicing, we had 25.5% this year of parts and service invoicing against 28.2% last year, which is almost 3% less. That is the main element of the negative mix effect, the 1.2%. When it comes to the order backlog, we will continue to have somewhat of an adverse effect from the margin we have in the backlog. We were, as we were quite open about, selectively aggressive in contract-based sales during the trough, and there is still a number of orders that remain to be shipped.
I repeat, we will continue to have somewhat of an adverse effect, the pressure on the gross profit margin from these contracts that we still have in the backlog.
I guess that's insignificant when compared to the other mix effect that you described as 1.7%.
I did not put a number on it, but of course, it's significant enough in order that it's worth to be mentioned.
Okay, thank you.
When we come to the marine, we spurred some words about the order intake to the shipyards. In the first half of 2010, there were 1,200 ships contracted. In the second half of last year, 1,000+ were contracted. With a lag of six to nine months, orders are placed with Alfa Laval. We could see a pickup in the order intake in the fourth quarter last year for marine and diesel, and it escalated now in the first quarter. We saw a good demand both for marine, especially from China, and we also saw a good demand for land-based diesel power stations.
How should we think of this, Lars? I mean, given the sort of sequentially weaker contracting in the second half of last year, is it fair to assume that the order for you with the time lag is sort of leveling out on this level or even coming down, or are we still seeing some positive momentum for you in the lag here?
There was a lower intake in the second half of the year, but for us, it's impossible for us to know to what extent the different shipyards have already placed the orders with their suppliers or not.
Is this one of the elements that might mean that the sequential demand also could be better, not only the year-on-year? Is marine one of those, call it, uncertainties that leads to this type of guidance?
I would rather say that we saw an increased activity level in process industry during the first quarter. We saw in several end markets a pickup in demand. Refinery was quite active, and a number of other end markets. It's more the process industry side, and we saw that some of our customers, they have now gone beyond de-bottlenecking and have to make more significant investments to increase capacity.
Okay. Thank you so much for clear answers. I will get back in line.
Okay, thank you.
Our next question comes to the line of Matt Slys, calling from Swedbank. Please go ahead with your question.
Okay. All right. Thanks. Just a couple of questions here. First, regarding you mentioned that activity among customers are picking up. Could you sort of give some indication about the large order tender activity if you should expect that to pick up as well, or is this more like midsize to smaller orders that are sort of expected to come? That's the first one here.
Okay. The increased activity is mainly in the midsize order range. We can say between EUR 1 million-EUR 5 million. There we see a good pickup in activity level and also in order intake. When it comes to the big ones, above EUR 5 million, they come in a bit lumpy. The main message is the midsize. There is an increased activity level that we can confirm and that we saw now in the first quarter.
Price increases, I guess, have they sort of had any impact on customer behavior, I guess, in pre-buying or something like that, which explained the good order figures?
No. I mean, we made one adjustment at the back end of last year, and following the metal price increases, we are now well into implementing a further adjustment, but we have no reason to believe that there's anything to do with price with pre-buying in relation to that price adjustment. I mean, remember, we're into investment goods for capacity increases to a very large extent in capital sales. It's nothing that you do to sort of put on the shelf.
You also mentioned that the supply chain seemed to be in order, and I guess if there's anything more to say about the, I mean, you supply a lot of resources to Italy from Japan. Is there something to say about that?
No. I think that, again, let's look at what's happening to working capital. We had an increase of SEK 350 million, but as I commented before, that's basically to do with the increase in prices for metals. For the rest, there are only slight movements in the other elements of working capital. I think that's evidence that the supply chain inside of the company remains solid. We've had very none or very limited implications from hiccups with suppliers. If we look at Japan, we have gotten confirmation from our main suppliers of titanium that they expect to be able to meet their delivery obligations. When it comes to electronics specifically, we are directly a very, very small user buyer of electronics. We've not seen any direct effects, indirect effects. That remains to be seen, of course.
Finally, just one about Aalborg here. Are you at all concerned about the missing approval from the Chinese?
No. I mean, we've stayed in a continuous dialogue with our advisors, our lawyers, as well as with the Ministry of Commerce on this matter. It is, as Lars stated before, a question of getting the administrative process completed inside of the authority. There are no questions pending between the Ministry of Commerce and Alfa Laval on the acquisition.
Have you got any indication about it, when the timing of the approval?
The authority is very well aware that we are eager to close the acquisition, and they have promised to do their utmost to complete the process. That is as far as, of course, they are prepared to commit.
Okay, thanks a lot.
We have a follow-up question from the line of Peter Frolin from Handelsbanken. Please go ahead, sir.
Okay. That was fast. A question on price. I mean, price is still a question mark in your sales bridge, Thomas, but more to it than that. I mean, how do you see it on pricing now? Lars, you commented before that you are a price leader, but you also want to sort of protect the volumes and the business. I guess that you have a quite good possibility here to increase prices due to the imported material. How should we think about the pricing for Alfa Laval? Will you go out rather aggressively as you did in the past, or are you waiting others more this time around, or how should we look at the price?
We stick to our approach when it comes to price adjustments coming from metal cost increases. We try to work the same way as we did four years ago. When it comes to sort of aggressivity and specific orders, we talked about selective aggressivity in contract-based sales in the trough. The demand situation is quite different at this point. Of course, that we expect and we see as well in certain areas will have an effect on the price levels on contract-based sales.
Okay. On the organic leverage, if you look at, you've tried to take out the FX both in the translation and transaction. Are you pleased with that organic leverage on the additional volumes? That's the first question. The second is really on your guidance. Why are you changing it from a quarter-on-quarter guidance to year-on-year guidance? Is there any reason for that?
I can start with the guidance. Historically, we have always had a guidance year-on-year. We abandoned it when we came into the financial crisis in 2008 when there was a freefall in demand. It didn't make sense to refer to something a year ago. Now we are returning to our normal way of giving the outlook, comparing year-on-year instead.
Yeah, that's very logical. Yeah.
When it comes to the leverage, I think the outcome in the first quarter speaks for itself. I think it's evidence that we have improved productivity quite significantly. That is to say we've gotten more out the door with less resources in quarter one. The measures taken during the trough have been very important in order to achieve this productivity improvement. Yes, we're quite happy with the leverage effect.
Perfect. Thank you so much.
Our next question comes to the line of Ben Mason, calling from Bank of America. Please go ahead, sir.
Good afternoon, everyone. It's Ben from Merrill Lynch. A couple of questions, please. Firstly, Thomas, just on the working capital build, would you expect to get that back in the second half of the year as you deliver the finished goods with higher raw material content, or do you think we should expect more of a kind of more general working capital outflow this year just because of the higher volumes? In short, what do you think your working capital to sales ratios will do over the course of this year? That's the first question. Secondly, just in terms of you say that you've secured your supply of titanium going forward. Some of your smaller competitors may not have done.
Do you think that gives you extra pricing leverage versus some of your competitors and maybe the scope to get your gross margins up to the levels you saw in the last cycle? Thank you.
If we look at working capital, the bulk of the effect of the increase, that is to say, in the first quarter has to do with metal price increases. Assuming that we will continue to see a strong demand, I think in order to retain high-level supply accuracy towards our customers, good delivery performance, I do not expect that we will be able to reduce working capital going forward. Again, given demand space on a good level, we will have to build some working capital in order to retain good delivery performance.
Okay. Thanks.
When it comes to titanium, that is a good bell. The markets, the supply and demand is well in balance in the titanium market. We don't foresee any shortage of titanium, and we have had confirmation from the Japanese suppliers that they do not have any interruptions due to the catastrophe over them. Therefore, it's a normal market when it comes to titanium products. We don't foresee at all the same effects as we had in the previous boom.
Great. Thank you. Maybe just to follow up on marine, just so we can get it in context. Can you just say how much of your order intake for the quarter came from the marine segment, and maybe, as you've done in previous quarters, what the book-to-bill was within that segment? Thank you.
If we look at the pie on page seven of the report, you will find that we were about a dozen % of orders coming from marine and diesel, and we had orders being on about level with sales in the quarter.
Great. Thank you very much.
Our next question comes to the line of [Max Yates] from Morgan Stanley. Please go ahead with your question.
Hi. Good afternoon, gentlemen. Just a question regarding maybe profitability mix going forward. Obviously, Forex gets somewhat worse. Still, you're going to have or going to face negative metal pricing. If I just read well what you've just been saying, the mix is probably getting better from a product invoicing standpoint. Also, you're escalating volumes, and you are increasing prices as well. Is that sort of almost saying that from here onwards, you're going to see more of, let's say, margin accretion towards the sort of the second half of 2011?
When it comes to the first element, that mix would become better. I was saying before quite the opposite. We have to expect that mix will give a negative effect because the capital sales element will increase given current demand levels. When it comes to volume and price, what I said before was that those are the two factors we have in order to compensate for what we see today, that is more expensive metals and lower margins in the backlog still for some time.
When it comes to the mix in the invoicing of your capital equipment per se, rather than actually the services, which, yeah, I mean, they're going to be that services to capital is going to deteriorate. Within capital, you also see mix improving there, right?
No, I didn't say that. I just said that because of still lower margins to be recognized in revenue, contracts with lower margins still to be recognized as revenue in the coming quarters, we will have an adverse effect within capital sales as well.
Thank you. Last, sequentially, how much do you expect the parts and services growing into sort of second quarter?
We're not providing a specific growth % for any of the segments, and that goes for parts and service as well.
How much did it grow in this quarter, sorry?
I think it's specified in the report on page two at 14.3%.
Is it accelerating? I think I remember that Q4 was sort of 8% sequentially. Is that also sequential growth?
No, this is year-on-year.
This is year-on-year. It's okay, it's slowing down. Thank you.
Thank you.
We appear to have no further questions at this time. I'll hand the conference back to you.
Thank you very much for your attention, and I'm wishing you a continued good day. Thank you from all of us. Bye-bye.
Thank you.