Alfa Laval : 2021 Q2 Quarterly report.pdf

Q2 2021

Advancing better™

Continued strong market recovery

• Strong order growth across all divisions and regions.
• Record-highorder intake in the Food & Water Division.
• Sustainability offering in Marine strengthened by acquisition of StormGeo.
• The adjusted EBITA-margin improved due to productivity improvements and restructuring program.

Outlook for the third quarter

"We expect demand in the third quarter to be somewhat lower than in the second quarter."

Earlier published outlook (April 27, 2021):

"We expect demand in the second quarter to be about the same as in the first quarter."

The Q2 2021 report has not been subject to review by the company's auditors.

Summary

	Q2				Jan-Jun
SEK millions	2021		2020	%	% *	2021	2020	%	% *
Order intake	12,183		9,749	25	33	22,387	21,626	4	12
Net sales	9,975		10,455	-5	2	18,944	21,045	-10	-3
Adjusted EBITA **	1,738		1,802	-4		3,268	3,552	-8
- adjusted EBITA margin (%) **	17.4		17.2			17.3	16.9
Result after financial items ***	1,231		1,414	-13		2,714	2,671	2
Net income for the period ***	985		1,055	-7		2,097	1,978	6
Earnings per share (SEK) ***	2.32		2.49	-7		4.96	4.68	6
Cash flow from operating activities	1,421		2,844	-50		2,384	3,803	-37
Impact on adjusted EBITA of foreign exchange effects	-30		60			-100	150
Impact on result after financial items
of comparison distortion items	-204		-			-192	-
Return on capital employed (%) **						18.0	22.5
Net debt to EBITDA, times **						1.14	0.58

* Excluding currency effects. ** Alternative performance measures. *** The comparison periods 2020 have been changed as communicated in the Q3 report 2020.

Comment from

Tom Erixon

President and CEO

"The global economic recovery continued and the second quarter was characterized by high activity levels and overall good demand in all geographical markets. The order intake for the Group was strong with a record-high organic order growth of 45% in the Food & Water division. The book-to-bill ratio of 1.2 in the quarter indicates that the low point of this business cycle is behind us.

The adjusted EBITA margin strengthened somewhat in the quarter, both compared to last year and sequentially. Strong productivity development and good implementation of the restructuring program more than compensated for cost inflation and the return to a more normal Sales & Admin activity level after the pandemic.

Our business portfolio addressing the accelerated demand for more sustainable solutions continues to grow. Three important initiatives were announced in the Marine Division. First, the acquisition of StormGeo, where one of many important products is a Route Advisory service, helping the global merchant fleet to navigate in a more fuel-efficient way. Second, a joint venture with Wallenius, called AlfaWall Oceanbird, was announced. The company will develop an innovative technology to use wind as propulsion on large vessels with the ambition to dramatically reduce the fuel consumption. Third, Alfa Laval acquired a minority stake in a company developing an air lubrication system to distribute air bubbles under the hull, with significant fuel savings as a result. Alfa Laval has now established a significant toolbox to support the decarbonization of the world's merchant fleet.

Demand is expected to remain firm on the current level, with a normal seasonal slowdown in the third quarter. As a result of the high order intake in recent months, in combination with global material and freight constraints, we already now see some short-term challenges in the supply chain that may impact the invoicing in the second half of 2021."

Tom Erixon,

President and CEO

Q2

2021 Quarter Second Laval Alfa

3

25

Financial overview

Order intake

BnSEK											BnSEK
quarter										12 months
14													49
12													42
10													35
8													28
6													21
4													14
2													7
0													0
Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1
	Q2
2018		2019			2020		2021
		Order intake per quarter		Orders received rolling 12 months

Orders received was SEK 12,183 (9,749) million in the second quarter and SEK 22,387 (21,626) million in the first six months 2021.

Orders received from Service constituted 24.9 (29.1) percent of the Group's total orders received during the second quarter and 27.1 (29.0) percent during the first six months 2021.

Order backlog

BnSEK		June 30		%
30					120
	24.6				For delivery next
25				100
		21.9	21.5		year or later
20					80
	11.0	9.8	9.4		For delivery
15			60
					during rest of
							current year
10					40		Part of last 12
	13.5	12.1	12.0
5		20		months'
					invoicing
0					0
	2019	2020	2021

Excluding currency effects and adjusted for acquisition and divestment of businesses the order backlog was 7.0 percent higher than the order backlog on June 30, 2020 and 19.2 percent higher than the order backlog at the end of 2020.

Net sales

Net invoicing was SEK 9,975 (10,455) million for the second quarter and SEK 18,944 (21,045) million for the first six months 2021.

Net invoicing relating to Service constituted 29.1 (27.7) percent of the Group's total net invoicing in the second quarter and 29.3 (28.1) percent in the first six months 2021.

• Organic: change excluding acquisition/divestment of businesses.
• Structural: acquisition/divestment of businesses.
• Service: Parts and service.

	Order bridge
SEK millions/%	Q2	Jan-Jun
2020	9,749	21,626
Organic 1)	32.6%	12.2%
Structural 1)	0.6%	0.2%
Currency	-8.2%	-8.9%
Total	25.0%	3.5%
2021	12,183	22,387
1) Change excluding currency effects.

	Order bridge Service
SEK millions/%	Q2	Jan-Jun
2020	2,834	6,271
Organic 1)	13.6%	4.9%
Structural 1)	1.9%	0.8%
Currency	-8.3%	-9.1%
Total	7.2%	-3.4%
2021	3,037	6,056
1) Change excluding currency effects.

	Sales bridge
SEK millions/%	Q2	Jan-Jun
2020	10,455	21,045
Organic 1)	1.5%	-2.9%
Structural 1)	0.6%	0.3%
Currency	-6.7%	-7.4%
Total	-4.6%	-10.0%
2021	9,975	18,944
1) Change excluding currency effects.

	Sales bridge Service
SEK millions/%	Q2	Jan-Jun
2020	2,900	5,931
Organic 1)	6.1%	1.4%
Structural 1)	2.0%	0.9%
Currency	-7.8%	-8.7%
Total	0.3%	-6.4%
2021	2,908	5,551

1) Change excluding currency effects.

Income analysis

		Q2		Jan-Jun	Jan-Dec	Last 12
SEK millions	2021		2020	2021	2020	2020	months
Net sales	9,975		10,455	18,944	21,045	41,468	39,367
Adjusted gross profit *	3,806		3,705	7,231	7,690	15,113	14,654
- adjusted gross margin (%) *	38.2		35.4	38.2	36.5	36.4	37.2
Expenses **	-1,788		-1,637	-3,403	-3,594	-6,748	-6,557
- in % of net sales		17.9		15.7	18.0	17.1	16.3	16.7
Adjusted EBITDA *	2,018		2,068	3,828	4,096	8,365	8,097
- adjusted EBITDA margin (%) *	20.2		19.8	20.2	19.5	20.2	20.6
Depreciation	-280		-266	-560	-544	-1,134	-1,150
Adjusted EBITA *	1,738		1,802	3,268	3,552	7,231	6,947
- adjusted EBITA margin (%) *	17.4		17.2	17.3	16.9	17.4	17.6
Amortisation of step-up values	-190		-222	-392	-444	-855	-803
Comparison distortion items	-204		-	-192	-	-796	-988
Operating income	1,344		1,580	2,684	3,108	5,580	5,156

* Alternative performance measures. ** Excluding comparison distortion items.

The gross profit has been affected negatively by a lower sales volume and positively by the mix between service and capital sales.

Sales and administration expenses were SEK 1,614 (1,448) million during the second quarter and SEK 3,069 (3,118) million during the first six months 2021. The figures for the first six months corresponded to 16.2 (14.8) percent of net sales. Excluding currency effects and acquisition/divestment of businesses, sales and administration expenses were 14.9 percent higher during the second quarter and 3.7 percent higher during the first six months 2021 compared to the corresponding periods last year. The increase is reflecting that the activity level now is returning to more normal levels after the pandemic, except for travelling.

BnSEK				%
15					42
12					40
9					38
6					36
3					34
0					32
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
	201 8	201 9	202 0	202 1

Q2

Quarter Second Laval Alfa

The costs for research and development during the first six months 2021 corresponded to 2.9 (2.6) percent of net sales. Excluding currency effects and acquisition/divestment of businesses, the costs for research and development increased by 15.8 percent during the second quarter and increased by 6.3 percent during the first six months 2021 compared to the corresponding periods last year.

Earnings per share was SEK 4.96 (4.68) for the first six months 2021. The corresponding figure excluding amortisation of step-up values and the corresponding tax, was SEK 5.73 (5.54).

Comparison distortion items

		Q2	Jan-Jun	Jan-Dec	Last 12
SEK millions	2021	2020	2021	2020	2020	months
Other operating income
Comparison distortion items:
-	Realised gain on sale of businesses	-	-	3	-	-	3
-	Realised gain on sale of properties	-	-	9	-	-	9
Other operating costs
Comparison distortion items:
- Realised loss on sale of businesses	-	-	-	-	-55	-55
- Write down of goodwill	-	-	-	-	-360	-360
- Restructuring costs	-204	-	-204	-	-381	-585
Net comparison distortion items	-204	-	-192	-	-796	-988

			Net sales
			Adjusted gross margin in %
BnSEK	%
2.5						19
2.0						18
1.5						17
1.0						16
0.5						15
0.0						14
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
	201 8	201 9	202 0	202 1

Adjusted EBITA

Adjusted EBITA margin in %

2021

4

25

The comparison distortion items during the first six months 2021 are relating to the final step in the restructuring program that was started during the fourth quarter 2020 and the realised gains on the sale of the remaining air heat exchanger operation in India to LU-VE and on the sale of a property in India.

Q2

2021 Quarter Second Laval Alfa

5

25

The realized loss in full year 2020 was relating to the divestment of the operations in DSO Fluid Handling Inc in the U.S. The write down of goodwill and the restructuring costs were part of the restructuring program that was announced on December 16, 2020 and that is described on page 24.

Consolidated financial net and taxes

The financial net for the first six months 2021 was SEK -70(-101) million, excluding realised and unrealised exchange rate losses and gains. The main elements of costs were interest on the debt to the banking syndicate of SEK -8(-2) million, interest on the bilateral term loans of SEK -2(-21) million, interest on the corporate bonds of SEK -41(-42) million, interest on the commercial paper programme of SEK -0(-) and a net of dividends, changes in fair value and other interest income and interest costs of SEK -19(-36) million. The net of realised and unrealised exchange rate differences was SEK 100 (-336) million.

The tax on the result after financial items was SEK -246(-359) million in the second quarter and SEK -617(-693) million in the first six months 2021.

Cash flow

During the first six months 2021 cash flows from operating and investing activities were SEK -1,629 (3,527) million. The change is mainly explained by the acquisition of StormGeo, see below.

Depreciation, excluding allocated step-up values, was SEK 560 (544) million during the first six months 2021.

Acquisition of businesses during the first six months 2021 amount to SEK -3,601(-8) million. The figure for 2021 is relating to the acquisition of StormGeo with SEK -3,588 million, payment of withheld purchase price for the acquisition of Airec with SEK -8 million and additional purchase price for the acquisition of Aalborg AS with SEK -5 million. The figure for 2020 was relating to payment of withheld purchase price for the acquisition of Airec.

Divestment of businesses during the first six months 2021 amount to SEK 8

1. million. The figure for 2021 is relating to additional purchase price concerning the sale of the remaining air heat exchanger operation in India to LU-VE. The figure for 2020 was relating to payment of withheld purchase price for the sale of the commercial/industrial air heat exchangers business to the LU-VE Group with SEK 21 million and the sale of Alfa Laval Champ to Thermal Solutions Manufacturing with SEK 18 million.

Key figures	Jun 30		Dec 31
	2021		2020	2020
Return on capital employed (%) 1)	18.0		22.5	19.1
Return on equity (%) 2)	11.5		19.2	12.7
Solidity (%) 3)	46.8		43.7	47.8
Net debt to EBITDA, times 1)	1.14		0.58	0.48
Debt ratio, times 1)	0.28		0.19	0.13
Number of employees 4)	17,555		17,196	16,882

1. Alternative performance measure.
2. Net income in relation to average equity, calculated on 12 months' revolving basis, expressed in percent.
3. Equity in relation to total assets at the end of the period, expressed in percent.
4. At the end of the period.

The increase in number of employees during 2021 is mainly explained by the acquisition of StormGeo, that added 519 employees as per June 30, 2021.