Alfa Laval AB (publ)

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00:39 Good morning, and welcome to the Alfa Laval’s earnings call. As always, let me start with a few intro comments before moving on into the presentation.

As you’ve seen from the quarter reports, government demand remains steady and firm. It was a continuation of a synchronized global recovery and we see especially favorable environments both in our core markets of U.S.

and China. We are as the company now well above the twenty nineteen level as well, I mean, many areas significantly above the twenty nineteen level.

01:17 The margin improved somewhat in the quarter. There were a lot of factors affecting the margin development, both in a positive and in a negative way.

But if I would single out the specific factor, we had over period of time improved down the line profitability of our engineering product business, which is now in a stable and performance level, impacting specifically the margins of Food & Water positively. 01:45 Now finally, we've seen returns period of organic growth for a number of years, not least in this quarter and we see a need to increase -- an opportunity to increase our CapEx program into our existing technology platforms and growth opportunities in profitable businesses that we are already heavily involved in.

In addition to that, as you know, we have been developing a number of new application opportunities, primarily related to the rebuilding of energy systems and the marine industry. 02:21 And those two together has triggered us to increase our expectations for the CapEx programs going forward and we are now guiding you towards the CapEx in the region of seven billion, eight billion SEK over the next three years.

All-in-all that's about the doubling compared to our previous footprint programs levels and it's actually a quadrupling of the level of CapEx we used to have back in twenty fifteen and prior to that. 02:48 So without that, we go to the key figures.

We came in in terms of orders about a third of percent about last year. It was more or less in line with our expectations.

Our order book was continuing to strengthen significantly in the quarter and in the year-to-date and invoicing remain pretty as expected, so with the growth of five percent, six percent, we obviously still building the order book for invoicing twenty twenty two and forward. 03:20 The margin on, eighteen percent was satisfactory from the point of view that we see obviously a lot of inflationary pressure in the supply chain, in our operations and with a relatively slow emerging growth, the volume effect were limited.

So from that point of view, we felt good about the margin improvement, driven by the restructuring program that was launched last year driven by reduction of quality costs and driven by good productivity development across all parts of the organization. 03:59 Now moving on to the divisional levels.

First, at Food & Water division, which came off the record pace in Q2 in terms of ordering and although, the quarterly order intake sequentially was a little down. It is still in a very strong Q3 number for the division and compared to twenty twenty and twenty nineteen.

Those numbers are significantly above where we were. And I remind you that twenty twenty was a rather stable year from Food & Water division, not so much effective by the pandemic at the time.

Versus twenty nineteen, order intake was up nineteen percent as referenced, sorry, twenty one. 04:44 We see basically a strong demand growth across all geographies including as I said U.S.

and China, but we also – that – as happens quite rarely seeing good growth in essentially all of the end markets and then the applications of the Food & Water supported by a number of areas including veg oil, including brewery, recruiting biotech to just mention a few. 05:08 Volume effects were present in Food & Water as well as productivity and that compensated for somewhat on the negative mix and somewhat for inflationary pressure and somewhat from a return sales on sales and earning cost to a more normal level after the big reductions in twenty twenty.

05:27 Moving on to the Energy division. We had an all-time high in terms of order intake in the Energy division.

It was many factors, but obviously we see a continuous strong demand growth in sustainability related applications with special focus on the energy efficiency solutions. We also see somewhat of a return to CapEx projects in the division.

We see it in the process industry, and to some degree, we see it’s also in the oil and gas. So the oil and gas order intake as we guided you in the last quarter, we had a bit of an uptick in the oil and gas service related business as a lead indicator.

And in fact, in this quarter, we saw a modest return on CapEx project in the oil and gas sector. 06:17 Our expectations for the oil and gas order intake remains relatively modest compared to a historic level, but it confirms the view we've been holding for a couple of quarters that we passed the bottom and at this point in time, there may be a small upside as we move into a next up cycle in the oil and gas sector.

06:38 Service for the Energy division grew substantially across all applications and all geography. It was really strong service quarter and it was supported by largest service projects as well, which came in unusually strong in the quarter, probably a little bit of a pent up demand situation where those projects were not present in the order book during twenty twenty.

07:03 The margin remains stable, despite the negative PPV development. It is the division that is mostly affected by the material price increase and those were largely compensated by operational improvements and quality cost reductions.

07:21 Then onto the Marine division. We believe that the division is now returning to grow in terms of order intake clearly, and that means that from an invoicing point of view, we feel we probably have passed the bottom of the cycle in this structure.

The contract income no new vessels and ships in the shipyard remains on a positive trend. The expectations have been upgraded somewhat and most people would believe that we probably end the year at somewhat about fifteen hundred ships, eleven where we haven't been for many years.

07:55 Now I remind you that so far the order intake as a result of increased ship contracting has have limited impact on the order intake for the division, so far in the quarter, whereas we have expect some effect from this moving into twenty twenty two and perhaps the degree even in Q4. 08:18 With absence of order intake growth on the new ships, what we do see is a growth in environmental applications, and we also see a strong return on the service business including all of the different service goals for the Marine industry.

At this point in time, we have the ability to do onboard services on the level that we were not able to do it last year and that together with increased utilization of their fleet drives spare parts business and service business alike. 08:47 The margins remained stable in the quarter with some positive effects from mix and from the restructuring program, which was largely addressing all the capacities in the division, where volume and inflation had a negative impact on the mix all in all stable.

09:07 Let me finally say that this strongly acquisition is as you know, well completed. The company is operating as a business unit in the Marine division.

It's operating well in line with our expectations and well in line with our financial plans and we feel good and positive about the development opportunities relating to this acquisition going forward. 09:29 With that couple of comments on service overall, in fact, StormGeo is providing an increased share of service revenue in the Marine division and in the company as a whole.

The whole development of digital services is ongoing on a broad-based level in the group and the investments that we done into digital service, remote service and so forth in other parts of the Alfa Laval service portfolio is playing a role in the growth rate we currently see. 09:59 We have strong demand across all divisions and element of catch up as I mentioned before, but also a positive trend that we have returned to which -- to some degree remains stable and continuous in the years to come.

In terms of the growth, it was unusually strong, as I said in the quarter. We were twenty one percent up year-on-year and we were twelve percent up sequentially to an all-time higher number from the service business as a whole.

10:29 A few comments on the overall order intake, graph. As you can see, our base business was very strong in Q3.

So recognizing, we normally have and do have some seasonal negative effects in the future, three periods for our transactional business. The base business development in the quarter was very strong.

So, we had relatively speaking few large order announcement and relatively speaking, a very strong underlying demand for our transactional business. 11:00 Now, if you look at the last two quarters, quarter two and quarter three, those together are our two strongest order intake quarters ever.

And I would like, just to take note that our previous peak in late eighteen, early nineteen was strongly supported by scrubber business. And if you compare the level of activity from the scrubber business now compared to them, we have compensated the drop of order on an annual run rate level of about three billion SEK with driving the mix in other areas of our portfolio to the same level.

So not only is there a pretty good growth rate overall for the group, but it's also is growth that is compensated and adjusted for the mix in the group in a very good level. 11:51 Those of course, the volume as such, but also the mix change are contributing to the fact that we see capacity constraints and the need to continue to invest in our manufacturing system to keep those product groups that are growing aggressively on good footing.

12:09 Finally, a couple of questions on -- and reflection on geography. When you look at the regional chart, the numbers are really strong and it's almost difficult to comment of course in some regions, we are comparing with relatively weak year, but all-in-all, of course, it is super strong numbers.

I'd point out that the numbers in Asia, including China, they are strong as they are, but if you take into account that the order intake growth in the Marine industry is relatively slow. The underlying growth in both Energy division and Food & Water division in Asia is stronger than it appears on the chart.

So, with U.S. and China being our two biggest markets, twenty percent each we feel we will have good momentum and good support of our core markets growth forward.

13:07 And with that, I’d like to hand over to Jan for some further financial remarks.

13:12 Thank you, Tom. I will jump directly o sales.

So we expect that the invoice in Q3 to be somewhat higher than the same quarter last year. We realized sales of ten point three billion SEK, which is six percent prior in last year and broadly in line with our expectations.

We did see some impacts of the supply chain challenges on invoicing in the quarter, and we estimate this impact to be approximately fifteen million EUR. 13:41 Pretty much in sales, in Q4, my outlook is as follows, considering the increased for the backlog during twenty twenty one, especially Food & Water and the Energy division, I expect invoicing in Q4 to be somewhat higher than same quarter last year.

14:00 Then looking at our growth margin. So it came in at thirty seven point percent in Q3 compared to thirty six point one, which is an increase of one hundred and twenty basis points.

Excluding the acquisition of StormGeo capital sales service mix was unchanged versus last year. We had a continued good load and capacity utilization bolster of fact during Q3.

We also had a positive impact on the ongoing restructuring program, primarily impacting the Marine division. 14:33 As expected, the PPV metals impacts was negative in the quarter due to the increased material and freight costs, which mainly impacted the Energy division.

Mostly it’s impact could be offset by ongoing price increases and material price hedges in place. The FX impact was neutral in the quarter.

Finally, the acquisition of StormGeo had a positive impact on the gross profit margin but it was neutral on a EBITDA margin. 15:02 Now over to my outlook for Q4.

Starting point is thirty six point six percent reported in Q4 last year. And we expect a slightly positive capital sale of service mix on comparable basis.

We expect to continue good load and capacity utilization of factories, but also that the negative PPV metals that impact will continue due to the elevated material freight costs. We expect it to be partly offset by price increases and material price hedges.

Finally, we expect a slightly positive FX in pipeline gross profit margin in Q4. 15:42 Then, looking at our S&A expenses.

So on a comparable basis, S&A was up ten percent in Q3 and six percent year-to-date. This reflects that we are returning to a more normal activity level in the company and that we are comparing with the period with a short term work in programs of last year were in full effect.

16:05 If we compare to twenty nineteen, our S&A expenses are five percent lower in Q3 and six percent lower year-to-date on a comparable basis, which primarily reflects lower traveling spend and the more [indiscernible] of working following the COVID pandemic. In regard the restructuring program announced in the December last year, the program is progressing as planned, and we have reduced approximately four hundred so far, which represents about two-third of the total planned employee reduction.

As communicated earlier, the final restructuring costs related to this program was booked in Q2 twenty one and the savings will primarily impact cost of goods sold. 16:51 If you have seen, our EBITDA margin came in at eighteen percent up from seventeen point six percent last year, despite higher overhead cost and elevated materials and freight costs.

This was possible, gives us strong operational performance but high load in our factories, active price management, generally lower quality costs as well as positive impact from the on ongoing restructuring program. 17:20 Comments on some of the other key figures, we've talked about sales, we talked about the gross profit margin, then on the S&A and R&D.

On a comparable basis, S&A expenses were up ten percent and R&D expenses were up thirteen percent versus last year. This reflects the returning to more normal activity leverage of the company as of most of our end markets are recovering and business activity is strong.

Excluding comparison distortion items, net other cost of an income was sixty one million SEK lower in Q3. This reduction is primarily related to lower one-off incurred last year.

18:05 Finance net excluding FX impact was minus forty one million SEK. The FX gain losses in Q3 was minus forty seven million SEK, given the total of finance net on minus eight eight.

The main reason for the FX impact in Q3 was revaluation of cash positions in local currencies. Tax rate was at twenty two percent in the quarter and also twenty two percent year-to-date.

And the reason for the lower traction is due to the tax incentives and tax refunds in various jurisdictions. 18:37 Net income and EPS increased by eighteen percent in Q3 versus last year due to the higher operating income and the lower tax rate.

Cash flow, cash flow from operating activities was fourteen sixty nine in Q3 versus twelve fifty six last year. The increase was due to higher EBITDA level and lower taxes paid compensating for the increase in working capital.

The increase in working capital was partly due to the volume growth in the quarter and partly due to the global supply challenges, i.e. some buildup of safety stocks to safeguard our delivery performance.

19:20 Investing activities including CapEx -- included CapEx investment of three hundred seventeen million SEK and total three hundred twenty five. Financial net paid excluding FX impact was minus ninety million SEK in quarter, same level as last year.

Realized FX gains losses in the quarter amounted to negative fifty six giving a total finance net paid of minus one hundred and forty six. This means our total cash flow in Q3 came in at about one billion up some hundred and thirty six million SEK versus last year.

19:53 Please note that we have bought back some one point five millions of shares in the company during Q3, total of two point seven million shares during twenty twenty one. This represents zero point sixty three percent of total number of outstanding shares at a value of eight hundred fourteen million SEK year-to-date.

20:17 Our FX impact on EBITDA in the quarter, so the transaction effect was slightly positive at twenty million and the transaction impact was negative twenty million SEK giving a total at impact of pretty much zero. Looking at the projection for full year twenty twenty one, we expect a slight net negative impact of thirty five million driven by negative FX translation impact caused primarily by the stronger as Swedish Kroner.

20:51 Then moving over to the order backlog. So at end of September, the total order backlog was twenty two point nine billion SEK, which is eighteen percent higher than the same time last year and twenty seven percent higher than a year-end twenty twenty on a comparable basis.

The order backlog now represents close to seven months of LTM sales. For shipments in the remaining part of twenty one, the backlog amounts to eight point one million SEK, which is zero points for higher than the same time last year and that leads me into this sales bridge.

21:26 So the year to date, our sales has been twenty nine point two. The backlog for delivery is as just stated is -- for this year, it’s eight point one, which gives a total of thirty seven point three percent.

On top of that, of course, we need to make your estimate on change for these out orders and FX impact and so forth. 21:47 For your reference, the level of in-for-out orders during Q4 twenty twenty was three billion SEK.

Secondly, regards to acquisitions, StormGeo had sales of seven hundred million twenty twenty and after the deal was closed on June one, means that we will have several months of sales attributable to our Alfa Laval during twenty twenty one. 22:08 Finally, then expected FX impact is of course very uncertain, however, using the closing rate at the end of September, the estimated FX impact on the full year twenty one will be approximately negative four percent versus twenty twenty.

22:26 And by that, I hand back to Tom for [indiscernible].

22:30 Thank you, Jan. And you've seen the overall outlook statement promise that we all in all expect an order intake on about the same level as in Q4.

We see a general stable demand picture across industries as I described earlier, and our specific outlook for the various division is about the same level for Marine about the same level for Food & Water. And respect to the fact that we hit the real all time high level on the Energy division and somewhat lower expectation in Q4 compared to Q3.

23:17 And with that, we hand over for questions.

23:51 Thank you very much. Just my first question was on the Food and Water division, which has obviously had another very strong performance on orders.

I guess, could you maybe help us understand what is really driving the growth here, if there's any sort of specific smaller businesses, which are kind of materially different to how they looked in twenty nineteen. So maybe any kind of, if there's two percent or three percent of sales that may have doubled in that time?

24:22 And just to understand, there are also when you look at the pipeline, any areas of that Food and Water business that look a bit picky in terms of the pipeline of orders? Or do you see kind of no reason why this level of orders is a sort of base.

And I mean annual orders is a base that we can't continue to grow off. That would be my first question.

24:46 Yeah. It's a good question.

I don't know, I have a fantastic answer, but I try to provide a couple of pieces on the puzzle, at least. I think if you look at the situation for the division over a couple of years, you'll find that towards end nineteen and twenty, we've flattened out the bit.

We have some end markets that weren't too strong. And I think during the pandemic period, we have winding -- the vision was stable over all in all order intake, it was serviced and more importantly, the transactional business that kept pace whereas CapEx projects slowed considerably.

25:38 And so I think what we see in the order intake side right now is partly a return to normal and partly CapEx project that perhaps would have booked to degree a year earlier that is to a larger degree been booked now in Q2 to Q3. So, I think there's an element of catch up from delayed projects and we see that tendency also return to CapEx projects in the Energy division, as I mentioned earlier.

So there is one part of the puzzle. 26:14 The second part is, as you know that we've spent four, five years of investing in product technology, footprint competitiveness, sales force, training, and I’ve always told you guys that those investments, they aren’t really paying off during the period of implementation, they are creating the basis for growth going forward.

And I think we see some effects in strengthening our market position based on a very strong product program and a very tight and well organized sales and service organization. So I think there is a little bit of on making in this.

26:49 And then the final and third piece of the puzzle is that it's very unusual that we see all our end markets going in a direction and that's actually what is happening right now, and I don't think that necessarily is a one quarter effect. We've seen a return to veg oil investments that was lower for a period of time.

We see a return on the ethanol business after a week period in this -- specifically in the U.S. We see a very strong development in biotech.

We see good development on the brewer side despite some of the challenges that the brewer sectors come through. The new proteins are making a debt and the mark.

27:34 So, I don't see as an exceptional high level, where is sustainable, but, of course, we are very that in the period where we have the things is point to get a good direction. We will face different headwinds in the future, but as I indicate, our outlook short term remains quite positive, and we don't see a dramatic change to the demand situation in a negative way in the short term.

28:05 Okay. That's helpful.

And maybe just a very quick follow-up. Just moving to margins, I think kind of one area where you continue to surprise positively is on the Food and Water margin?

And I guess now thinking about the energy division where kind of orders are accelerating, revenue growth should accelerate next year. I think kind of when we think about Food & Water, you've talked a lot about sort of improved project execution, sort of high factory loads.

I guess I'm just looking at the Energy division now where the mix coming out of this downturn will be sort of quite different to the past. You've done some work on the cost base.

So I'm just wondering sort of how we should think about sort of weather margins coming out of this downturn in the same way that sort of Food & Water did after there was some improvements made could look, I guess different to what we had seen different to what we had seen in the run to COVID. Could it be quite a different outcome as we come out of this downturn given the cost base in the mix of the business?

29:11 I'd be cautious to guide you on margin development going forward, but I think your description on Food & Water is correct. And I don't think, it's necessarily transferable to the inhibition.

And there are some structural changes that you should be aware of in your calculation. And one is the fact that we have a lower value and then a higher share of material content in the supply chain on the Energy division.

So we are a little bit more PPV effects in the Energy division as we are already referred to in the Q3 we saw. So inflationary pressure is a bit tougher in the Energy division, when it comes to the cost side.

I lean out for the moment any reflections on pricing and net-met of order details, but we will have to deal with that in a good way going forward. I think outstanding question for the Energy division is that we are still in a situation with low capacity utilization in what used to be the high profit items in upstream oil and gas.

30:29 And I don't expect that to change from on that. We do even come back to the twenty fifteen level where it was a big part of the margins story for the Energy division.

So what I would say is that, with that out of the equation for number of years, the division has done a fairly good job in compensating in other areas and growing other businesses in a good way and with the good mix. And I think, I would leave some of the development with oil and gas side -- as I said for some time, the downside, we've already taken on that.

We could potentially see some upside utilization and margins in the oil and gas recover, which mainly in the past or the second last the cycles before we see upstream oil and gas disappear as part of the revenue mix.

31:23 Okay. Perfect.

Thank you very much.

31:40 Hi, gentlemen. Three questions from my side.

One is, there's a noticeable lack of comments on shortage of components, many other industrial companies have already released Q3 and everyone's speak of shortage and production disruptions. And in your report that's kind of missing, can you maybe elaborate a little bit whether you see short or if you just see inflationary pressure?

That will be much to first question. Thank you.

32:09 Yeah. I think to the degree situation is, it's only operational point of view, not dramatically different from a lot of other companies.

I think optionality maybe I think to some degree, we have challenges to handle and [Technical Difficulty] best we can. And they are always typical to see supply chain as reasons.

I think the level of focus on it when it comes to the engineering industry is limited too much color by the situation in to automotive industry and some of the industries with high volume items with very complex and broad-based supplier base that needs to be in place in order to deliver finished products. So I think our situation is somewhat easier.

We've indicated to you last quarter a delay in shipping of about ten million euros and our expectations is that that number was possibly around fifteen million EUR in Q3. So a slight increase.

But again, it's not our usual that we have deviations both positive and the negatives in shipment levels. So we trying not to make too much of a big deal and we have good understanding or deliberately decision is, we have a good understanding of our lead times to deliver or in those KPIs are not exactly where we want them to be, but they are still -- standalone in the crisis situation they are in a intense operational scrutiny level.

And I'm not saying that still, if I compare the situation to the beginning of twenty twenty, when we were in a complete unknown territory as to intend supply chain the situation today is on a much better level despite the province of challenges we see.

34:04 Understood. My second question is on pre-orders.

Again, a lot of company mentioned in -- mentioning it and beating expectation by twenty percent, thirty percent in Q3. This did not happen for Alfa.

Do you think this is structural, also a structural difference to other industries that maybe your dealers are not restocking in the same way as you would maybe see for automotive or other engineering companies, would you confirm that, if there's low restocking and low pre-order levels included in your orders?

34:40 Well, that's the feeling we have. I answer with some respect that we’re not doing still account at the customer, so we feel -- we have the same question up in Q2.

And although, we didn't share the July numbers, with you at that point in time, we didn't have the feeling that after closing the quarter that July numbers were weakening significantly. There were discussions about ordering before price increases and a number of other things.

So we didn't see any immediate decreased in the activity level as well close Q2. So, the dealers still out in terms of where we're in Q4 and but all in all, we -- I think being recovery of the CapEx projects that were delayed due in twenty twenty is a much bigger factor in understanding already intake than pre ordering.

35:51 Understood. My last question is on capacity increases.

For some reason I would have thought it's the heat exchange of where you have types of capacity, but it seems that you have the biggest unused capacity. Can you elaborate a little bit where what type of products, what type of plant factories you want to or you need to increase capacity?

Thank you.

36:17 I’ll be a little bit talk to you about this probably it’d be on competitive reasons. So I'm not too comfortable to go into it.

What I can say is a lot of our profitable growth areas in low energy and food and water is -- and they should be -- they have to – as they continue to grow on capacity limits. And as I said, we are in many areas well ahead of twenty nineteen level.

So it's not just recapture of almost ground last year it’s a structural long term growth trend that we see. And I think more importantly the announcement that we made was, I guess also to degree a need for us to come complete in terms of how you see the structural demand of in years to come and we feel we are well positioned in a lot of our existing profitable businesses and will continue to invest the drive growth in those as we go forward.

We will hope we will on some good level and share some clarity on our thinking around that the Capital Markets Day in November.

37:26 Yeah. But that's big unclarity at the moment Q1.

In heat exchanges, are you nearing the capacity? Or do you have a lot of spare capacities, I mean it's –

37:40 I’ll roll on of our supply chain is much more complex than that. Unfortunately, heat exchange is not a heat change here in and consequently, there are areas of heat exchanges that have been widely driven by, let's say, the upstream oil and gas and through the degree the refinery sector where we have a different capacity utilization that the areas relates to education to solutions in other parts.

So it's [indiscernible] more and more. The answer is, it depends in what area you look and consequently, that takes us into a level of detail that I stay away from but there are many answers to your question even as we stay in the heat exchange and energy.

38:29 Understood. Thank you so much.

38:43 Hi. Good morning.

Thanks for taking my questions. I just wanted to start with the increased investment which you've described this morning, this morning should say.

And is it fair to assume that we're going to see that spend across the three divisions or would you sort of steer it in terms of it being particularly targeted on one or two divisions, specifically?

39:10 Yeah. As we've said this in the reward, people provide more details at the Capital Markets Day.

So I hope you can bear with us. And then we have something to talk to you in more detail at that point?

39:26 Understood. I can be patience.

Maybe to – if you could come to Food & water. As for it’s interesting your comments around it was obviously been a lot of work of a large [indiscernible] in that business?

And you can’t see obviously going through the outperformance. I guess, I am interested if you are, it's sort of where you stand now if you're seeing similar activities being undertaken by your competitors or whether you think you'd be able to sort of drive a sustainable gap in terms competitive position in some of these attractive markets talks about into quarter?

40:05 Yeah. I can’t comment my competitors in any detail, but of course, I always been – the job we are doing and have to do is to stay at bronze.

And it doesn't end then we are not done. I guess the signal is sort of been shipped because we have things in the plan now order and it's different from five years ago, but it is daily for job to stay competitive in the market where we have one cancel competitors.

So yes, it's a battle and it will remain so.

40:49 Okay. And then possibly just a clarification question just on the S&A, and the helpful kind of detail you've given in terms of development both against twenty twenty, but that's more just in me against twenty nineteen.

I think that you're still running a little bit below twenty nineteen levels and I was wondering and there is being various sort of cost programs been going on as well. But how should we think about where those S&A cost events should we get to, should we expect them being back sort of twenty twenty because or do you think there are some sustainable savings?

I know you mentioned travelers as one of the areas which is still to come back, but yes just try to get a sense of sort of where in it potentially gets to versus that twenty nineteen level?

41:33 Well, I think that we are running now here in twenty twenty one around five, six percent below the level of twenty nineteen. And that’s primarily as you correctly said on the traveling side and that I think it's a little bit too early to say where this will done, but certainly, there are also some productivity improvements in the way we work now more digitally, both in terms of towards the customers on sales, on the service side and so forth.

Will we see that difference continue as partly, but yea, we are running the company now at the highest level and received strong market that we have? We will continue to see invest in sales activities and so forth.

So but there is a product underlying productivity development and we will have seen, I think seeing how about the signs of that as we continue here. So can't give you a number but certainly there is some underlying productivity driven.

42:47 That make sense. Appreciate the commentary around it.

Thank you.

43:02 Yeah. Thank you and good morning.

I'm just a bit interested in the HVAC side in the energy business here. You mentioned a couple of end markets there such as heat pumps, refrigeration, data centers.

Just to understand, I think it's quite clear of the way we can read about it at least that heat pump demand is accelerating in many parts of the world, but just a bit curious on the refrigeration side and standard air conditioning. And also if you feel that the data center businesses currently in a significant CapEx program that will level off in a year or two?

Thank you.

43:44 No, we don't feel that there is a leveling off in these end markets in the year of two, we think there is a structural growth period that will continue in air conditioning alone, it's not only related to the efficiencies side, it's also related to the environmental impact of refrigeration and so it's becoming more demanding applications there in the years to come. 44:15 And data center side I think is, they have to stay in terms of growth and may be that part of being store based was not optimized from the very beginning.

So I think it is a sector which we still expect to be supportive of our growth journey in certainly in the longer period than a few years.

44:41 All right. Thank you.

And my second question relates to Ballast, if you could just give us an update on what you feel about the orders maybe some insight into balance as a share of your environment portfolio this quarter, but mostly in terms of just what you feel? What you receive kind of indications from customer given the deadline that is approaching?

And when you feel if you still believe that the kind of peak in balance will come to years prior to the deadline?

45:15 Yeah. If we will cover that question, as I indicated in my earlier comments a little bit, a few years back, when we peaked on the retrofit implementation of scrubbers and pure balance, we were at the level of almost six billion SEK running rate four and scrubbers two in Dallas.

Now the implementation is schedule 4Q balance has always been more predictable because it was a five year implementation plan. So we've been on and at around the level of two billion running rate to go and we still are whereas the scrubber side went up, then it went to almost zero and now it's running maybe at some level around billion SEK or so.

So that is our environmental running rates. The few balance will go into its last year on the schedule find implementation cycle next year.

And so -- and after to that, I think the -- we may have some delays due to repair all capacities and difficulties to get the job done related to the pandemic last year, but all in all, next year is the last year or we expect to see a major impact from the retrofit program.

46:40 All right. Thank you.

46:57 Yeah. Hi.

A follow-up on the price and cost matching or the passing on of cost new prices. And you have the component business, no project business.

So would you confirm that you can pass on cost increases for alloys and so on within weeks within the month, within a quarter how quickly does that happen for the price list? And how willing our customers are accepting those prices?

Thank you.

47:30 Well, I will confirm you or us as a component supply, we have a significant engineering in project activity and we have long order books especially in the marine. So, all in all, I think our order book stands at about six months total delivery pace, but of course, that is not fully the next six months part of that order book is for all of twenty twenty two and part of it and moves into twenty twenty three.

So it is a more complex analysis and reflection to do when it comes to orders and how their priced and what with the actual cost base be those as we move into year. 48:20 Then -- but what I guess you could say is that over a cycle, over our pricing cycle, we will meet some headwinds or meeting some headwinds on cost increases versus the price increases that are happening in the markets when raw material prices goes up.

And then the opposite will happen when the raw material process go down that we mean, create the big positive deviation on our the order book versus pre both post cap. So that's just the way we are in that process at the moment.

You see it two degree and energy division all already. And this is for to some degree and the Marine division already.

So that's what it is. Of course, we are working with price.

It's not as easy to say that it has on the material, we built sell most of our products that's cost plus. We don't some material, we add a little bit of all on at increased sell about added solutions to customers.

And so while, of course, we need to make sure that we stay on top of our overall cost base and our pricing strategy then we are, our pricing is not solely determined by and how we feel about the raw material prices.

49:42 Maybe I have to specify then, for the products you sell to the dealer ships, how quickly can you pass on the cost increases? And then for the long running orders and projects, do you have price close or cost clauses baked into these contracts where you can basically change the pricing in those six months that you have to have time to deliver?

Thank you.

50:13 I understand you are objective with the -- with your questions, but I'm not willing to meet you in the details of how you run the numbers. I'll just stay with the fact that of course, we're doing a price adjustments as we go.

And of course, we have projects that are outstanding where we have a commitment, and we will deliver on that and that includes a fixed price in the fixed delivery date. And it doesn't take into to account any short in some materially and across increases or whatever.

That's part of our business responsibility to our customers that we think it fully you see some effects of that already and you can expect that there are some effects going forward on that.

50:52 Okay. Thank very much.

51:05 Thank you. Hi, Tom and Jan.

It's Klas Bergelind. So first on the greener opportunity.

I was just wondering downward, you can comment on the potential size in the utilization in Food & Water. I think you have alluded before, if it could be a five hundred million U.S.

business in a couple of years. You also said that you are confident in your growth targets than before.

I think obviously looking quite positive, but it would be increasingly about current time of heat pump by diesel, so carbon capture, hydrogen and so forth is so we can bridge the upside a little bit.

51:42 Yes. Let me say that I think it's a broad-based question.

It's difficult and this will for everybody and obviously the last question we take, we aren’t schedule that was up to finish it few minutes before and before the hour. But of course, our commitment when it comes to our investment plan and I believe that we are well positioned into the growth drivers of the energy transition and between economy is, I mean that is clear.

We will spend some time at the Capital Markets Day and given our you on the impact of hydrogen, the impact of other environmental trends and the energy system changes, that it has on us, but it's clear that if society goes through we will be rebuilding on our global energy system over the next ten, twenty years, it is clearly having a structural growth element to [indiscernible] that wasn't there historically. 53:02 And I think I’ve communicated to you, during a number of years that the question of our oil and gas exposure shouldn't be over emphasized from the point of view that as -- that over time, we will see a gradual decrease of that as the CapEx spending is going towards the zero perhaps in the twenty, thirty perspective.

But compared to the growth opportunities we see in the green economy those are substantially more important to us then residual exposure in the oil and gas sector. So that gives you sort of some weighing of the factors, but I believe I think the question to the Capital Markets Day, where will have the divisional precedents and opportunity to get a little bit more respect, I would want to pull up more today we do a digital to our bank, but it will still be a little bit of opportunity to shed some life in terms of how we engage the opportunities.

54:06 It sounds good. We're aware, but I think some people out would still think that Alfa Laval is just an oil and gas and marine folks, so it's good that you will do that.

54:18 We discussed the Food & Water business today, it’s a wonderful day here at the management meet. [Technical Difficulty]

54:26 A very quick final follow-up on the investment side. You're obviously ramping CapEx and hoping that I was expected out during the market given the growth opportunities.

And like I assume Tom that you don't have invest much more in R&D given that you already market leading in heat changes here and most of your flow technologies, are these new growth opportunities is more CapEx increase rather than R&D ramp? I’ll finish there.

54:52 Yeah. That's correct and we take that as a last questions.

We haven't read down our targets and guidance when it comes to the R&D, we are at the higher level than we were as we grow in revenue even with the same percentage of investments into R&D. We will still have some headway.

So that's not some of it to change on guidance at this point in time whereas the CapEx clearly is final note on that. I mean just to say that, of course, we haven't committed eight billion SEK over three years in the one go decision, we will of course, monitor the development in more areas and take close sequentially as needed and the time that we need to do it, but we will see an acceleration in terms of our CapEx positions and this year and doing next year for execution next year and beyond that is already clear.

So, but of course, we will make those decision step wise to the best of our liabilities we go forward. 56:03 With that, thank you very much, everybody.

And I hope that you will dial-in on our Capital Markets Day. In November, we decided to do it digitally after a lot of consideration.

We will reflect on whether that is the solution for the future or whether we will have the opportunity to come sit together in twenty twenty two. So thank you very much.