President and CEO, Alfa Laval AB (publ)
Alfa Laval AB publ ALFVF CEO Tom Erixon on Q2 2020 Results
About Tom Erixon
Tom Erixon, President and CEO of Alfa Laval, discussed the company's approach to decarbonization in the marine industry during a June 2024 interview at the Posidonia exhibition. He stated that there will not be a "silver bullet" for decarbonizing the global merchant fleet and that the company is working with a "broad portfolio" of tools, including solutions related to friction in water, wind propulsion, and energy savings. Erixon emphasized that development times need to be shorter and that this requires increased collaboration between companies, consortia, and ship owners, with a willingness to test and learn from experience. He also addressed safety concerns regarding new technologies and fuels, saying that while safety must be taken seriously, it should not be a "deal breaker" for trying new things, and that progress can be made in a safe way. In a Q2 2020 earnings call, Erixon noted that the company had moved from a "pandemic crisis situation to more of a normal business cycle downturn" and did not see the market moving strongly in either direction. He described the quarter as "clean" with no major mishaps or quality concerns, and highlighted positive effects from phasing out costs related to a three-year investment program. Erixon also stated that the company's order backlog was solid, representing approximately six months of sales, with no significant cancellations or postponements.
Transcript (61 segments)
T
Tom Erixon0:01
Good morning and welcome to our second quarter earnings call. Let me start with a few introductory comments. The situation for the second quarter looked relatively complicated – we were unclear about the stability of supply chains and how demand would develop. With the quarter behind us, we came out fairly well: supply chain issues were largely resolved early, delivery on time was restored, and despite lower factory volumes we had net productivity improvement. Demand was weaker but came in around our main scenario. Since then, markets have stabilized somewhat at a lower level. The margin increased to 17.2%, boosted by an early cost reduction program that delivered over 300 million SEK in savings. Going forward, the temporary work-time reductions are not sustainable, so we will gradually return to normal operations in the second half, while reviewing areas of structural demand weakness. We feel we are in a good position: a three-year investment program in infrastructure and technology is ongoing, our balance sheet has strengthened with strong cash flow and a net cash position of almost 9 billion SEK. In the food and water division, performance was stable with good margins, driven by wastewater and biotech while breweries were weak. The energy division saw good demand in core energy efficiency, with solid project bookings, but the hydrocarbon chain remains weak. Service was impacted by customer shutdowns. The marine division faced headwinds from low yard contracting and fleet utilization, but order intake held up at 3 billion SEK, stable versus last year. Margin improved slightly from Q1 but not to 2019 levels. Service order intake was weak overall, though food and water was positive. Regionally, Asia performed well at 40% of global order intake, with China providing a strong backbone. Nordic and Eastern Europe were strong; Western Europe and North America were okay but with underlying concerns about the US market. China is closing in on the US as our largest market. In summary, we were battle tested, stood our ground well, and kept the company strong both operationally and financially. With that, I hand over to you.
J
John11:43
Thank you, Tom. So I will talk about sales. We expect invoicing to be lower than Q2 2019. We realized sales of 10.5 billion SEK in Q2, down 8% year-on-year. For Q3, considering the lower order backlog, especially in marine, I expect invoicing to be lower than the same quarter last year but about the same level as Q2 2020. Gross margin came in about 50 basis points below Q2 2019, with a negative product mix in marine partly offset by positive load volume impact from quick factory cost adaptation. The PPV metals impact was positive. We saw a small negative FX impact from marine operations in Norway. For Q3, we expect a positive capital sales service mix but a worsening negative product mix in marine due to tough comparisons. Load volume should remain positive, and PPV metals neutral versus last year. On S&A expenses, the cost reduction program generated savings of 325 million SEK, 18% lower than last year. The program is temporary, and as demand has stabilized, we will stepwise return to normal operations, with the savings effect gradually decreasing in the second half. My guidance of 500–600 million SEK in savings for the full year remains, likely at the upper end. S&A expenses were 18% lower in Q2; as a percentage of sales, they declined from 15.6% to 13.8%. R&D expenses decreased 5%. Net other costs included a gain from the divestment of the heat exchanger business last year. Financial net was minus 51 million SEK, similar to last year, while FX gains gave a positive 140 million SEK net. The tax rate was 24.6%, slightly below guidance. EPS was down 9% year-on-year. Cash flow from operations was 2.8 billion SEK, up 2.2 billion, driven by working capital reduction. Capex was 192 million SEK; our guidance of 1 billion SEK for the full year remains. Net debt now stands at 5.3 billion SEK including lease liabilities, down from 8.2 billion at end of 2019, with a net debt-to-EBITDA ratio of 0.58. We refinanced a USD 136 million loan with a 2 billion SEK term loan maturing December 2021. The FX impact on EBITDA was positive 60 million SEK in Q2. For the full year, we expect a positive transaction impact of 440 million SEK and a negative translation impact of 180 million SEK, for a net positive FX impact of 260 million SEK. The order backlog at end of June was 21.9 billion SEK, 10% lower year-on-year but 3% higher than end of 2019. The book-to-bill ratio was 0.93. The backlog represents about 5.7 months of LTM sales. For the second half, the backlog is 12.1 billion SEK, a reduction of 1.4 billion versus last year, mainly in marine. For the full year sales bridge: year-to-date sales 21 billion, plus backlog of 12.1 billion gives a subtotal of 33.1 billion. Estimate price changes, lean out orders, and FX translation, with FX translation estimated at negative 900 million SEK. By that, I hand back to you, Tom, for the outlook statement.
T
Tom Erixon21:39
Some short words of background first. We feel that over the last quarter we have gone from a pandemic crisis situation to more of a normal business cycle downturn. At this point, we don't see it moving strongly in either direction. We interpret that we are at the lower point of the business cycle downturn, and that's most likely where we will remain in the third quarter. There are too many red flags in the macroeconomic scenario for us to be optimistic about a quick recovery – trade wars, budget deficits, and unemployment. Our main strategy is to keep costs under control while gradually returning to a more normal operating mode. That means we will selectively compensate by adjusting our businesses structurally to the demand situation. We have natural opportunities through our footprint programs, and additional measures will be considered in the second half. Consequently, our outlook is that demand will be somewhat lower in Q3 compared to Q2: food and water somewhat lower, energy somewhat lower, and marine somewhat higher. That concludes the outlook statement. We are open for questions. Thank you.
O
Operator23:41
Ladies and gentlemen, we now begin the question and answer session. If you wish to ask a question, please press star one on your telephone. We have the first question from [Lion] from City. Please go ahead.
A
Analyst (City)24:00
Yes, hi Tom and John. It's from City. So first on the cost actions – very strong execution. But just a question for you, John: when you say 500 to 600 million for the year, after 600 million, so is it 600 less what you did this quarter? It's around 275 for the rest of the year? Yes, we get that right. And it's the full program of one billion intact, so the rest to hit next year. And for you, Tom, on the same topic, you talk about likely longer-term actions and weaker areas. So where do you see that need?
T
Tom Erixon24:38
I will start then. Right, you understood it correctly. As we said, we expect to go back to a more normal operation level gradually. Since this cost-saving program has been flexible and temporary in nature, we expect it to have a smaller effect during the second half. Regarding the structural actions, I want to be cautious. We prefer to have internal communication first. The one area that is clear and has been communicated before is the completion of the transition from Copenhagen to Krakow for our decanter factory. Krakow is now fully up and running, and we are in full swing to complete that transition after a year's delay because we kept Copenhagen running to meet high demand. There will be other areas evaluated and addressed, but we don't foresee a large restructuring program at this point. We have opportunities to adjust with temporary labor without high restructuring costs.
A
Analyst (City)26:40
Okay, very clear. My second one is on services. Orders are calling more than sales, and I appreciate that order book to bill is not always in balance, but I guess services will see a bit more pressure into the second half. On orders, could you help us with the trajectory on services in June and into July? How quickly did they come back as we were opening up and got more access?
T
Tom Erixon27:07
The speed of recovery – I will leave a little bit open. We don't see a real structural change in the service business as a result of this. But it's also clear that in areas where customers are not operating, it will be zero until they are. A good example is the cruise industry affecting our marine division. Repair works require people to fly, and that will be hampered for a period. I don't think the whole issue will disappear in a couple of months, but maybe the immediate impact in Q1 was slightly elevated compared to what we should expect.
A
Analyst (City)28:07
Okay, and my very final one is on marine. The mix is linked to lower sales of pumping systems and environmental. When do we start to compound on this? Asking this given that pumping system orders have been quite solid for two quarters. What is the book-to-bill now in pumping systems, and what is the lead time? At current demand, when can mix start to improve in marine? I know it's forward-looking, but you see what I'm trying to get to.
T
Tom Erixon28:38
Yeah, I would say we tried to be fairly transparent on this. As we came into 2020, the order book from pumping systems was lower than the same period at the end of 2018. That is one aspect. We have seen a pretty good and stable order intake on pumping systems. The second element is the mix on the environmental side, which is what I'm referring to when I say we will have tough comps in Q3. So pumping system has been okay from a volume point of view. The big mix impact I was referring to is more on the environmental side.
A
Analyst (City)29:49
All right, thank you.
O
Operator29:56
Thank you for your question. The next question comes from the line of Mad Vera Singh from Boffa. Please go ahead.
V
Vera Singh30:04
Yes, hi. Thanks. First question is quick one: you had a big delta on the working capital side during the quarter. How quickly would you expect that to reverse? Or would you expect this positive trend to continue for the rest of the year, or would you expect a reversal? And secondly, following up on the backlog, how comfortable are you with the levels, and do you see any issues in terms of book-to-bill? And if you could talk particularly about the trends you are seeing in China – if you could talk about the growth trends out of China, that would be great.
T
Tom Erixon30:55
Well, when it goes to the first question on working capital, if you follow us these last two or three years, we have grown this company fairly fast and along with that we have grown our working capital to a level which historically is fairly high. We have worked with a high focus now to bring down the working capital levels to a more normalized level. We had fears as we went into this Corona situation that we could run into problems, which is why we've had a high focus on this topic. We've gone through the period so far, I think, in a good way. We will keep continuing high focus on this point. When it comes to the order backlog, as I said, we had a backlog now which represents approximately six months of sales. We haven't had any significant cancellations or postponements in the backlog, so we feel that the backlog is solid.
A
Analyst32:06
So is it fair to assume on the working capital question that you wouldn't really expect a major reversal in the working capital trend going forward?
T
Tom Erixon32:14
It's always very tricky to provide some kind of outlook statement on cash flow and working capital. I'm just saying that the working capital levels have been elevated as we've grown the company fast. As sales have now stabilized on a lower level, naturally you do see your working capital coming down. And the second point, as I said, we've had a very high focus on this considering the challenging time we've gone through here.
A
Analyst32:50
I may ask a question on the marine division as well. It seems like this division has bottomed out in terms of the pressure on growth. What is driving this stabilization at this point, especially whether it is the cruises or other segments which are still weak? But you are seeing demand kind of bottoming out. So what is driving this marine division bottoming out here?
T
Tom Erixon33:24
I think the big issue in our marine division is that new contracting accounts for only a portion of our orders. Part of the big part of the environmental business is driven by retrofits in the existing fleet, so that is not so dependent on the contracting side, although part of the sales goes there. The service business, although somewhat depressed, the majority of the world merchant fleet is sailing as normal and needs spares and service as normal, so there certainly is a continuation of that business. We have partly an offshore business that is booked on the marine side, and that has also booked a number of orders in the quarter. So even leaving aside the new contracting, there is some stability in the division coming from those areas. If you look at the contracting side, although the numbers are depressed, the ship mix in terms of what is being contracted today is relatively positive for us in terms of business opportunity per vessel. So while the overall number is depressed, the specific target segments for us are not as weak as the total market. But of course, we would prefer to see a very different number there.
O
Operator34:54
Thank you for your question. The next question came from the line of Johanna Elizon from Kepler. Please go ahead; your line is open.
J
Joanna Elizon35:10
Yeah, hi, this is Joanna from Kepler. Congratulations on good performance during this quarter. Staying on the marine side, I was just wondering, we've obviously seen some sort of delays in shipyard deliveries because of lockdowns, etc. But I think we are getting some signals as well that customers want to postpone deliveries even further, obviously in the cruise segment. But are you seeing that also in other segments?
T
Tom Erixon35:43
No, it hasn't been a big factor for us. I think in general, our reflection on the quarter was less than expected. Especially on the retrofit side, we were seriously concerned at the beginning of the quarter about the ability for ships to dock and all that. So I think given the turbulence that comes by nature with the sailing fleet with limitations on how they can dock and enter harbors, the development was relatively good.
J
Joanna Elizon36:22
Okay, and then just shortly on your outlook statement by division: you said that Food and Water and Marine are somewhat down, and Energy is somewhat higher, if I understood it correctly. What's the reason for Energy being higher? Are you seeing some big orders in the pipeline there?
T
Tom Erixon36:56
It's not really a big order situation. There certainly are some larger orders potentially out in the market. We see specific segments where we expect demand to be decent, such as gas carriers and a couple of other vessel types. So it's not all doom and gloom in the marine market. We just feel that when we look at the pipeline we have, and the fact that the quarter wasn't super strong, we simply have some optimism for where the market is moving on a low level at the moment. And I remind you that the order intake for the second quarter in Marine is not particularly high when you compare historically, whereas on the Food and Water side we are on a high level and continued on a high level. So I think there are some reflections on where we were in the Q2 numbers that affect the way we look at the outlook going forward.
J
Joanna Elizon38:03
Okay, and then finally, just on the environmental systems, I guess we can skip scrubber talk for some time with the current spreads. But on the ballast water, what's your understanding of your market share right now? Is it sort of at your 40% level you have in other product areas, or what are we talking about?
T
Tom Erixon38:27
I would hesitate to give a firm answer to that, but what I'd like you to keep in mind is that there are two competing technical solutions: one chemical solution where we are not participating, and one UV-based technology where we are very strong. So it's not a 50-50 split. I think the UV technology has the larger share. But when you count market shares for the global market, you need to chop off a significant part of the market before we start to look at the area where we are competing. In the area where we are competing, I think we've been coming out well. It's been, as you know, some 50 competitors in the race from the very beginning. We've got a good market position on the retrofit, but we have also been able to capture a fair amount of orders on the new build. So all in all, it played out well. We have at times done retrofits on competing systems that have malfunctioned at the ships as well. So I think the technical level of our solution and the fact that it absolutely needs to work, or else you may face dramatic fines when you enter foreign waters, has made ship owners be a bit cautious about what systems they put on board. I would say if you eliminate the chemical systems, we are on about normal market share levels compared to the rest of our marine business, which may be a bit better than we were hoping for looking back some two years when the race of competitors looked fairly broad.
J
Joanna Elizon40:16
Okay, good. And then finally, I don't know if you can say something, but obviously having talked to [someone] at [company], he's very intent on stopping you getting the two-thirds majority for a cross-border merger at the AGM. What's your view on the situation right now?
T
Tom Erixon40:35
Well, it hasn't really; it is as expected. We obviously made our offer to all the shareholders, but specifically to 85% of the shareholders we think it's a fair offer, it's a fully valued offer. And at the moment, there is no other offer on the table. So I'm hopeful that the shareholders will come to a positive conclusion as we enter into the offering period in mid-August. That's where we are on the situation, and I hope we will find a good solution.
J
Joanna Elizon41:08
Okay, thank you very much.
O
Operator41:13
Thank you for your question. The next question came from the line of Matthias Holmberg from DNB. Please go ahead; your line is open.
M
Matthias Holmberg41:23
Yeah, thank you. Matthias Holmberg from DNB here. When you say that the market demand at this point is perceived as stabilized and that you expect a stepwise increase, do you mean that Q2 was a low water mark and that you expected an increase going forward from this level, or am I reading too much into this comment?
T
Tom Erixon41:44
I'm not sure I used the word 'stepwise increase' in my comment. If anything, I think our comment on the macroeconomic scenario is that from an industrial point of view, we feel we are at the bottom of the cycle, and we are not overly optimistic as to how we will go short-term in the coming quarters. So I think we see more of a stability situation than a gradual improvement at this point in time. If I'm wrong, I'll be very happy.
M
Matthias Holmberg42:20
Thanks for clarifying. Also to John regarding your comment on FX where you said that the figures on the slide do not include any balance sheet FX revaluations. Did you have any such revaluations that impacted Q2 earnings, please?
T
Tom Erixon43:01
Well, we had fairly large such revaluation effects in Q1, and as we guided, we had some impact also in Q2 but much smaller than what we saw in Q1.
M
Matthias Holmberg43:05
And you do not want to quantify this?
T
Tom Erixon43:06
No, because they are not material.
M
Matthias Holmberg43:07
Okay, thank you so much.
O
Operator43:08
Thank you for your question. The next question came from the line of Sebastian Kuen from RBC. Please go ahead.
S
Sebastian Kuen43:13
Yeah, good morning gentlemen. Question one would be on the energy side: you mentioned a strong invoicing and I was wondering if that is for projects that dragged from Q1 into Q2, or projects that you were thinking of delivering in Q3 and then shifted into Q2? That would be my first question. Then on marine, could you maybe be a bit more specific on what order volumes come from refurbishment of ships and what comes from the new build sites at the moment, what the ratio roughly is, so we get a better picture and can use Clarksons data a bit more effectively? And then on Food and Water, compared to the other businesses, this was kind of most in line; the others were a strong beat, but Food and Water was in line. I was wondering whether you now see a better recovery or better demand from the food processing industries that would lead to some growth maybe in the second half. What is your view there on the food side?
T
Tom Erixon44:34
Alright, so on the energy division, I may not have been crystal clear in my comments. The large order pipeline was affecting the order intake positively. We always have a pipeline of projects that are discussed, negotiated, signed, and waiting for down payment, and they move into a quarter. That conversion into firm orders was relatively strong for the larger projects in the energy division, and that was actually an opposite situation in the Food and Water division in that quarter. So I thought it was a significant development that may not fully repeat itself in Q3. Hence the outlook statement for the energy division. In terms of invoicing, it was not particularly fast; if anything, it was on the low side given the backlog in the division. We were pleased with the margin development, which tends to go a little bit with the invoicing level, but actually the margin went the other way due to several factors in the quarter. So for the energy division, that was quite good, and we are moving into Q3 with a good order backlog, so the situation is under control. On the marine division, we have in the appendix the marine division's industry split in the presentation, and there you will find the share split in terms of marine world trade and fleet capacity. Basically, newbuild is about 30% of the order intake, service about 26%, offshore and land-based power about 10%, and then various retrofits. The environmental aspects of legislation and fuel cost are about a third or 34% of the order intake. That number is somewhat overstated because there are some newbuild that are also installing environmental systems, but the large part is retrofit. So it's probably fair to say about a third. Those are the numbers, and we publish them every quarterly report, so they may be helpful for you in that guidance. Question number three was on Food and Water and where it's going in the second half. We indicated a somewhat weaker third quarter; we don't typically give a fourth-quarter forecast, so we will get back to that. I think what will decide the Food and Water number is to what degree larger projects are moving through or not moving through. They were a bit slow at the beginning of this year, and we haven't come to a different conclusion for the second half specifically. But our guidance in terms of the third quarter is not driven by a general downturn of activities other than very specific areas like breweries that are negatively hit by the pandemic. Otherwise, in general terms, we look reasonably favorable on the Food and Water market at least in the medium perspective. So growth could be possible for the year; I will not exclude neither decline nor upsides on the numbers we are discussing, but you are not going to get me to comment further than that.
S
Sebastian Kuen48:29
Okay, thank you so much.
O
Operator48:33
Thank you for your question. The next question came from the line of [someone] from UBS. Please go ahead; your line is open.
A
Analyst (UBS)48:42
Yeah, thank you. Good morning. The first one is also a question on the food side. Within the beverage exposure that you have in Food, is beer the only weak spot or also some other beverage segments? And when you talk to your brewery clients, how do you see them proceeding? Is the pipeline generally okay and those orders going to come through once we have a proper vaccine and people come back, or do you see structural changes on the brewery side happening? That's the first one.
T
Tom Erixon49:17
Yeah, I mean, the other main beverage sector that we are involved in on the food side is the dairy industry. The dairy industry in the first half and certainly the second quarter came through stronger than expected. There has been some market turbulence in the dairy segment at least in the U.S., so we had some concerns moving into the second quarter on that area. It hasn't been a growth area in the first half of the year, but it's been on a relatively stable and high level coming in from a good 2019. So that has been a positive development for us. On the brewery side, it's a good question. I would first frame it by saying it is not the major share of Food and Water, so the implications of those numbers are not huge. But if you dissect our brewery business a little bit and take away the service component, which is probably average compared to the rest, the service is average plus compared to many other applications. There has been a period of consolidation in the market, and we feel that process has been largely completed. Large production facility mergers and installations are fewer and far between at this point, regardless of the Corona situation. The one area that is affected short-term and has been gradually more important is the craft brewery side, where we see bankruptcies among smaller craft breweries that are simply not getting their beers out to the pubs. We think that will create an overhang of second-hand equipment in the market. So we are on that part of our business at a much lower level than in the past. The last part of our brewery business is mainly driven by product diversification among the large breweries, like flavored beers and alcoholization processes that require additional equipment in existing breweries. That business will probably continue to a degree irrespective of this. So there are variations on the theme, but clearly it will be difficult for the brewery industry to create a clear growth path for us in the quarters to come.
A
Analyst (UBS)51:56
Okay, so that sounds like one of the structural areas you mentioned earlier that might need some attention. Sounds like a very slow recovery on that end.
T
Tom Erixon52:10
It probably is, but again, a lot of the product range is shared in two other segments as well, so it's not a huge aspect. But in principle, yeah, you're right.
A
Analyst (UBS)52:22
And then secondly, a follow-up on Neles. Given the situation now, do you intend to have a conversation with them to find a compromise, or do you basically intend to treat them like every other shareholder and there is no conversation planned?
T
Tom Erixon52:41
No, there is no negotiation path at this point in time. We've made an offer to 100% of the shareholders, and we will await the response, and then we have to take it from there.
A
Analyst (UBS)52:57
Okay, and then lastly, a housekeeping one. Obviously you mentioned there were no cancellations in the backlog to a large degree. I was just wondering if you also took some orders out voluntarily where you could see some issues, or is that also tiny?
T
Tom Erixon53:14
No, it's been relatively small. There's always small back and forth on the order backlog, but the extraordinary movements have basically not been there. We were clearly concerned as we came into the quarter, but we came out without any major deviations, and we didn't adjust manually either from our side. So it's been intact and solid, and we feel good about the backlog as it stands.
A
Analyst (UBS)53:48
Okay, thank you Tom.
O
Operator53:57
Thank you for your question. At this point... the next question comes from the line of Lars Brusson from Barclays. Please go ahead; your line is open.
L
Lars Brusson54:08
Thank you very much. Good morning, Tom and John. Hope you're well. Tom, if I have three quick ones. First of all, on the demand outlook, I'll give you credit for giving us a very granular demand outlook. Thank you for that; it's not an easy environment to do that. So maybe with the risk of being slightly unfair, if I can press you a little bit on the divisional demand outlook in both Marine and Energy. First of all, in Marine, can you help me a little bit with how big a part of you say pent-up demand in services would explain somewhat higher demand in Q3? And can you talk a little bit about whether you feel that demand outlook is sustainable? I appreciate some bigger orders and you called out gas carriers and specialty vessels, but if you could talk a little bit about the sustainability of that marine development as we look further into the year and into next, if at all possible.
T
Tom Erixon55:09
I don't think services has played a major role in our outlook statement. We are a little bit unsure, as we indicated earlier, in terms of when we will be able to get back to full service operation, at least when it comes to that part that is driven by our ability to visit ships and execute repair works. There's also the cycle: in tough times, some ship owners reduce their spare parts inventories, whereas when times are good, they stock up. So we see some cyclicality, but that is not sustainable. I would expect that regardless of our abilities to do customer visits, we will gradually in this year see some improvement in the service business for the marine side, but we haven't plugged it as a major factor in the Q3 outlook statement.
L
Lars Brusson56:24
Do you feel that the IMO-driven boost to your service business, so the multi-fuel reconditioning work, is that largely behind us or do you still feel that that can continue to deliver some support to your service business over the next few quarters?
T
Tom Erixon56:49
I think we came through a fair amount of the multi-fuel work at the end of the year and beginning of this year. So I don't think we will see that return as such. We indicated during the second half of last year that we would see a temporary increase in the service and service installation business related to multi-fuel. But structurally, looking at newbuild opportunities and ongoing maintenance and service for existing multi-fuel solutions, the overall scope of our service business covering multi-fuels but also increasingly ballast water systems and scrubber solutions is generally larger per ship today than it was two years ago.
L
Lars Brusson58:00
Clear. Secondly, can I ask briefly on the energy division? I mean, you called out the US as one area that you're most concerned about; you're not the only one. I appreciate the headwinds you're facing in your upstream business there within energy. Can you help us a little bit more about where you're concerned and whether you see more broad-based weakness in your hydrocarbon downstream business in the US going forward?
T
Tom Erixon58:29
Well, I think on the US, as opposed to some other markets, the amount of project delays, also on the downstream side, has been higher. There have been projects that would normally go through that didn't go through in the US. So when we look at our pipeline in general, and I wouldn't limit this to hydrocarbons only, the willingness to put firm CapEx on the table in a number of end-user industries has been limited. Add to that, there has been a pronounced problem of uptime or shutdowns with certain customer areas in North America, including Canada. The situation for the opex-driven and capex business has been somewhat weak in the US, and we feel this actually started even in 2019. We had a very bullish outlook on the US a couple of years ago, and there was a lot of perceived momentum, but it didn't materialize that way for us, not even in 2019. So we have had the US market on extra watch for a period of time. Certainly, the second quarter was the first time that maybe came in a bit better than we expected, but we are not in the US where we felt we should have been for some time now.
L
Lars Brusson1:00:18
Clear. A quick third one, maybe just for Jan if I can. You were very clear in calling out the impact from currency revaluation in Marine in Q1; the Norwegian kroner made a full about-turn with the big move we saw in March, that's obviously the big reason for revaluing particularly in pumping systems. So it's not obvious to me why it would not be material in Q2 in the way it was in Q1. So with the risk of pressing you a bit, I'm a little surprised you're not able to help us with some numbers around the impact in Marine.
T
Tom Erixon1:00:52
If you look at the margin impact in Marine in Q1, we said that the FX impact in total was about two percent impact on the margin. I would say if you look at Q2, it was about one percent. But that one percent doesn't necessarily come from the revaluation; it's more the dilution impact from the fact that we have hedge contracts that are lower than the prevailing NOK/USD rate.
L
Lars Brusson1:01:36
Understood, that's helpful. Thank you.
O
Operator1:01:40
All right, and with that, we'd like to thank you for listening in on the call, and if not before, we will meet up again three months from now. Thanks a lot.