An extraordinary year

In February, Russia attacked Ukraine and we faced a major war in Europe for the first time in decades. The first priority at that time was for Alfa Laval was to secure the situation for our employees in Ukraine. The second priority was to resolve how to deal with the business in Russia. The decision in February regarding Russia was to stop all new orders, cancel the existing order book affected by the sanctions, and to deliver the already existing orders in compliance with the sanctions. It was effectively an organized way of winding down the complete business activities in Russia. By the end of 2022 the number of employees in Russia had been reduced from 250 to approximately 70, the order backlog had been reduced by more than 95 percent, and as a result our business activities is expected to be discontinued during 2023.

The first priority at that time was for Alfa Laval was to secure the situation for our employees in Ukraine.

The indirect effect of the war was an additional pressure on global supply chains. After years of mitigating the effects from the pandemic, an emerging energy crisis and volatile commodity markets had to be addressed. Together with several shutdowns of manufacturing units in China due to covid, there were many operational uncertainties throughout the year. In all, the challenges were managed in a good way during the year. Early steps in price management back in 2021, in combination with increased volumes, partly compensated for the cost inflation. Gradually from 2020, we have learnt how to manage covid-related shutdowns and could keep production running with limited negative effects.

Gradually from 2020, we have learnt how to manage covid-related shutdowns.

The main financial impact from the crises was a build-up of inventory levels to ensure customer service and invoicing lagging behind order intake. In a year with a new all-time high order intake of 59 BSEK, it resulted in a record order book of almost 37 BSEK at the year-end. Despite macro-economic concerns, global demand remained strong across all three divisions. If there was one single factor driving demand in 2022 it would have to be sustainability!

A year with a new all-time high order intake of 59 BSEK.

The Energy division

The Energy division increased efforts and investments into the energy transition. The need to improve energy efficiency as part of the Paris agreement is now visible in many applications, like residential heating and data centre cooling. An already fast-growing market for residential heat pumps in Europe was further escalated, as small gas boilers dependent on Russian gas imports became an unattractive part of the mix. The longer-term effects of rebuilding the global energy system away from fossil fuels started to show in the order intake for the first time. Two major examples were the large order in Saudi Arabia related to the largest hydrogen production plant so far, and the first large order for LiquidWind, which will use carbon capture as a source to produce e-methanol as fuel for the merchant fleet. Order intake for the division reached a new record of 17 BSEK.

The need to improve energy efficiency as part of the Paris agreement is now visible in many applications.

The Food & Water division

The Food&Water division also set a new record of 22 BSEK in order intake for the year. Customers are increasingly looking to reduce energy and water consumption in their production processes, driving demand for more advanced fluid handling equipment. Biofuels is another application driving growth, with several large orders booked during the year. Converting vegetable and animal fats into biodiesel and jet fuel will remain an important transitional fuel for combustion engines over the coming decades. The acquisition of Desmet was completed in 2022, with the objective to strengthen Alfa Laval´s position in the vegetable oil and biofuel markets. Desmet is expected to add approximately 4 BSEK in annual business volume in the coming years.

Customers are increasingly looking to reduce energy and water consumption in their production processes.

The Marine division

The Marine division faced some challenges during the year with a modest contracting market for new ship building combined with the expected completion of the retrofit period for both scrubbers and ballast water applications. Still, the division grew in 2022 and booked orders to a value of 19 BSEK. The big driver of demand for the division is that shipowners need to decarbonize the global merchant fleet by 40 percent by 2030. In the short-term, increased demand for gas and multi-fuel solutions will support the order intake. The acquisition of StormGeo in 2021, providing digital tools to optimize the fuel consumption onboard, grew to a new record level. Investments to build a broader toolbox for decarbonization is running at full speed. The solutions for wind propulsion through the joint venture company Oceanbird is progressing as planned with the commercial orders expected in 2025/26. The development of a new air-lubrication system to reduce friction under the hull was completed in 2022 with the first full-scale pilot successfully installed late in the year. Finally, a new product called E-powerpack was launched, providing an efficient solution to generate auxiliary power from waste heat recovery.

Shipowners need to decarbonize the global merchant fleet by 40 percent by 2030.

Our strategy going forward remains firmly devoted to support the global sustainability transformation based on technological leadership in our core areas. The pace of investment in R&D will continue to grow as existing technologies need to be complemented with new metallurgical processes and new customer applications. The capital investments to support capacity growth and new technology implementation will increase further and is expected to reach 2.5-3 BSEK annually over the next few years. Despite global macro-economic concerns, the business plan is being executed with full commitment. With a strong order book and a reduced exposure to historically volatile end-markets, Alfa Laval will have time to adjust to a more negative market outlook, should it be needed.

Despite global macro-economic concerns, the business plan is being executed with full commitment.

To be a leader in providing technologies and solutions to today´s sustainability challenges, requires a firm plan regarding our own operations and impact on the planet. In 2022, we formalized our target in all areas, with a special focus on carbon emissions. Our target is to become net zero on scopes 1–2, and to cut scope 3 emissions by 50 percent by 2030, compared to 2020. We now have clear targets per operational unit, a well-defined way to measure and report progress, and action plans for how to get there in most areas. While we are dependent on other parts of society doing their part, including the transportation and energy sectors, we can do a lot on our own. I hope you take the time to review our Sustainability Report, which describes what we are doing in further detail.

In 2022, we formalized our target in all areas, with a special focus on carbon emissions.

Finally, if there was ever a time to thank our employees for their contributions it is now. We had crises teams operating 24/7 during long periods of time. We had parts of our Chinese team moving into our factories with sleeping bags for two weeks to be able to operate under the closed-loop procedure during shut-downs. Despite an all-time high order intake of 58.7 BSEK and a difficult delivery situation, our customer service organization managed the year with the same resource levels as in 2020 and 2021. My wish for 2023 is a more stable operating environment and a little bit of time to recharge the batteries for our great teams around the globe. It may prove to be a bit of wishful thinking, but it is perhaps needed at this point in time.

My wish for 2023 is a more stable operating environment and a little bit of time to recharge the batteries for our great teams around the globe.