For the most part, 2023 became a year of operational stability. After a several years of exceptional volatility due to the pandemic and geopolitical turmoil, global supply chains normalized, and customer service and delivery lead times improved through the year. Cashflow was a good indicator of the improved business conditions and increased to a record level of 10 BSEK for the full year. Although it was expected, it did confirm the strength of Alfa Laval´s operating model.

The market conditions were generally favorable across all three divisions, but still with some demand fluctuations.

In the Marine division demand was strong in all key areas and resulted in an order intake of 24 BSEK, a growth of 23% compared to 2022. Contracting of new ships continued on a good level and will likely reach approximately 2000 vessels when the final count is ready. The mix was good, with a strong re-bound for product tankers. The trend towards green fuels, and multi-fuels, continued and had a positive impact on orders in many parts of the business. Service grew to a new record level, impacted by the high utilization levels of the merchant fleet and freight rates being high in almost all areas.

In the Food & Water division the demand situation was mixed. The weakness in the transactional business which started already in mid-2022, continued. The business volume with channel partners decreased, especially in China. On the other hand, the project business was exceptionally strong and with the recent acquisition of Desmet the division had a record year with an order intake of 26.4 BSEK, 20% higher than in 2022. The division will enter 2024 with a strong order book for projects, and a lower utilization rate in certain production units.

The Energy division continued to grow with support from the global energy transition and demand for energy efficient solutions. At the same time the traditional natural gas business had a strong recovery, as a needed transition fuel away from fossil dependency. The first signs of a growing global capital allocation towards the energy transition became evident with orders being booked in key verticals like hydrogen production, carbon capture, and e-fuels. From a climate point of view, the transition is going too slow, but gradually the pace of final investment decisions is increasing. On the negative side, after a number of years of strong demand the European heat pump market weakened significantly  in the second  half of 2023 due to lower gas prices and the termination of certain government subsidy programs. The order intake of 20.4 BSEK, also a new record level, was strong given the market conditions.

The total order intake of 70.7 BSEK, corresponding to a growth of 21%, confirms the competitiveness of the current product portfolio. During several years Alfa Laval´s growth rate has been above market average, leading to stronger market positions and scale advantages. The financial strength of the group is key to sustain the increased technology investments with the intent to lead the ongoing industrial transformation. Innovative solutions and capabilities, in industry and in Alfa Laval, are needed at a faster pace than ever before.

The biggest transformation decision made in Alfa Laval in 2023 was to form a dedicated business unit for Fuel cell and Electrolyzer technology. The plate technology needed in the hydrogen economy is a version of what Alfa Laval has done for decades in the heat exchanger businesses. If the project is successful, it will be an important addition as a new technology platform for the Group. In parallel the development in earlier announced projects continue as planned. The Oceanbird wind propulsion solution for large ships is advancing well and the first pilot installation is expected early 2025. The OceanGlide project, aiming to reduce water friction under the ship´s hull is in commercial phase with several orders signed in 2023. The recently launched “single use” separation solution for the biotech industry is in the early stage of market penetration and grew well during the year. There are many more projects in the pipeline, providing Alfa Laval with a future toolbox to lead the industrial transformation towards 2030. The target to reach 10 BSEK from these new technologies remains, as communicated at the Capital Markets Day in 2022.

The internal sustainability work has continued with increased efforts and resources during 2023. As a company that is helping customers to reach their stainability targets, we must also lead in implementing our own sustainability strategy. The full scope is included in the sustainability section, but I would like to comment on two important priorities, carbon emissions and safety.

Our target for carbon emissions is to reach net zero by 2030 for scope 1 and 2. Despite growing activities and production volumes the emissions decreased in 2023, well in line with plans. The most important progress during the year was clear road maps for all business units for how specifically to reach their targets by 2030. The action plans are now established, owned, and reported by the line of business. We will treat sustainability reporting with the same rigor and process as the financial reporting. The alliances to secure the supply of fossil-free metals have continued to grow. As our suppliers continue to ramp-up their capacity, Alfa Laval will start to grow a range of net-zero products. The main challenge remaining is the scope 3 use phase. Alfa Laval´s large installed base of rotating equipment consumes a significant amount of energy during operation. Part of the electricity at our customer´s sites is fossil-dependent and will for some time weigh on Alfa Laval´s scope 3 impact. More energy efficient solutions are available to improve the situation, but it will be a gradual process. National energy strategies away from coal and gas are needed for us to reach the scope 3 targets.

During many years the safety trend in Alfa Laval was positive. From an elevated frequency of work-related accidents, a focused work on culture, processes, and investments has yielded positive results and a safer working environment. In 2023 that trend was broken and the number of accidents remained flat versus the previous year, amounting to 85 recorded accidents with a minimum of one day of sick leave. Still, we have confidence in the ongoing program for improved safety at work and expect the positive trend to return in 2024. With many of the operating units being completely accident free for years, we know it can be achieved.

The financial performance of the group was satisfactory, with record high earnings and EPS. The Adjusted EBITA grew to 10.2 BSEK an increase of 24%. EPS grew to 15.31 SEK, an improvement of 41% compared to 2022, resulting in a proposal to the AGM to increase the dividend from 6 SEK to 7.50 SEK. The operating cashflow fully financed the ongoing capacity investment program, amounting to 2.5 BSEK during the year. In addition, loans have been repaid and the cash position has been strengthened. With a strong balance sheet and ROCE above the target level of 20 % for the first time in many years, the group is in a healthy position to continue the growth journey.

On a divisional level the Energy division had a very strong year with a record high Adjusted EBITA margin of 20.7%. All business units improved the performance compared to 2022. The Marine division started the year on a low margin but improved in the 2nd half of the year, as had been guided. With a strong margin of 18% in the fourth quarter and a solid order book for 2024. The margin challenge from early 2022 is now behind us. Finally, the Food & Water division had a good profitability in the beginning of the year but ended on the low side with a 14.3% Adjusted EBITA margin in the fourth quarter. The division has performed well in most aspects, but the mix of lower transactional volumes and higher share of project invoicing had some impact on the margin development.

In all 2023 was a strong year for Alfa Laval. Even more important is that we enter 2024 stronger than ever. The product portfolio continues to improve, the large capacity expansion program has progressed and eliminated all short-term bottlenecks, market positions have been strengthened, and the balance sheet is strong with a net debt of just around 0.6. We look forward to continuing to lead the industrial transition towards 2030 and beyond.