Alleima AB (publ) (ALLEI) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Alleima Interim Report Q4 2024 Conference Call. [Operator Instructions] The presentation will be followed by Q&A session. [Operator Instructions] At this time, it's my pleasure to hand over to Emelie Alm, Head of Investor Relations. You will now be joined into the conference room.

Hi, everyone, and welcome to the presentation of the fourth quarter and full year 2024 report for Alleima. My name is Emelie Alm, and I am Head of Investor Relations. I'm joined by Goran Bjorkman, President and CEO; and Olof Bengtsson, CFO. Goran and Olof will take you through our results, and then we will have a Q&A session. You can ask questions through the conference call, and you can also write them in the field beside the webcast. You can also download the presentation from alleima.com. And as always, safety is a top priority for us. So I trust that you are safe now and that you know the safety in terms of where you are located. So with that, I would like to hand over to you, Goran.

Thank you, Emelie, and hi, everyone, and thank you for listening. Starting with the summing up the year, which was generally more challenging year than 2023. At the same time, I think we showed strength and delivered revenue growth and stable earnings despite the weaker economy. And this is in line with our strategy of having broad market exposure, which makes the company less volatile overall. In terms of positives on the market, oil and gas remained solid. Activity level in nuclear was clearly leveling up and medical continued strong growth trajectory. We noted a weaker market for electrification and renewable energy as well as a also weaker Europe. We also had a decline in oil and gas compared to 2023, but this is mainly due to high comparables due to the backlog buildup we had in 2023. Asia remains strong, while Americas -- and when I say Americas, I'm actually excluding transportation, medical, oil and gas and nuclear. Of the rest has been weak throughout the year, but it showed some signs of improvement towards end of the year. Despite this, we are increasing our revenues, delivering from our solid backlog and continue to build the backlog in some key segments. We took a decision and executed on several important initiatives for continued strengthened company, such as the decision to reopening of our former SGT facility, Kanthal heating expansion in Japan, decision to establish medical footprint in Malaysia and also the acquisition of Endox to complete our medical offering. We are committed to create shareholder value by developing our company, but also by dividends, and the Board proposed a dividend of SEK 2.30 per share, which then corresponds to an increase of 50%. Let's have a look on our performance versus our financial targets, starting with organic growth. We have a target to deliver profitable organic revenue growth in line with or above growth in targeted end markets of our business cycle. We grew 1% organically in 2024. And as a reminder, we don't want to grow in all pockets of our serviceable addressable markets. We are aiming for growth in attractive niches to improve our mix long term. Dispense across most of our segments, but where -- despite this is a bit simplified, the Industrial segment is not a segment where we want to grow in line with the market as profitability is generally lower in this segment. So if we exclude the industrial segment, we grew above 4% organically in 2024. And if we look over the 3 years where -- when we have had the financial target, the total organic growth was 7% on average and more than 10% on average when excluding the Industrial segment. Look at earnings. Margin of 9.9% for the year, average of 9.8% for the 3 years, we had the target, and the target is to be above 9% over the cycle. And capital structure, net debt to equity of minus 0.04, which leaves us with plenty of headroom. And please note that the 0.3 that is the maximum target. And then dividend, the Board has proposed a dividend of SEK 2.30 per share, which corresponds to a payout ratio of 37% of net profit adjusted for metal price effects, and average over the 3-year period is also 37%. So moving over to the fourth quarter, and I think this was a solid quarter. We are staying on our course of executing on the strategy, and we do that in an uncertain macro environment. And we still managed to post results on good historical levels. Rolling 12 months organic order intake growth declined 6%. We were mainly impacted by the oil and gas segment, where we built backlog last year. And excluding that segment, order intake was actually positive year-on-year. Revenues grew organically by 3%, and I think the tentative overall trend continue as we see mixed market sentiment with continued positive development in some segments, stable in Other and negative in Others. Backlog is solid with a good product mix and of our visibility deliveries remains high. And of course, when the market bounce back for the segments, we see weakness in, we are well positioned. Adjusted EBIT of SEK 584 million, and a margin of 11.5%. That is a good number. In December, we announced the acquisition of the German company Endox to further complement our growing medical business. This is a prime example of the companies we are targeting. It adds technology, it adds capabilities and also rich. This, combined with our upcoming establishment in Malaysia, gives the medical business operating room to continue its profitable journey. Let's look at sustainability. In Alleima, we are generating a positive impact, both through our operations and, of course, also through our product offering, starting with our own operations. Safety is always a top priority. We are continuously and actively implementing measures to maintain safety as a top priority. Long-term trend heading in the right direction. However, it's leveling out. And we have to continue to have safety on top of the agenda and secure that we drive initiatives to reduce risks and improve our performance. Our share of recycled steel remains high and above 81%, both on a rolling 12-month basis and year-over-year. This is a good figure giving our product mix. CO2 emissions are decreasing, and we stay below 100,000 tonnes for Scope 1 and 2 over rolling 12 months period, a noted reduction of 3% on a rolling 12-month basis. And the proportion of female managers increased to 23%, of course, recognizing, as I normally say, this is only one aspect of our broader diversity and inclusion initiatives. So look at sustainability from an offering point of view. And I would say despite what we see that the green transition is going somewhat slower than previously anticipated, there are several attractive niches related to the transition. One of them is related to renewable fuels. Earlier this year, we received an order for heat exchanger tubes in Sanicro 35 that we now are manufacturing. This is a relatively new alloy and it's also aligned to new technology. And I think this is showcasing our commitment to develop materials for the future and also strengthen our position as an enabler for the energy transition. Our tubes will be used in the heat exchangers of production of sustainable aviation fuel in the company Preem's plant in Lysekil here in Sweden, and this is currently under redevelopment. Changeover means that Preem will no longer use fossil raw materials such as crude oil, but renewable raw materials instead, which will be pretreated and purified at high temperatures before being used in the production of renewable fuels. This process in refineries often has challenges for material use and renewable fuels are particularly challenging in terms of that material needs to withstand of high temperatures and aggressive chemical environment without corroding. Another area is nuclear. And I think we have, overall, a strong offering in several parts of the energy segment. And we continued increase activity -- we see continued increase in activity in the Nuclear segment. Today, we also announced the receipt of an order of 200 kilometers steam generator tubes for the nuclear fabricated Doosan. And this will be used in an SMR project of NuScale. This SMR is based on the proven pressurized water cooled reactor technology, which is similar to the technology where our current SGTs are used. This was our second order relating to SMR, and we take a positive view on the development of new nuclear technologies. And we also announced several large orders for commercial nuclear technologies. And this month, we received another large order of SEK 530 million related to project in North America. We have now secured future deliveries and our backlog is spanning over several years to come, both within our existing capacity and for the tube mill that will be open in the end of 2026. I have to say that the decision to reopen and add capacity that is very well timed. So if we look at the market development. Overall, we see a mixed market sentiment and the macro environment is continued uncertain. We do see continued recovery and positive development in some segments, stable in some and negative in others. And our broad segment exposure reduces the volatility. This is one of the strengths of Alleima. Now I'll walk you through each segment, starting with oil and gas. We see that the underlying demand is still on high levels. Project list of upcoming tenders and potential future orders is strong. Chemical and petrochemical is down year-on-year. This is mainly due to Europe. We see solid demand in Asia on good levels, and the sentiment in North America was somewhat improving, but from low levels. Industrial, we have noticed stable year-on-year demand in the Industrial segment. Demand was somewhat improving in North America, once again from low levels, stable in Asia and slightly weaker in Europe. I think it's important to make a comment in Industrial because this is an area where we do -- due to capacity prioritization, we are selective in booking orders. Industrial Heating, flat demand year-on-year with still some hesitance from customers in placing orders. This refers mainly to CapEx-related business. And for the Solar segment, especially, we also have high comparables from last year. Consumer demand has clearly improved, mainly driven by the white goods industry in the Strip division. Medical continued to be strong. Several drivers. Momentum is strong across the product portfolio. Mining and construction, more flattish underlying demand year-over-year. Nuclear, the high activity and growing demand continues, and we're building a strong backlog for years to come. Transportation demand was flat year-on-year, but with high activity for aerospace and marine titanium tubing. And lastly, hydrogen and renewable energy, still a bit mixed and some slowdown in the green transition in general. For example, we see some slowdown in activity related to hydrogen fuel cells, and this relates to delays in production scale up at customers. However, we booked one large order of SEK 160 million in the quarter. But this is a wide segment, and we see good momentum in other areas like, for example, tubes to be used in production biofuels. This remains one of our top prioritized segments over the longer time. And to summarize organic order intake and revenue. Organic order intake growth was minus 6% for the rolling 12-month period, where we are still affected by the soft industrial heating market and the oil and gas backlog built up during last year. On absolute levels, order intake is just below SEK 20 billion, which I still believe is an okay level and especially considering that our backlog remains solid in several key segments. Please also note that the absolute level has approximately SEK 1 billion headwind from alloys and currency versus last year. In terms of rolling 12-month organic order intake, we are growing in 6 out of 10 segments with Medical, Nuclear, Consumer segments as the most positive. Quarterly revenues amounted to SEK 5.1 billion with a 3% organic growth. And even though we are in an uncertain macroeconomic environment, we are growing revenues, supported by a strong performance in oil and gas, nuclear and petrochem. Even though industrial and industrial heating declines, we still managed to execute on a solid order backlog and growing revenues year-on-year. Rolling 12 months book-to-bill was 99%. And order backlog remains solid with a positive mix in some segments and weaker in others. So let's move over to earnings. We continue to benefit from our diversified exposure to customer segments at different stages of the business cycle as we maintain margins in a generally weaker business climate. Adjusted EBIT on SEK 584 million with a margin of 11.5%, almost identical to last year despite the lower contribution of Kanthal, which I will come back to. I think this shows that we, in the longer term, have been driving a positive product mix shift and also maintained our order booking discipline in weaker market conditions and thus able to maintain profitability. And free operating cash flow of SEK 202 million, which is lower than a year ago and mainly impacted by higher CapEx. Overall, I think a solid development, but of course, there are still things to improve on. So let's look at the divisions, starting with Tube. Tube noted an organic order growth of minus 10% for the rolling 12-month period, which again then was impacted by a lower intake in Oil and Gas segment. The year-on-year development in Oil and Gas were partly mitigated by a positive development in mining, nuclear and Transportation. Europe on the weak side, while Asia and North America grew year-on-year in the quarter. Even though order intake in oil and gas has been declining for some time now compared to last year's backlog buildup, we still see strong underlying momentum in the sector, and that will continue -- where we continue to capitalize on going forward. For OCTG, we are booking orders into 2026, and we have roughly 2 quarter backlog for umbilical. And this, of course, also creates some flexibility in booking orders with shorter lead times. Book-to-bill, 98% rolling 12 months and a solid backlog. Organic revenue growth was 7%, mainly driven by the Oil and Gas and Nuclear segments. Positive product mix and margin increased to 12.3%, so even stronger than Q4 last year, and we are on better levels than years before. We have been and are currently utilizing our capacity in a good way by prioritizing more profitable orders. So let's move to Kanthal. Order intake for the rolling 12-month period came in flat with a soft industrial heating market. However, demand was sequentially flat on low levels. Medical segment is maintaining its strong momentum, growing in order intake and maintaining good revenue levels. Book-to-bill recovers a bit to 97%, but still means that we continue to consume a bit of backlog. But Kanthal's ability to adjust capacity and reduce cost and improving mix from the growing medical business makes me stand firm by my previously made comment, and that is that Kanthal has established a new margin level compared to historical figures. Adjusted EBIT margin was 18.1% in the quarter. This is 1 percentage point lower than a year ago, but I still think it's a decent performance given the lower volumes in industrial heating and especially in the solar end market, which is highly profitable. So Strip. After a couple of quarters of tough quarters for Strip, we -- which were heavily impacted by the weak consumer-related demand, we now note that a rebound that started in Q2 is continuing and volumes are coming back to better levels. Organic order intake grew 32% on a rolling 12 months basis, driven by growth in all segments. But in the numbers, we also have a large order of SEK 160 million for coated strip steel for hydrogen fuel cells. This order will be delivered over a 2-year period. The overall demand related to hydrogen fuel cells is still challenging. We delayed ramp-up in our customers' production. In the quarter, revenue, however, declined organically by 3%, mainly impacted by lower revenues from Hydrogen and Renewable Energy segment. Book-to-bill now amounts to 114%. Adjusted EBIT margin declined to 6.1% from last year's 7.3% due to lower revenues and negative FX effects. But should we adjust then for the lower revenues in the Hydrogen and Renewable Energy, the underlying Strip business is improving year-over-year. And with that, Olof, I'd like to hand over to you.

Thank you, Goran. And let's go through some numbers then in the financial summary. And if we start with the bridge to the right. The order intake amounted to on a rolling 12-month basis, which is then also save us the full year. In this quarter, we have a SEK 19.4 billion, and that is organically down by 6%. We are still affected year-over-year by negative alloys, minus 4% on the rolling 12-month order intake and minus 2% on the revenues in the quarter. If we look just into the next quarter here, alloy effect on the rolling 12-month order intake is expected to be neutral or slightly negative. And on the revenues for the quarter then expected to be neutral. If we look at the quarterly revenues, then of SEK 5.1 billion, and we see a positive organic growth of 3%, and that is in line with the third quarter growth. Full year revenue numbers amount to SEK 19.7 billion, and that is slightly above the full year order intake and gives a book-to-bill of 99%. Looking at the big table then, and I will comment on the adjusted EBIT on the next slide, and I'll go directly to the reported EBIT, where the margin decreased to 7.7% compared to 8.8% last year, and this comes mainly then from the impact of lower metal prices in the quarter. This year, we had a negative SEK 191 million in metal price impact in the quarter. And in the same quarter last year, we had a negative SEK 138 million. However, for the full year, the negative metal price effect was SEK 446 million versus SEK 95 million last year. So a considerable impact on the reported EBIT in 2024 compared to 2023. Then going further down to the net financial items in the quarter amounted to negative SEK 22 million compared to a positive SEK 80 million last year. And the change comes mainly then from revaluation of financial instruments used to hedge our various exposures and that some of these hedges do not qualify for the so-called hedge accounting scheme. Underlying interest that is increasing from our improved cash position. And for the full year, the main reason behind the improvement from SEK 28 million to SEK 73 million is the improved interest net. Going on to the normalized tax rate, it's 23.9% for the full year, and I prefer to look at the full year. That is slightly below our guidance and lower than last year, which was 24.2%. And if you look at the full year reported tax rate, it comes out to 22.3%, which is a bit on the low side then, and that comes from a good U.S. tax position and also a good tax mix in our taxable result. Free operating cash flow comes out at SEK 202 million in the quarter, and I'll come back to that on a later slide. Finally, looking at the adjusted earnings per share, coming out at SEK 6.27, obviously impacted by the lower adjusted EBIT, but also positively from the improved finance debt and the lower reported tax rate. Going on to the next slide, the bridge analysis on the adjusted EBIT. We see that it increased slightly in absolute terms from SEK 582 million to SEK 584 million, and the margin 11.6% to 11.5%. And underlying an organic positive development, where Tube continued the solid performance from Q3, while Kanthal and Strip had a lower adjusted EBIT from the lower volumes. Also, we had a positive impact from lower central costs. Some currency headwind in the quarter, impacting mainly Tube and Kanthal, totaling SEK 12 million negative. And that is a lot less than in Q3, where we had a negative SEK 51 million as the Swedish krona weakened towards the end of the fourth quarter. The structure costs here relate mainly to M&A costs in Kanthal. Operating leverage then in the quarter, 10%. We think that's a bit on the low side. And for the full year then, if you look at the graph to the right, the organic result development here, the minus SEK 184 million is mainly explained by lower performance in the first half of the year. We have currency headwind here as well, it's about SEK 11 million. And the M&A-related costs are explaining the structure here as well. And the margin going down from 10.4% to 9.9%. Looking then at the balance sheet. Net working capital, slightly lower than last year, both in absolute terms and as a percentage of sales, percentage of revenues, mainly driven by higher accounts payable and lower accounts receivable and slightly offset by higher inventories. And inventories, we are continuously working with reducing the physical volumes here, and I think we are doing a good job here in the divisions. Year-over-year, if we look to the right, capital employed increased to just below SEK 16 billion from SEK 15.5 billion last year, and the increase comes mainly from higher fixed assets, but also some currency effects as our foreign capital employed is translated to a weaker Swedish krona. If we look at ROCE, excluding cash then, and that is based on the operating profit, including the metal effect, that was 9.5% in the quarter based on the rolling 12 months. And the decrease from last year's 12.5% is attributable to changes in metal prices, which impacts the reported EBIT. And as I just explained, the higher asset base coming from higher CapEx, but also from the translation effects on the currency. Going to cash flow. Free operating cash flow amounted to SEK 202 million for the fourth quarter and close to SEK 1.3 billion for the full year. Both are lower than last year and was increased by our increased CapEx and lower earnings, but compensated for by a slightly improved working capital position. Maintenance CapEx levels are still around SEK 400 million, as previously communicated. Going further down the table, amortization of lease liabilities increased slightly in the full year. And if we look at the graph to the right, where we see the free operating cash flow quarterly, normally, we have a better cash flow in the second part of the year. This year, the fourth quarter is, of course, very much impacted by the high CapEx levels. And adjusted for that, it would be more on a normal level. I also included this slide. This shows the ongoing growth initiatives, which we are doing to strengthen our company long term. And we have several ongoing initiatives. And they are mainly organic then. And if you look at the box there, the dotted box, those are the decisions we have taken in 2024, and they include increasing our remelting capacity in Sandviken for manufacturing of tubes for demanding applications, a capacity expansion for our heating solutions in Japan, in Kanthal. We have the already mentioned capacity expansions for steam generator tubing in the nuclear segment in Sandviken. And we also have establishing a medical footprint in Malaysia in Kanthal Medical. And then finally, which is not a CapEx as such, but then we have the acquisition of the medical company, Endox, which was closed in January this year. Looking then at our financial position, remains strong, and we are far below our max levels. We came out at a negative 0.4x versus a maximum limit of 0.3x. So that is a very strong balance sheet. We are in a net cash position. If you use the net debt-to-adjusted EBITDA, it came out at minus 0.22x. Looking at the components then, net pension liabilities decreased to SEK 820 million from last year's SEK 843 million, mainly as a result of asset values increasing more than the pension liabilities during the year. Leasing liabilities decreased from SEK 506 million to SEK 460 million. We continue to generate cash, resulting in a financial net cash position of SEK 1.9 billion at the end of the year. And then if you look at the net cash, we are net, net cash, so to say, we are negative SEK 631 million. So net cash -- good net cash position. And considering that we have SEK 3 billion in unutilized committed revolving credit facilities at the year-end, our financial position is still very strong. So if we look at how well we guided for the fourth quarter. As you already have seen, CapEx came out at close to SEK 1.2 billion for the full year. We guided for SEK [ 1.50 ] billion. And the reason for the difference here as we have seen the very interesting growth prospects, and we've seen some speeding up in some of the projects here. So a little bit ahead of the timetable on some projects, which has also meant that increased spend. In currencies, we guided for a transaction and translation effect of negative SEK 5 million -- sorry, negative SEK 40 million, and we came out at SEK 5 million. And if you include -- through the hedges, minus SEK 12 million. So obviously, this comes from the weaker krona at the end of the quarter because at the beginning of the quarter, we had a stronger krona when we made the guidance. Metal price effect, negative SEK 191 million versus negative SEK 200 million in the guidance, so fairly close there. And the tax rate, 23.9%, the normalized rate for the full year, below the guidance of 24% to 26%. And if we look then into the guidance for the coming -- or this quarter that we redeemed the first quarter of 2025, we are increasing our CapEx guidance for the full year to SEK 1.2 billion, again, mainly coming from our already decided and announced investments. And again, around SEK 400 million is maintenance CapEx. And then we have some IT and safety investments, but -- and the rest is then for improvements and growth. Currency effects with the weak krona, we are now guiding for a positive SEK 85 million on the operating profit. Metal price, as you know, metal prices are fairly low at the moment, and we are guiding here for a neutral or close to zero effect for the first quarter. Tax rate, we're actually lowering our guidance range here from 24% to 26% to 23% to 25% based on the outcomes we've seen so far on the tax side. And with that, I would like to hand back to you, Goran.

Thank you, Olof. So let's summarize the outlook for the first quarter 2025. I think -- I mean, market conditions are still mixed. At the same time, we take a positive view on the development in several of our customer segments where the underlying megatrends are expected to continue to support the development in a somewhat cautious economic environment. While we have challenges in other areas, I think the general European market is one example. Our backlog is still solid in several of our key segments, and we have good visibility in our near-term deliveries. Product mix is expected to be similar to the one of the fourth quarter. And as we said many times, cash flow is normally low in the first half of the year compared with the second half. So let me summarize then. Overall, we see mixed market sentiment, softer market in some segments, stable and some positive in others. Revenue still continued to grow organically in the quarter. And our diversified exposure to customer segment at different stages of the business cycle as well as our strategy to grow within more profitable and less cyclical niches has proven to be successful. We've had stable earnings development for the quarter and full year despite the challenges we've had in some segments. I think this shows how we have a long-term driven a positive product mix and maintained our order booking discipline in a weaker market conditions and thus able to maintain profitability. We have several ongoing growth initiatives, Olof showed a few of them, which will strengthen our company in the long term. Our financial position remains strong, which enable us to continue to execute on our strategic agenda. And with that, I'd like to hand over to you, Emelie.

Thank you, Goran, and thank you, Olof, for that. It's now time to start the Q&A session. So again, you can write your question in the webcast or you can ask them on the conference call. So operator, please go ahead.

[Operator Instructions] The first question is from Anders Akerblom from Nordea.

So I have some questions on the CapEx guidance for 2025. As you mentioned, Olof, you have some SEK 400 million in maintenance CapEx and some of that relates to the existing investments in IT. But could you elaborate a bit on the rest of this and if we should expect some...

Anders, I think we lost you there.

Mr. Anders, your line is open. You can go on.

Can you hear me now? Hello?

I think they can hear us so maybe if you go ahead and answer the question on CapEx [indiscernible] for maybe operator, we just skip to the next question, please. If we can go ahead with the next, that would be good. Anders can call -- right back in.

The next question is from Adrian Gilani from ABG.

Adrian Gilani here at ABG. Can you hear me, okay? Is the line working?

This is your operator, you can go on with the conference.

Okay. Perfect. So if I understood you correctly, you said there's a several year backlog, not just on the old nuclear production line, but also on the newly opened one. I guess does that mean you'll start evaluating, investing in even more capacity expansions in nuclear?

Can you please repeat the question? I'm sorry, Adrian. We have some trouble with it.

Absolutely. So if I understood you correctly, there is a several year backlog, not just on the old nuclear production line, but also on the newly opened one. So does that mean you're looking to invest in even more nuclear capacity expansion?

No, I think we say what we have decided upon. But you're right. We -- I mean, now the backlog looks nice. We are -- we have filled up the old new mill will -- I think we have roughly 2 years backlog, and that will open in 2026. But we have open capacity both in that one after those 2 years and also in the existing mill. We are not looking to invest further.

Understood. And then if we sort of back out the Q4 orders in Kanthal, it looks to be up year-on-year. And of course, I understand there's some quarter-to-quarter volatility on orders, but how much should we read into that? Would you say there is some improvement in underlying demand? Or is that just quarterly volatility?

If we split up Kanthal, I think medical continue to grow. And the industrial heating part that has been weak for some while has flattened out, maybe a small positive increase in quarter 4, but that is small numbers. And that adds up to the total of Kanthal.

Okay. And a final one, just a quick question on the SMR order you announced same time as per the report. We didn't get an order value, but should we understand this as sort of a pilot testing order that can lead to larger follow-up orders? Or how -- could you just add a bit of color on that?

We're not allowed to describe the value, but this is a real order. It's for a project. I mean, Doosan is the -- our customer and it's for -- the American company, NuScale. So this is for an SMR station. And 200 kilometers is not a small order. It's a commercial order.

The next question is from Anders Akerblom from Nordea.

Can you hear me this time?

Yes, yes.

Good. Okay. Now all the good questions were taken, but I'll try to ask -- now I'm just joking. So I was wondering if you could talk a bit about kind of your comment on optimizing production capacity, particularly with a focus towards higher refinement. Could you elaborate a bit more in detail on that and kind of also what margin impact that has had and kind of how much more you're able to kind of remove and refocus and debottleneck to the more high value-added production?

I'm not sure I can add share numbers as such. But I mean, one way to describe it, I think maybe a year ago, the Industrial segment was roughly 21% of our total and now it's about 17%. So down prioritizing industrial to the benefit of other segments is what we are doing. Of course, there are much more potential because this is in value and it's sort of volume in tons or meters that matters. So there's much more potential to do that. And typical products that we don't prioritize is billets, it's bars, it's sort of more standardized extruded tubes and to the benefit of higher added value products, mainly cold working products. And of course, this is mix positive for us, and I think it's in line what we have communicated in the long-term strategy, growing other segments and reducing the industrial segment.

Right. So that makes sense. So -- but if I ask you to kind of put a number on what you would like to see in terms of a percentage of the total value in, say, 1, 2 years, would you be reluctant to do that?

Yes. But I can help you a little bit but think out loud. Moving industrial from 21% to 17% in 1 year, that's a large change. This is the matter of the big in numbers. So I mean, this takes some time. But I think we are really moving in the right direction. But I cannot give you a future number. But you look at the CMD material there, we have a view on a 5-year period where the industrial segment is clearly lower. I don't have that number in my head right now.

15%.

15% in a 5-year period, and we're already on 17%. So what I'm saying, we moved from 21% to 17%, that was maybe faster than anticipated.

Yes. Okay. Makes sense. And looking to orders in the quarter, I know you like to look at rolling 12 months. But if we focus on tubes since you already discussed Kanthal, I mean, it was quite significantly weaker year-over-year. Is that mainly then the backlog for oil and gas? Or is there anything else kind of here in the numbers?

The main part of the number is lower oil and gas. It's also that we don't prioritize the Industrial. I think those are 2 things. And I think it's important to state that oil and gas is a segment that we still view as strong. There's many orders to grab the project list that customers are still very interesting.

The next question is from Johannes Grunselius from DNB Markets.

This is Johannes Grunselius, DNB. I have a couple of questions on pricing and particularly the areas where you are facing a lot of -- experiencing a lot of other tailwinds, so nuclear and the medical end segment. How do you think about pricing now for new orders given that this demand seems to be sort of booming, you have the capacity constraints. Are you taking basically up the price to clients now for new orders? That's my first question. And if you can elaborate a bit on that.

We don't share details on that. But of course, where market is positive, where we are technology leaders, of course, that is positive also from a pricing perspective. Then sometimes orders are longer and you have sort of frame agreements then you need to stay with the pricing in those orders. But of course, yes, on the other hand, in other areas, it's more challenging to increase prices. I mean, where market is less positive. And of course, also inflation is lower, that has some impact as well. But overall, we have a positive price impact in the total group, better in the positive areas and worse in the other areas.

Yes. And my second question is also the same one basically, but on the segment Medical. And if there's any sort of mix change within medical we should think about for the coming quarters. But if you can help us understanding a bit how we should see about pricing for that segment? Or if you such a -- I mean, you might take very high prices at the moment and feel those are correct?

I don't see -- that was a good question. I don't see any larger mix changes within medical. Prices are good and the profitability is high in medical. I cannot give you more than that.

No, fair enough. I understand. And my final question is also about capacity in medical where you are in terms of operating rates. Do you have a lot of sort of free capacity given that demand seems to be really, really good for you in that segment?

Not really. I think the one other good thing with medical is it's not very big investments. It's also that you could do them sort of in smaller steps than, for instance, when you need to build a new rolling mill in tubes or so. So we are continuously investing in increased capacity. Of course, the Malaysia will increase, but we are also investing in the American units, and we do that constantly.

The next question is from Viktor Trollsten from Danske Bank.

Thank you, operator, and good afternoon, everyone. I hope you can hear me.

Yes.

Hey, Viktor.

So perhaps firstly, strategically, just interesting to hear your thoughts. You've obviously taken on quite a lot of investments in 2024 and starting to shift the company. Just interesting to hear, do you have your hands full now? And should we view, call it, 2025, 2026 as execution years on the projects that has been announced? Or do you have management capacity and stuff like that to take on more organic projects? I'll start there.

That's a valid and good question, Viktor. I'm a little bit reluctant to speculate and share if we have more ideas coming because they will come, will come. But I think in general, I don't see the exact same high pace of taking new decisions. So from that point of view, it's more execute what we already have done. But of course, if you do the pop up, we are ready and we are financially strong so we can execute on that. But I think -- and we could take on more but and I can think loud, for instance, Kanthal, they have not been used to run large projects like this. They have strengthened the organization with really good project leaders, and I think that works really well. So I think we need to think of not only from a financial point of view, also from an organization point of view. And I think we are dealing with that in a good way.

And on the financial perspective on it, just a lot of the projects are running to 2025, 2026. But I guess just curious to know, should we anticipate any meaningful impact from these investments to be seen in figures in 2025 as these projects ramp up? Or is it more, I should say, gradual impact on numbers?

Of course, it's gradual and industrial -- larger industrial investments like this, I mean, normally, we talk about 5, 6, 7 years' payback, and it takes some time to ramp up. I mean, 2025, I think 2 larger investments will start to ramp up. The silicon carbide expansion in Kanthal will start ramping up this year and the Tube China factory will start ramping up during the fall. So that is more step-wise when that will start to have positive financial impact. On the other hand, the medical investments have a shorter payback. So of course, they come in, in a positive way earlier than the others.

Yes. And then curious to hear, Goran, you mentioned you do not want to grow in all areas of your addressable market, which is obviously in line with your strategy. But just curious, would it make sense to look at divestments in the portfolio from that perspective to put further focus on your selected areas? Or does the back-end system sort of limit you from that perspective?

Yes, I think that would be -- that is nothing we at all plan to do. And sometimes maybe it's unfair. This and especially Industrial segment, and we say we don't prioritize it, it's still very important for us. It carry a lot of cost and you need to do that in a clever way, book good orders and then reduce the others. So this is sort of -- you need to manage both ends of that. And I don't see a divestment and reduce that, that will be tough for absorption numbers.

Okay. And then finally, on my side, in terms of demand and more specifically on the oil and gas segment, I think you have previously mentioned sort of 3 quarters of backlog in umbilicals or in the oil and gas segment. It was quite some time ago you took a major order within that segment. Is that because of the long backlog that you have chosen not to take on more orders? And given the new U.S. administration commitment on boosting oil and gas markets, have your expectations on that segment sort of increased? And how could that impact you?

I think the U.S. they just started, and there's a lot of messages coming. I think it will not be bad for oil and gas. But if I look at American investments, if I look at the OCTG part, normally, those oil wells are sort of less bad from a corrosion point of view. So that is mainly carbon steel. I don't see a big move there. Umbilicals and offshore, so I don't think the American as such will boost it. And the other question, we are not restricting at this point any orders, small or what's the size of orders coming in. And we keep on booking umbilicals. Right now, the order -- I mean, the backlog is around 2 quarters. That also makes us flexible to book orders with short lead time. I think that is -- that is to our benefit, and I think it's also good from a pricing point of view.

Okay. Okay. And perhaps if I may, just one final one because you obviously have your...

Sure. Come on.

Yes. So you obviously have your arrows, which are much appreciated, but they go in all directions. And as you pointed out, it seems that organic order growth now, excluding major orders, call it, oil and gas, nuclear, et cetera, was up 6% organically in the quarter, say, 1%, 2% on a rolling basis. You say mixed outlook or demand, but would you say those figures sort of reflect what you are seeing in the underlying development of your business, excluding major orders. I just trying to get a sense for development into 2025, obviously.

Not sure. I have the insight when it comes to the major orders. But if we exclude oil and gas as a total, as I said, the underlying is slightly positive. I don't think we share that number, but your estimation is not bad.

[Operator Instructions] The next question is from Igor Tubic from Carnegie.

I just have a couple of questions as well. I will start with the oil and gas. And I just wonder, you are mentioning that the project list is pretty long for upcoming projects. I just wonder, can you share anything about the size of these projects and if you compare it to historical levels or I'm just figuring out if the level of the potential orders, so to say.

I cannot share sort of the size in total of the project list. It's good that I can say if I look at the different projects, there are not many that would qualify for communicating big orders, but that's sort of -- I think I said it before, to me, I mean, if I book order on SEK 300 million or SEK 250 million, that doesn't matter. And there is a number of interesting orders that we plan to book.

Okay. That was helpful. And then also in terms of chemical and petrochemical, you mentioned here that it was pretty weak in Europe. Do you see any trough? Or is it starting to the downward trend to reduce? Or what do you see there?

I see what I see. I prefer not to speculate what I'm going to see. And we've seen during the fall that the European market in chem and petrochem has become weaker. On the other hand, the North American became stronger at really at the end of quarter 4 and Asia continued to be strong. So that is what we see right now.

And one last one. I just wonder in terms of potential tariffs in the U.S., is that something you are worried about? And can that potentially hit you? Impact you?

Thanks, Igor. That's a complex question. Bear with me now for going to be a long answer on that. I think it's a very complex matter. And I think the big question is not the direct impact on our imports to the U.S. I think the -- it's what potential countermeasures will other countries have and how does it impact customer value chains. I think it's really difficult to speculate. But I think if you look at our direct import, I think we have very good experience from last time. We had import duties when Trump went into office last time. And I think in the end -- so we have a good experience. In the end, it didn't turn out so bad. I mean we have a high level of specialization. So we had a lot of exceptions because there were no domestic alternative. And then we have a footprint in U.S. where we import semifinished products, some of our European competitors had to import finished products. So I think that was, in a way, beneficial for us. But it's difficult to speculate. I think our position is relatively good overall. I think our broad exposure, both segment-wise and geographic-wise is good, the high level of specialization and a global footprint. But of course, a global trade war is not good for anyone. I think what you need to do is to be sure that you are flexible. And I think maybe most important is stand close to your customers to understand what impact they will have because I'm more -- I should be worried -- more worried about indirect impacts than directly on our products. That was a long answer, but it's a complex matter.

I just want to hear your thoughts. So that was good. That's all for me.

Thank you, Igor. So I think -- actually, we have one more question, if it's a quick one, Anders.

We have a follow-up question from Anders Akerblom from Nordea.

Yes. I'll keep it short. I'll limit it to one question then. Okay. So I mainly then want to ask about Kanthal in Asia. Just if you could give us a brief explanation as to the sort of organic decline in order intake in the region. Is it -- are you seeing increased competition? Or what's the main drivers behind this?

The main driver is the downturn with the solar industry. 2023, we had very nice orders for the solar industry in Asia, meaning China. What we have seen is that, that value chain is really overinvested, so it is overcapacity, and that has turned out to be negative. They didn't -- they don't need to build more capacity. And that is the largest impact on Kanthal in Asia.

So the impact from sort of built out semiconductor capacity, that's not something which is nearly enough to compensate in that case?

No. Not yet at least.

So thank you for all your questions, and thank you for listening. With that, we will conclude this call, but we hope to see many of you on our upcoming roadshows. So thank you, and goodbye.

Thank you.

Ladies and gentlemen, the conference is now over. Thank you for your participation. You may now disconnect your lines. Goodbye.