Flsmidth & Co A/S B Shs

Ladies and gentlemen, welcome to the F.L. Smith quarter one investor presentation. I'm here joined by our CFO, Roland Andersson. I'd like to give some highlights of the quarter one result. I'm extremely pleased about profitability development. Mining cross-profit has gone up from 27.3% to around 23%, so it's a very significant improvement, and it's showing that self-help, what we are doing and what we've been doing over the last year and a half, two years, it is working. Auto intake and service is at a good level, very pleased about that. and also cement development is good. We are preparing cement for the sale and underlying business development and strategic choices and strategies that we have implemented is working. We've taken significant reduction in the workforce since last year. And if I look at the height of the headcount, it was well above 12,000. So altogether in a year and a half, we've reduced the headcount about 3,000 people. It is very significant. We know that we still have a too high SG&A burden for the remaining mining business and it will come down over the next year and a half. We have introduced the small head office concept and we are looking how we can design mean and lean head office with efficient support function operations. That is what we will implement over the next year and a half. Regarding sustainability, mostly good development, safety still not where it should be, and we are working with our manufacturing repair sites in the US to improve it, so that's where the challenge lies. If you look at slight negative development in overall women managers, it's impacted by reduction of total management level in the company due to business simplification. In terms of management layers, managers, there continues to be lots of changes in the company as we are streamlining our operations. The really positive news in order intake is that service order intake 2.8 in mining. For me, that's really high level. That's good level. It shows that service market is stable. We are developing well our service business. Our profitability is good there. There's a peak in capital order intake because of a couple of large orders. Of course, we are especially pleased about extending our leadership position in high-pressure grinding. Both large orders had HBCRs included in them, one in South America, another one in Asia. And that further proves that acquisition of Dyssen Group and high-pressure grinding product line was the right strategic choice. Service share of the order intake is very healthy. Then the decline in mining revenue is mainly about timing. If you look at the fourth quarter, capital, revenue, execution, invoicing, it was at the high level. And it typically means that the next quarter is lower. And this is what we have seen. We knew end of the year that the first quarter revenues will be less in CapEx business as a result. Service is somewhat impacted by the exit from the large labor service contracts in South America. In the first quarter last year, we still have revenues from those. Later in the year, we've exited those contracts. And if you look at the good order intake, both in capital and service, we have no concerns about the revenue. It will turn into revenues, and we will see the pickup in revenue in the second quarter. The best news of the day is that profitability is improving fast. And you can also see that the gap between adjusted EBITDA and reported EBITDA is narrowing. And the biggest improvement is actually in the reported EBITDA from 6.5 to 10.3. That is very significant. And it means that the gap between adjusted and non-adjusted profitability is becoming less. And that was a concern for some of you at some points of the transformation, but it is coming through. And we know that we are still burdening ourselves with too high SDNA levels, and that will go out and down in the next year and a half. And we have a plan for that one. Cement order intake is difficult maybe to understand because we have quite a lot of moving parts. We've been selling some product lines, we stopped all the project order intake and are taking orders only in for products. But the positive which is hidden maybe from this top line view is that the remaining business what we have in cement, And if you look at what's happening in the spare parts and professional services, there's actually growth in the core service business in the cement, which is low risk, high profitability, recurring business. And that is actually growing. but then the top line numbers impacted by sell of the mark and quite a lot of changes, but remaining cement business is healthy and service is developing well. Revenue still is reflecting a decline in the projects, so we are executing most of the projects out of the books towards the end of the year, very little left after the end of the year, so then it's mainly products and services. So we continue to see, of course, in comparison to last year, that this is a totally different business. It's low risk, high service, and product content going forward. And we continue to see the sale of the service out of the total revenue developing well, and there's a positive mixed impact. So the medicine that we have taken in the cement business is working. There's a gain of a cell of one of the product lines included in that adjusted 7.7 number. And without that gain, it would be 5.2 percentage points, the adjusted EBITDA. So it means that the underlying profitability in cement is developing well. We have done right sizing for cement, and some of those benefits are only kicking in as we speak. And as I said, remaining business, what we have in the books, is low risk, high margin. And strategically, we said that at the end of the strategy period, we get to 8% EBITDA. And looking at this picture, looking at the mix, what we sell, we know that we can achieve the strategy target. We are well on our way. We can achieve that one. But at the same time, this is supporting sell of the cement. It's a low risk strategy. Okay margin, asset, and this is really supporting the process what we are going through at the moment. And it's good business what we have in our hands. NCA, no big surprises. This is one of the biggest achievements for the company. End of the year, we are out of the NCA, and we are out of the NCA sooner than originally planned year before. So this has been really successful, the exit from NCA. Then I hand over to Roland to go through the numbers in more detail.

Thank you for that, Mikko. And as usual, let's have a quick glance on the group's consolidated financials. So order intake of 5.2 billion, revenue of 4.8, and a gross margin up by 6% compared to the same quarter last year, so 29, leaving us with an adjusted EBITDA margin of 9.2%, and a reported EBITDA margin on group level of 7.5%. Clearing financials and taxes, our net profit for the group is 194 million. Employees here down by a bit more than 15 hundred people as we can see compared to the same quarter last year. Gross margin, as Mikko mentioned, up considerably compared to Q4 and even more compared to same quarter last year, 29.2%. It's predominantly driven by mining that is close to 33% for the quarter. Cement is more flattish and NCA with a negative gross margin on a very low revenue. So predominantly driven by the mining business. Our SG&A costs continue to decline as a percentage of revenue it's going up as our revenue declining a bit and as Mikko mentioned SG&A savings here is predominantly in cement as we in mining have reinvested a lot of the synergy savings in our service business and especially ramping up our front end in our pumps business. Group EBITDA margin also moving forward, both adjusted and reported on the same quarter last year. On the right hand side, there's a number of moving parts, but on the right hand side we're trying to highlight the most important elements in that bridge. So coming from a reported group EBITDA Q1 23 of 3.9, adding back integration costs from those days, and it gives us 6.0 in adjusted group EBITDA last year. Revenue since then is down, both in cement and the mining business, and That's compensated, more than compensated by a pickup in our gross margin. Savings in SG&A and also bits and pieces gives us 9.2% group adjusted EBITDA margin by the end of this quarter one. Deducting the transformation cost in both cement and mining gives us a group EBITDA margin of 7.5. Networking capital went up again in Q1 as expected. predominantly driven by our payables, but also compensated partly by receivables. Work in progress increased a bit, but that's partly compensated by increased prepayments from the customers, so net net an increase in 553 million in net working capital, bringing the ratio to 8.4% for the quarter, net working capital ratio. So that gives us a, A CFFO for the group of minus 352 million, deducting cash flow from investments. And also we sold a product line in cement and we bought a company in mining. So net net a free cash flow adjusted for M&A of minus 454 million. That means that our financial gearing remains largely flat compared to Q4, so 0.5 turns with a slight increase in our net interest bearing debt driven by the negative cash flow. We maintain our financial guidance for the full year. So in mining, that's 16 to 17 billion in revenue, and then adjusted the beta margins of 11.5 to 12.5. In small parentheses here, we have the Q numbers. And for cement, four to 4.5 in revenue for the year, and then adjusted the beta margin of 5.5 to 6.5. That includes the 30 million gain from the sale of Mark. Non-core activity is unchanged revenue of 250 to 350 and a loss of 200 to 300 million. So the sticky part of the backlog is left to handle, and then we will exit this segment by the end of 2024, a year ahead of plan, as Mikko stated. For the group, we will then enter the revenue of 20 to 21.5 billion. and adjusted the beta margin from 9 to 10%, and I have reported a beta margin of 7.5 to 8.5%. In the adjusted numbers for mining, we have 200 million of transformation and separation costs, and in cement, we have 100 million in transformation and separation costs. Loss of the non-core activities, our NCA segment of 1 billion for the total lifetime since we started this segment in Q4 22 remains unchanged. If you look a bit on our transformation plan we continue with simplification of our operating model for the next year, year and a half and that will further reduce our SG&A's implementation of principal company model and further optimization of our SG&A footprint. We have initiated commercial investments, especially in our pumps business, technical sales force have been ramped up, and we are 70-80% done with that, so that's now up and full running, and at the same time, our ramp-up in service center and mill liner capacities is progressing in line with our plans. Also, the de-risking of our backlog continues 74% is a modest progression and we are not going to get much higher than maybe 80% between 80 and 90% of that. We have internal targets on where this number should go. If we look at cement, Cement has been basically fully de-risked. 90% of the order backlog now relates to low risk orders, the orders that we want. And the simplification of the operating model is also more or less completed. We have reduced by 900 FTE since same quarter last year and there's a bit more to do and then that cement business is right sized and ready for sale later this year. Full exit of NCA, less than 500 million left in the backlog to do for the remainder of the year. And on group level, we are on track for full separation of cement that's basically completed and we are currently wrapping up the vendor due diligence process and then the sales process. will continue full steam over summer and hopefully conclude a signed deal selling the cement business no later than end of the year. And with that, we will give it over to Q&A.

We now begin the question and answer session. To ask a question, you will press star and one on your telephone keypad. If you're using a speakerphone, please pick up your answers before pressing the keys. Do we draw your question? Please press Start and 2. The first question is from Christian Torno with SEB. Please go ahead.