Flsmidth & Co A/S B Shs

Welcome to the earnings call from F.L. Smith for the second quarter 24. I'm joined by my colleague Roland Andersson, who's the Group CFO, so it's the usual duo here. I'm very pleased about the result for the second quarter. The result confirms that our transformation is progressing ahead of the schedule. You also see that service business, both in mining and cement, is growing faster than the market, and the service-oriented business model works. We both delivered high EPT profitability, both in mining and in cement segments. Mining posted adjusted EPT margin above 13%. Cement posted an adjusted EPTA margin of more than 9%, so both businesses performed well. And I'm especially proud in both businesses about service growth. In mining, 7% growth in auto intake, whereas market was flat. Products was low due to timing, and I will talk about that in a bit. In cement, what we celebrate is that for the remaining portfolio, as you remember, we've been selling some businesses, the spare part business grew year on year more than 10% and a significant achievement in the cement business. Sustainability KPIs are progressing well, still concerned about safety and improvement of the safety. We've been right-sizing the company for a year now, and we've seen a reduction of more than 2,000 people from the workforce. At the same time, we are looking at cost-efficient operating model and corporate structure that we will implement over the next year, year and a half. When Cement is exiting the F.L. Smith portfolio, we will become a corporate rather than a group. So stability KPIs, they are impacted also by difficulty looking at the baseline. There's quite a lot of noise in the baseline in comparison because we've been restructuring the business. We've been selling some assets in cement. But all in all, good development and safety continues to be our focus, especially in North America, FS-MIT operations going forward. mining order intake, significant growth in services, and the market was flat. Of course, a comparison point, Gieco was on the low side, but still very good achievement, and it's proving that our business model, which has become much more service-centric, is working well, and then services turning into high-quality revenues quite soon thereafter. The capital market has continued to be slow. We saw some really nice product orders. We sold a gold plant with a lot of good products and with a significant aftermarket potential as a part of that 600 number. But there was no significant large orders in the quarter. And when you look at the order intake for products, you can combine quarter one, quarter two, and divide it by two, so you see the baseline business what we have. The baseline business is high quality product orders, which turns into great aftermarket, high quality revenues. And when we are assessing our market share in capital products, we see no change in the market share in the rolling 12 months amongst the players. But the capital market is slow and continues to be slow in the coming six months, one year. When we look at the mining revenues, there's a fairly significant decline in products. And there's some legacy projects from TyssenKrupp times where we saw that we halted them or stopped some of the projects. There's no P&L impact, so everything has been provisioned for, but some of those projects might result in low revenues than earlier anticipated. But no P&L impact, so we are in full control of all of the projects and have full visibility for everything. Mining services, you see sequential improvement in revenues. 2.4 first quarter, 2.5, 2.6 this quarter. And a comparison point last year, the difference is that we are exiting basic labor services, which was strategic decision, and therefore there's less and less basic labor service revenues in our books. And there's some timing topics in service deliveries as well. But all in all, service revenue, we are happy with the development and it's gathering speed. Last quarter 2.4, now 2.56 and it's progressing well. Maybe the most important achievement for the quarter is improvement of EBITDA. If you look at reported EBITDA, almost three percentage points year-on-year improvement is very significant, year-on-year, and the market is not booming. Adjusted EBITDA reaching 13.1 level. This is what I'm most proud of, of our achievements in this company. We said that we will focus on quality of earnings, de-risking the portfolio, delivering great return, great profitability for our business, and this is a sign that we can do it. We are still burdened by too high SG&A and we are in the process of defining a lighter corporate and operational model that will deliver SG&A savings that will again support in turn our EPT improvement in the coming year, year and a half. We've been restructuring Cement now for a while as well. We've been selling individual product lines, which were impacting comparison points. But inside these numbers, the most important is to point out that for the remaining part of the portfolio, spare part business, which is the biggest part of the aftermarket, has grown more than 10% on the portfolio that we have. As I said, we sold some businesses, we sold Mark's business for the good aftermarket. That's no longer in our books in the second quarter 24. But like for like, excellent development in service. So it has paid off through de-risk, stopped the project, Fulcrum services also in cement. Revenue. Revenue is catching up, service revenue and capital revenue is impacted by the portfolio decisions. We have such a peak in order intake for the spare parts, so that means in turn that the pickup in revenues is coming a bit later. So we've been increasing our order backlog for spare parts deliveries and that will result in good revenues going forward and also high quality earnings. If you remember the capital markets day and we communicated that we can make cement 8% EBITDA business regardless of the volumes. And now evidence that we've done it. And that level is sustainable going forward as well. 100% sustainable to have that type of profitability in cement. And we can do more in the coming years. And new owner can do even more. Still the SG&E level is too high in cement. And despite that fact, we delivered 9.6 adjusted performance and reported 8.5. NCA is no longer an issue for the company. You look at, we have 28 remaining employees in the business. We started at the level of 3.6 billion backlog, and backlog is coming down fast. We are canceling, still exiting some of the remaining contracts, and we will close this segment end of the year. There will be very little left, everything fully provisioned for, so we absorb it to the mainstream business. And then I hand over to Roland with more details for the for the financials.

Thank you for that, Mikko. So the consolidated financials revenue coming in a little less than five billion for Q2 24. Gross margin improving to 30.8% for the group and slightly lower SG&A leaves us with an adjusted EBITDA margin of 10.2% and a reported EBITDA margin of 8.7%. And after financials and tax, bottom line for the group, 187 million Danish kroner. Gross margin continued to improve to 31.8% as we see on the right hand side, slightly up in mining compared to last quarter. And now cement on a plus 30% level, so a total of 31.8% for the group. SG&A cost slightly down compared to the same quarter last year. Transformation activities sits predominantly in cement and there's more to come in mining. And we have invested a considerable part in in our front end, including in our PCV business line, and a few inflation adjustments here and there also. In this number here sits all one of our items of 75 million for this quarter, 75 million Danish kroner. Our group Ibiza continue to improve as also Mikko alluded to. on an adjusted basis, but also on a reported basis. And on the right hand side, just a brief bridge compared to the same quarter last year, adjusting for integration costs. Obviously, for the group, the revenue is down, costing us some margin, but it's more than compensated by considerably improvements in gross margin. Few savings here and there, SG&A and others leaves us with 10.2% adjusted EBITDA margin. And adjusting for the 75 million in one-offs, 1.5%, the group post 8.7% EBITDA for the quarter reported. Networking capital increased slightly. Predominantly by the end of the quarter, we had a lot of cleanup in our work in progress and receivables or invoicing to a number of customers that sits in receivables. So slightly up for the quarter to 9.4%. And that means that our CFO was only slightly positive for the quarter. EBITDA of 524 million. Provisions had cash in use of 190 million this quarter and a smaller change in working capital. 14 million left for CFFO and deducting our CFFI, excluding acquisitions, that was zero for the quarter, a free cash flow of 89 million. That leaves us with a leverage of 0.7x for the quarter, so still well below our capital structure targets. We adjusted our guidance in all three segments some days ago. So in mining, we used to have a revenue target for the year of 16 to 17 billion. We adjusted that down to 15.5 billion. The EBITDA margin, however, was adjusted upwards from 11.5 to 12.5 initially, adjusted up to 12.5 to 13% adjusted for mining. Cement, we left revenue unchanged, but the adjusted EBITDA margin is now expected to be 8% to 9%. On our non-core, we moved the revenues a bit as backlog is being canceled and re-scoped, so we now expect full year revenue to be two to 300, and the loss unchanged at two to 300. That also means that for non-core, we still expect that in the lifetime of that non-core activity segment to lose one billion as we have guided before. And that means that the group We'll have revenue of 20 billion and an adjusted EBITDA margin of 10 to 11 and a reported EBITDA margin now 8.5 to 9.5% for the full year. If you look at our transformation follow-up dashboard here in mining, the most significant item that's still to be done is our simplification and operating model. So we've done a lot on the organization and footprint set up, more than 600 people reduction since same quarter last year. We are on track to implement a more cost efficient operating model, a new corporate structure, but it will take us another 12 to 18 months until we are more significantly through that process. On our commercial investments to enhance our front line and also our service offerings, we are almost done. PCV technical sales force has been significantly ramped up and also our service centers and mill liner capacity has gone up and progressing in line with plan. Also our de-risking efforts are starting to sit probably in the backlog 80%. of the Orca backlog now relates to lower risk orders and that is plus minus roughly where we want it to be. In cement we're a bit further on the simplification and also in the de-risking basically all risk is now out of the backlog in cement and there's a bit more simplification and also tuning on the operating model over the next six to nine months but otherwise we're basically done with that business. NCA we talked about on group strategic level. The legal entity separation with mining and cement is done. There are still bits and pieces on the TSA but we will be done with that over the next couple of months or three. And the divestment process for our cement business is progressing according to plan and that means that we may have signing later this year and it will very earliest be by the end of 24. And with that, we will give it over to Q&A.

Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star and then one on your telephone keypad. If you are using speaker phones, please pick up your handsets before pressing the keys. To withdraw your questions, please press star and then two. One moment for the first question, please. And the first question comes from Christian Hindenegger from Goldman Sachs. Please go ahead, sir.