Flsmidth & Co A/S B Shs

Good morning and welcome to the Q3 earnings call. I'm here joined by Roland, our CFO, and we walk through the main events and results for quarter three. You might see the slightly updated visuals on the first slide. So myself and Roland has been busy here in the head office looking at that. Firstly, highlights for the business. I'm extremely happy with the result for quarter three, and it is exactly as we planned. Namely, focusing on the profitability, we achieved adjusted EBITDA for mining business, 13.3%, and then for cement, 10.8%. And I would say that's a good achievement of the team here in F.L. Smith. If you look at then the total market, service market is stable, and we indicated in the beginning of the year that the service market is stable. In our terms, it means that typically order intake would be between 2.6 and 2.8 billion DKK. Last month was on the high side, this is on the low end of the range, but year-to-date average 2.7. We are actually happy with that one. And at the same time, the profitability journey in service continues so that all that order intake is high profitability. Positive of the execution is that we implemented new ERP system in our largest production facility in Arizona related to the pumps and cyclones. And that has been successfully completed. And the order execution is back on track in pumps and cyclones. So that was a good achievement from our organization. Then I would like to highlight strategic cooperation agreement that we signed in Uzbekistan in October. And if you look at the value of that one, estimated value, it's one of the largest, if not the largest agreement we signed as an FL Smith. And it's a clean supply of products and services, which means that there's no third party content. And that is exactly what we want. And we are supplying 80% of the flow sheet in Uzbekistan. We like the country. We are established in Uzbekistan. And if I look at the prospects in the country, we are, and we will be a fairly significant play in the country for all mining investments going there. Capital market is still on the slow side and the activity will remain subdued until I would say maybe end of 25. I've visited quite a few EPCM companies around the world. the engineering companies, everybody's busy with the study work. They are full on doing study work. And study work typically is the preface of the order and then for them order and then project execution. So we expect that all the study work that EPCMs are doing in all the mining hubs will result in significant capex investment probably in end of 25-26. And mining be very cyclical. It will be like a ketchup bottle opening that once it starts, it will start at a fairly significant pace. Seventh business, we are preparing cement for sale. And we've been selling over the last year or so two product lines already. And that has an impact for the comparison numbers. So that order intake comparison year on year is difficult to do because of the divestments. We continue to de-risking the asset, meaning that we have declined any risky order for the capital business, because we don't want to bring risk in that would actually slow down or make the sale of the asset more difficult. The service business is progressing in cement. It's a little bit on the low side for the quarter, but we expect some pickup in the fourth quarter. Sustainability. We continue progressing in all our science-based targets. More focus is needed for the safety. We are investing at the same time as we are doing cost out in the company. We are investing in the front end. And in the future, we are pushing more and more resources to the customer interface and less in the back end. We continue our business simplification journey, which means that we will have a lean, small corporate office. And then most of the resources are in businesses, in the product lines, close to customer. And then the support functions are largely located in the global business centers where we automate and streamline the activities. Cash flow is positive for the quarter. If I need to pick a point from here where we focus on improvement, it is the safety. We've been improving safety year on year, but it's still not at the level we want safety to be in. So we continue investing to safety in all our operations. That is a point of emphasis for us. Then if you look at the service order intake for the mining, we indicated in the beginning of the year range 2.6 to 2.8 and now it's slightly in the low end of that range. But year to date 2.7, we are happy with that one. We expect some more pickup again in the fourth quarter for the orders. You need to also bear in mind that year-on-year comp includes last year some still order intake and revenue from basic labour services. We have exited basic labour services and doing spare parts, wear parts and professional services only going forward and upgrades and retrofits. So there's a small impact to the order intake and revenues from exiting those large labour service contracts. We expect the market to remain stable for services for 2025, and then in 2025 we expect capital order intake and capital business to be roughly at the level it is this year, so no big change for that one. As I said earlier, we see high level of study activity, amongst the EPCMs and sooner or later that study activity will result in more CAPEX investments, especially brownfield expansions and new lines to existing plants. In revenue, the positive point in revenue is that we did full new ERP implementation in our facility in Tucson, which is the main operation for pumps and cyclones, and it has been successfully executed over the last couple of months, and we We had a learning curve, which had a small impact on the revenues. And now we are back up and running with a new ERP system. And so that was extremely good learning. So that is where the revenues are picking up. Year-on-year comparison, still some labor service contracts in revenue as well. In the last year, we only have one remaining now. So going forward, you will see very little impact from the business mix. One might say that the highlight of the quarter is the fast improvement in our profitability. And also the gap between adjusted EBITDA and reported EBITDA shrinking. If you look at the bottom of the right side of the slide, you can see reported EBITDA improvement from 8.2%. to 12.4% is very significant. So it means that also the gap between adjusted and non-adjusted EBITDA is shrinking. So this is a big achievement. And in our terms, we are well ahead of the transformation of the company, almost one year. So the profitability improvement is progressing fast. Then if you look at the cement, I wouldn't pay too much attention to year-on-year comparison for the order intake for the quarter. We would expect typically service to be between 650 and 700 million, and now it's on the low side. There was slowness in a couple of the markets, and we're expecting some pickup in the fourth quarter. Between 650 close to seven, seven is a good level for the service portfolio or for the portfolio we have remaining. We have not taken any risky business in for the capital business, so only clean, low-risk product orders. And we continue to be restrained in that area until we find out who will be the owner of the cement asset. And then, of course, new owner can decide the strategy whether they want to take more capital business in and what is the risk level that they want to have in the cement business. But we are preparing the asset for the sale. We keep it nice and clean, high profit, low risk asset. And this also reflected in the revenues. And if you look ahead, still the sale of the service revenues will continue to increase in relative to the capital revenues that will further improve and support the continued profitability journey. So the sale of the service will continue to increase if we look ahead. Also very significant achievement in cement is improvement in profitability. And if you may recall, last year we recorded one-off gain of around 100 million from sale of one of the product lines. So if you look at comparable numbers, it is very significant profitability improvement for cement. And as I said earlier, we have a nice, clean asset service-oriented, low-risk asset to sell now, and we are happy with the recent development of the cement. NCA, we are seeing back end of the NCA, and we are looking to close the segment fully end of the year, and having accumulated loss below 1 billion DKK, which was actually our target. It started from 1.2 billion estimated loss at most, and then we turned it down to about 1 billion and we will close the segment below that number. As we discussed before, the speed of the getting rid of the backlog has been amazing in starting third quarter 22 and then ending end of the 24. It's amazing speed of the backlog execution, canceling contracts and getting out of this hugely loss making and risky business what we had in our books. So very pleased with that one. And then handing over to Roland to go through the numbers in more detail.

Thank you for that, Mikko. So looking at the consolidated picture, a revenue of a bit more than 5 billion Danish kroner for the quarter and adjusted EBITDA of 12.6% and reported EBITDA margin of 11.4%. And net-net of everything, a profit and loss for the group of 289 million Danish kroner. If you look at the gross margin, we've had a strong gross margin quarter. It's the best quarter for a long time, both in nominal Danish kroner terms, but also in terms of our margin. And on the right-hand side, we see this driven both by mining. That is in the higher end of 31 to 33% that we have. talked about the last two quarters and also cement had a strong Q3. STNA cost is coming down. Predominantly, the restructuring efforts we have done in cement and also in NCA is driving it down. And the ongoing simplification efforts and move to operating model in the mining segment, we will see impact as we move forward from here over the next year or so, where the next wave of STNA reductions will come from. All that, as Mikko said, stacks up to a group EBITDA margin that is also many quarters high, both in nominal terms and also in terms of margin, 12.6% adjusted EBITDA margin and 11.4% reported. On the right-hand side, we... In broad strokes, illustrating where that comes from, so same quarter last year, we had a reported group margin of 8%, 2.1% in integration costs related to our integration of ThyssenKrupp. mining division. So an adjusted group EBITDA of 10.1 percent. Since then revenue has come down in NCA cement and also in mining but gross margins is outweighing that. So adding that plus a few savings in SG&A our adjusted group EBITDA margin is now 12.6 percent. And deducting the transformation and separation costs we have spent in Q3, we ended the group's 11.4% reported margin. Our net working capital is up a notch, 10.6% of revenue, predominantly driven by work in progress. All that leads to an EBITDA adjust of 662 million and adjusting for non-cash items from provisions and also the change in networking capital. Cash flow from operations of plus 357 million and adjusted for investments and disposals. We end up with a free cash flow of 129 million for the quarter. And that means we are reducing our data notch, maintaining 0.6x leverage well below our capital structure target. All this has led us to review and update our full year 2024 guidance and if we start with the mining segment on change revenue guidance we expect to end around 15.5 billion worth of revenue. If we look at the adjusted EBITDA margin, previously we said we would end between 12.5 and 13% EBITDA, adjusted EBITDA margin, and we will now adjust that to around 13%, so the higher end of that range. Cement, likewise, unchanged revenue guidance of 4 to 4.5 billion Danish kroner. And instead of 8% to 9% adjusted EBITDA margin, we now expect to end around 9% adjusted EBITDA margin, so again in the high end of that range. Non-caroyal activities are progressing well. Descoping cancellation means that we won't do as much revenue as we had planned, which is a good thing. So instead of revenue of 200-300 million Danish kroner, we now expect the full year to end around 200 million Danish kroner. And also the loss. will be less than expected. So now expected to be around 200 to 250 million instead of 200 to 300 million. And that also means that the total loss in our non-core activity segment over the lifetime of that segment will be less than one billion Danish kroner when you add the whole thing up. So we are content with that. If we look at our strategic transformation roadmap, most of the de-risking is done in both in mining and in cement. We are also on track to shut down our non-core activities segment by end of 2024. What still stands out is our simplification and move to the operating model in mining. And that will happen over the next year, year and a half. Where we will bring mainly our support functions in place in our global, three global business centers around the world. And also a few more adjustments in the business lines. If we look at the group level, we're basically done with the legal separation of mining and cement and ready to sell cement. And the divestment process is moving forward as Mikko said, according to plan. And that means that we are able to sign a sales deal at the earliest by end of this year. And if that won't happen, it will be in the beginning of the new year. So fully as expected. And with that, we'll give it over to Q&A.

Thank you. We will now be conducting the question and answer session. If you would like to ask a question, please press star and then 1 on your touch-tone phone. You will hear a confirmation tone that you have joined the queue. If you wish to withdraw your question from the queue, you may press star and then 2 to remove your question from the question queue. For those using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. The first question we have is from Christian Hinderaker of Goldman Sachs. Please go ahead.