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 have 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%. I would say that's a good achievement of the team here in F.L. Smith. If you look at the total market, the service market is stable. 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 -to-date average 2.7. We are actually happy with that one. At the same time, the profitability journey in service continues, so 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. 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 the strategic cooperation agreement that we signed in Uzbekistan in October. If you look at the value of that one, estimated value, it's one of the largest, if not the largest, agreement that we signed as an F.L. 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. We are supplying 80% of the more flow seat 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 fairly significant play in the country for all mining investments going there. The capital market is still on the slow side, and the activity will remain subdued until, I would say, maybe the end of 2025. I've visited quite a few EPCM companies around the world, the engineering companies. Everybody is 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 the end of 2025, 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 pick up in the fourth quarter. Sustainability, we continue progressing in all 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 custom interface and less in the back end. We continue our business simplification journey, which means that we will have a lean, small corporate office. Most of the resources are in businesses, in the product lines, close to customers, 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 labor services. We have exited basic labor 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 labor 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 a 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 of 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 had a learning curve which had a small impact on the revenues. And then 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 EPC and reported EPC shrinking. If you look at the bottom of the right side of the slide, you can see reported EPC improvement from .2% to .4% is very significant. So it means that also the gap between adjusted and non-adjusted EPC 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 are expecting some pick up in the fourth quarter. So between 650 close to 700 million is a good level for the service portfolio or for the portfolio we have remaining. We have not taken any risk of 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 of 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 the back end of the NCA and we are looking to close the segment fully at the end of the year. And having accumulated loss below 1 billion DKK, which was actually our target. We 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. And as we discussed before, the speed of getting rid of the backlog has been amazing. In starting third quarter, 22 and then ending end of the 24, it is amazing speed of the backlog execution, cancelling contracts and getting out of this huge loss making and risky business what we had in our books. So we are 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 DKK for the quarter. And adjusted a beta of .6% and reported a beta margin of 11.4%. And net net of everything a profit and loss for the group of 289 million DKK. If you look at the gross margin, we have had a strong gross margin quarter. It is 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 beta margin that is also many quarters high. Both in nominal terms and also in terms of margin. .6% adjusted beta margin and .4% reported. On the right hand side, we are in broad strokes illustrating where that comes from. Same quarter last year, we had a reported group margin of 8%. .1% in integration costs related to our integration of 1000 group mining division. So an adjusted group beta of 10.1%. 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 STNA, our adjusted group beta margin is now 12.6%. And deducting the transformation and separation costs we have spent in Q3, we ended the group's .4% reported margin. Our net working capital is up a notch .6% of revenue. Predominantly driven by work in progress. All that leads to an EBDA adjusted to 662 million and adjusting for non-cash items from provisions and also the change in net working 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 debt a 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, unchanged revenue guidance we expect to end around 15.5 billion worth of revenue. If we look at the adjusted EBDA margin, previously we said we would end between 12.5 and 13%. Adjusted EBDA 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 EBDA margin, we now expect to end around 9% adjusted EBDA margin. So again the higher end of that range. Non-cash activities are progressing well. De-scoping 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 to 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-cash activities segment over the lifetime of that segment will be less than 1 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-cash 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 our 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. And if we look at the group level, we 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 one on your touchtone 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 two to remove your question from the question queue. For those using speck equipment, it may be necessary to pick up your handset before pressing the star keys. The first question we have is from Christian Hinderacher of Goldman Sachs. Please go ahead.

Morning, Mikko. Morning, Roland. Thanks for the presentation. My first one's on the hesitation you're seeing in terms of the capex environment for large brownfield and greenfield projects. Seeing a bit of divergence here, I think, in the messages from the upstream and downstream equipment suppliers. I realize hard to quantify maybe, but based on your customer discussions, how much of that do you chalk up to permitting challenges versus perhaps financial considerations like interest rates or customer budget approvals? And how much might even be fatigue with recent price increases post COVID? I'll start there. No,

no, I think, of course, the underlying issue in the whole industry is permitting, apart from a few countries where it's kind of government support. So, for example, Central Asia permitting is faster because of the government support for the industry, but in many other parts, the permitting causes big delay. But you talked about or you ask about the miners' challenges at the moment. And, of course, if you think about many of the mining assets, what our customers are holding, the economic value of the assets is under pressure because the ore grades are going down and hardness is going up. And at the same time, the CAPEX and OPEX have seen increase. So it means that if you discount the value of the kind of mining asset and look at it. So I think there's a little bit of economic pressure for the operators to optimize operating the mining asset. And we believe that some investments will be needed to increase economic life for the mine and economic viability. So that is typically more upgrades, retrofits, improvements, deep bottlenecking, all that sort of thing. So it has an impact on the kind of the mine side. So that will kick off, in my opinion, quite soon when the situation is better. But I mean that many customers are still looking at the CAPEX spend, OPEX spend and then the whole kind of value of the assets. So I think we can help customers to improve the asset value a lot over time. But I mean that, of course, if the commodity prices would go up a notch, for example, in copper, that might trigger some of the kind of nearer term investments. And, of course, nearer term, which are kicking off soon, there's always upgrades, retrofits, improvements, brownfield ex-applicants, because there's less of a permitting delay there. So that will kick off first. And then big new mining projects, greenfield, they live in their own life in many ways. But I'm expecting activity to go up a lot toward the end of 25, early 26, because it just needs to happen. Because there will be a shortage of copper in the world. And then Christian also reminding that our exposure is the best commodity. So copper and gold, they are the kind of really good commodities and a big part of our exposure is there. So there will be lots of activity there. But I see delay between study activity of the EPCMs and then projects starting. And I see maybe being one year out from that.

That's really helpful. Thank you, Miko. Maybe one for Roland and apologies, because it's not brief. But just on provisions for the quarter and I guess two parts, maybe firstly the cement margin, you had a boost from provision release there on some of the legacy projects completing. Are you able to quantify that?

So we are releasing what equates 1.5 to 2% in the cement business. In the cement business.

And then just secondly on the balance sheet figures, I think if we look back to the fourth quarter of last year, you were splitting these out into the warranty provisions, restructuring provisions and the other provisions buckets. And it looks like the warranty number at around 900 million guided. We're not far off that at 824 on page 28. And then restructuring has come down again, I think, as you suggested back in Q4 of last year. I'm just curious on the other provisions bucket, which was about a billion kroner last year. And you'd suggested with half going forward as you run down the non-core activity segment. That's actually gone up closer to 1.28 billion. I'm just curious what's driving that and whether we still expect that to move lower into next year. Thank you.

So I think some of the runoffs that could have happened this year have not yet run off. So we have a few bigger projects that have come to a halt, so to speak, that we took over from TK. And then there's been smaller provisions built up both in the NCE as we prefer to exit that and a little bit also in cement. So that's a little bit of a mixed bag. It's a little bit unpredictable when that will start to come off. That has to do with how we can progress a few of the bigger tickets that are more or less on hold as we speak.

Thank you.

The next question we have is from Klaus Olmer of Moodya. Please go ahead.

Thank you. Yeah, also a few questions on my side. The first is to you, Mikko, this comment about a potential significant uptick in the end of 2025. I guess when you are mentioning this on a conference call, you are pretty certain this will happen. And did you say on the last reply that you expect for you it will be more 2026 effects? So that's a double question.

Yeah, Klaus, I was asking this from the ones who know, which is the EPCM. So I met a number of EPCMs who are busy, busy working, not executing projects, but doing studies, I said. And everybody said that we don't know when it's going to happen. So actually the timing is uncertain, but it will be like a ketchup bottle opening so that this highly cyclical industry, and it's never smooth riding in the capex business. So we expect that ketchup bottle to open at some point. But even the EPCMs who are actually doing the execution work on behalf of the end customers, they said that we don't know the timing. But we are very busy doing study work. So when that will turn into projects, which in turn turns into orders for us, they said that we don't know. But it's just my own thinking. Typically, if there are visible studies, it's year, year and a half when we start to see the activity in execution side, which leads into orders on our side. And so it's uncertain, but I know that it will happen. And it's just the nature of the mining business. And between the cycles, you need to just ride on profitability of the service. And then when the business will pick up, then you are riding on the wave. And I might also say that the slowness in capital business is helping us to clean the house. Because if there's slowness in revenues and we have a strict target to our cost in the support function, the businesses, so it's easier to clean the house when it's not a total up market. And when the up market will return, then you just control the cost so that it doesn't start to grow in line with the order intake growth. So it will come. And this kind of slight slowness in the capex market and revenues help us to clean the house. It's much easier, as people say, that never miss a kind of a small downturn to do something useful for your company. So we are doing exactly that.

Sure. It looks like that. So are you more positive compared to one quarter ago as to this uptick in capital order?

Timing is uncertain. So I think we do not have visibility for more than maybe two or three quarters ahead of us. And as I said, I visited the last number of EPCMs. Everybody said they are busy with study activity. And they told me we don't know yet when this will turn into projects. But it's still for the next three quarters. I would say it looks the market like it is today. But then we keep you updated if we see really it kind of picking up sooner or later. It will, but we don't know the timing.

Perfect. OK. So my second question goes to the underlying mining EPA margin. So when I do the math and trying to strip out the non-repeated like of cost, I'm getting at a minimum 15 percent margin here in Q3. Is that roughly correct?

That depends on what Matt you did, Klaus. So we have the adjusted EPA and that's adjusted by what we spend on transformation and separation costs of about 38 million. And that will be adjusted for underlying. We have also provided for a bit restructuring costs for the ongoing exercise on the operating model. We're not disclosing that number.

But when you try to make that adjustment, do you sort of agree that it could be more than 15 percent on the underlying margin?

It could be more than 13.3. That's what I agree to.

Thanks a lot, Ronan, for that clarification. Thank you. That was all for me. Thanks a lot.

The next question we have is from Christian Tunow of ACB. Please go ahead.

Yes, thank you. And first question is again on this outlook comment on the mining orders. So if mining product orders are not going to pick up until 2026 and given the lead time of back up conversion, would that mean that we shouldn't expect mining revenue to sort of materially increase until 2027?

Yeah, thank you. Thank you for that question. So as we say, it's somewhat uncertain when this will pick up again and starting to materialize in terms of higher order. So what you should do now is, as we have said, average product intake of a billion per quarter. That's what we're currently doing. And plan that as revenue in 25 and into 26. That's how you should think about it before that changes significantly.

Understood. And then in this period, considering that your gross margin is already where you say you aim it to be, if the only EBITDA margin driver then reducing the SQA cost?

I would say it's a main driver until we pick up the volume again and we can achieve all our targets by leaning out the company. We have internal plans, how we can take a cost out. As I said, we will have a lean corporate office. Then we have resources. We are pushing resources to customer front, either technical and sales resources in the business line to have more customer facing people. We have enough resources, but sometimes they are too much in the back end, too little in the front end. So we are pushing resources out. And so that is one of the main levers. But of course, in the meanwhile, MIX is also getting better. So that if we have less revenues for capital, the MIX is supporting profitability as well. So we might see quite significant uptick in the percentage share of the service against the capital. But it's mainly SNA and MIX.

Understood. And then my second question is on the provisioning levels. Again, you mentioned the impact on Cement and NTA, but I just want to clarify whether there is any sort of change to the provisioning levels from mining into three and maybe sort of referring to the adjustment in the cash flow statement, which sort of suggests that you would have provisioned more in the quarter than previously. Maybe just tell me if there's any impact on the underlying mining.

So those provisions are a little bit across the board, but there is a restructuring provision in mining that goes to the reductions in SNA that Mikko is talking about. So the restructuring part is predominantly mining and a bit in NCA. The rest is cement, NCA and mining.

OK. And the restructuring you refer to here, would that go into the restructuring line in your provisioning note?

Yes. Yes. That's the 87 and change. You can see from Q2 to Q3.

Excellent. Great. All for me. Thank you.

The next question we have is from Lars Topholm of Carnegie Investment Bank. Please go ahead.

Yes. Before I start, congrats with impressive job on the margin. Having followed this company for 30 years plus, it's actually quite remarkable. That being said, I also have questions around your comments on the outlook. So it's more simple math. If I look at your backlog by the end of Q3 in mining, it's 11.3 billion. That's a billion down from the beginning of the year. And your book to bill is lower than one. So the question is, what is the likelihood of a revenue decline in 25 and 26? And in that context, since you now have an impressively high gross margin, doesn't that imply your leverage has gone up and leverage also works on the downside? So in other terms, do you have plans to do more on the cost side if top line dips to protect your margin? So how should I think about that?

Maybe I can start Lars. Thank you for that. So your logic is right. We're not guiding on 25 revenues yet. But obviously our order intake is down. We're doing a quarter, a billion per quarter. So that would imply roughly where we may end on an average over the next year, year and a half. And the STNA exercise that we are currently doing is aiming at adjusting our internal cost level to exactly that. Sure. You're right. Operational leverage is also applying downwards.

And then I have a question on these 150 salespeople you took on to gain some market share in the pump market. I just wonder if you can put some comments on how that has gone, how many orders have they won, what's the status?

So just not giving in detail numbers. So we are happy actually with the investment and return what we are getting for the pumps business. And the capital business is impacted by kind of shortage of large project orders, including pumps. But we have managed to compensate that by converting competitors' pumps out. So that if I look at the conversion rate, we have the KPS like how many new pumps we have, kind of orders of new pumps, not only DK, but also numbers of pumps. Then we have a target for conversions and that conversions is running double the rate compared to last year. So that's an indication that our product is good, technology is good, and then we are getting return for the investment. So that has compensated slowness in the capital business related to the projects. So in that sense, we are getting return. And of course, pumps is high margin business. So highlight of that one is that we are doing well converting competitors' pumps out, replacing them with the Krebs FL-Smith pumps.

And then a related question to that, Mikko, because you guys have also been very clear that one of the differences between you and Metso is sheer size. So to completely close the margin gap to them, you need bigger size. So if we have a situation where demand is subdued for the next year, year and a half, and then picking up, is it now you would do M&A's this realistic within a six, 12 month horizon? So

I think the biggest constraint in the large is, let's say that when the market will pick up, the biggest constraint is a large capital equipment. And within that one is the biggest constraints is there's a lot of costings. And typically that part is outsourced by all of the companies because it's the largest costing suppliers are supplying costings for multiple different industries, not only mining. And that is typically when the market will turn looking at 22, that was the kind of large mills, large costings was the kind of the bottleneck for the orders and lead times. So we see that if the market will come back, the same constraint will remain. And of course, we need to be vigilant when we see the market coming back so that we secure the supply early on so that we can win orders by being able to supply kind of heavy capital equipment faster than the competition. So, but then in smaller products is less capacity issue. Then there's our own in-house manufacturing for pumps and cyclones is scalable. Smaller, smaller, small mills, small crushers is more scalable because there's less constraints in the supply. But you are right that when the market will turn, some of the core products will have a constraint in a kind of lead time to supply.

One final mother household question, the capitalized R&D. Can you comment on the split of that between mining and cement? I would assume it's predominantly mining. Is that fair?

It's

predominantly mining. Absolutely. It's a lot to do with what we do in our PCM.

Thanks for answering my questions.

Thanks very much.

The next question we have is from Tor Fangman of Bank of America. Please go ahead.

Hi, thank you for taking my questions too from my side. The first one would be, could you please give us a reminder on the reduced labor services and until when this should impact the year near comparison? And then secondly, do you have an SG&A midterm target for the mining as a standalone business post a potential cement disposal?

We are separate between basic labor services, which are large labor service contracts, two or three hundred people at the mining site cleaning the site and all sorts of basic stuff not related to the technology itself. So we have one contract left and in South America all the other contracts we are out. And we don't give exact number, but I don't know Roland if you want to indicate anything for that one.

I think we indicated that it's about 200 million in OI in 2024, so that has come down significantly.

Okay, thank you. Then the remaining portfolio is just reminding remaining portfolios, spare parts, consumables, professional services, which is high in technical services and technical support and then upgrades and retrofit. So that's the remaining portfolio what we have.

And the second question on the SG&A target is the midterm target for standalone mining business.

So there we're not disclosing an SG&A target, but we're saying we will do an EBITDA of 13 to 15 percent in 26 reported.

But we can say that we are talking significant reduction in SG&A and our internal target is based on conservative volume estimates so that we want to make sure that even though it's a low part of the cycle in the capex business that we have a kind of lean organization. And the target is that when the market will return, then we keep it under check, under control so that we become kind of scalable on that side of things.

Thank

you. The next question we have is from Chitrita Sinha of JP Morgan. Please go ahead.

Thank you. So my first question is on the mining SG&A cost. So this has obviously come down as a percent of sales sequentially. Do we expect this to come down steadily from here or will there be some headwinds like further hiring that you're planning to do?

No, it will come. So the plan is it will come down from here. It's not super evenly because in bonus quarters and so on, but it will come down significantly from where we are.

And then we are targeting absolute reduction, meaning that absolute DKK, Euro, Dollar, whatever you want to use. So it is not relative. We are not looking at our internal target is absolute DKK, not the percentage. So then we know that we can squeeze more the cost out making sure that it will come down. OK,

very helpful. My second question is, you know, we've not got too long now till the end of the year. Where do we stand today in terms of the cement divestment process?

So what we said on the cement process, it's going according to plan and we are running the process. There's no change in that. And, you know, we can technically sign that deal before year end at the earliest. And if we won't make that, it will be beginning of the new year. So that's where we stand on that. And that has been the plan all along. Thank you.

The next question we have is from Peter Sehersted of ABG. Please go ahead.

Yes, thank you for taking my question. Most have been answered. But just dwelling on the comments that you made about your meetings with the PCMs. What minerals exactly are we talking about? Because when tapping into what the big miners are saying, I mean, the rhetoric still appears the same that, you know, they are optimistic about the transition, etc. But when it comes to investments, the common price still needs to be relatively high before something material is happening there. So, yeah, that's essentially what I have left. That's

why I said that the pickup will be initially in the kind of improving existing assets. And just because exactly what you said. So the pickup will be soon is that rather than greenfield, it will be improving existing operations in South America. Deep bottlenecking, adding a new line, adding a new mill, adding a new crusher, just to kind of increase capacity, because there the licensing is less of an issue. And of course, you have existing operations that you are improving. So the first pickup will be there. And then the long term greenfields will live their own life in terms of timing. And sometimes you cannot even time them for a year. It might be this year or it might be five years of time. It's so uncertain. But this expansions, deep bottlenecking, improvements of the existing ones, adding a line that will happen quite fast. And I think most of the EPCMs were saying that that's what they're looking at at the moment. And of course, big greenfields like it's not really a greenfield, but we announced that the strategic agreement for Uzbekistan, it's going to be a massive concentrate for Uzbekistan that we are supplying the 80% of equipment. And why we say that we didn't book it this quarter is that the timing depends on the EPCM progress. So that how the site constructions progress. And then we are kind of booking, delivering as per that one. So the timing is uncertain. So we want to kind of course on everybody for timing issue. But kind of brownfield improvements will pick up very fast when the market is better.

And then just perhaps a follow up. If we just assume that final metal consumption is unchanged at these levels. But as you mentioned, all grades going down and hardness going up. I mean, if you have a same consumption, but with lower grades, harder rock, just means more stuff has to go through the processing plant that implies increased wear and tear, etc. Doesn't that suggest that even with stable and metal consumption that your services business should actually increase?

You absolutely spot on there. And if you look at global statistics of the all grade using a copper as an example, there's a trend wise year on year decline. And that continues. So it should have a positive impact on our opportunities in the service business because you need to process more to get the same volume of copper concentrate out. So you are spot on.

And so what does your technicians or specialist say about the sort of growth impact from this sort of scenario?

So I think we are actually we will go back to growth in service. And I think we have a certain strategies for that one. We are not talking to market about them. But we have an idea of how we can help miners to kind of improve their assets with our service. So it's of course then that will manifest itself for the selling more spare wear, pass and retrofit. But we will come back to the market in more specific details about going back to growth. But we have an idea how to do that one. But we'll come back to that sometime next year. That's what we agreed.

OK, thank you very much.

The next question we have is from Casper Blom of Danske Bank. Please go ahead.

Yes, thanks a lot. Just a couple of quick ones here. Miko, did I hear correctly that you said that you were more or less a year ahead in the transformation of the company? And I would then just be, if you can confirm that, be interested to hear if we should also think about you reaching your targets one year ahead of time. The first one and the second one on the non-core business. It looks as if there will be some backlog left by year end. Is there any concerns that we should have about that giving a loss in 2025? Thank you.

If I comment the transformation that we are year ahead, we are year ahead in some areas like NCA. We are closing the segment this year. Early expectation was the end of 2025. And we also progress slightly faster in our profitability improvement despite softness of the capital market, capital business. And I think so in many areas we are progressing faster. We are not done yet with all areas. Estonia is too high. Cost levels too high for the volume what we have and that sort of things. But we are ahead of the strategy plan, especially in NCA. But then of course we have some headwinds from the kind of low volume in capital business.

And on your question on NCA, so that backlog will come down further Casper. And also the provision to see we have made is also done in NCA. So once we sort of end that segment, if there is a piece left, the intention is that it is properly provisioned for so there won't be any P&L impact as we move forward.

That is very clear. Thanks to the both of you.

The last question that we have is from Klaus Kao of NICREDIT. Please go ahead.

Yes, hello. You have been working on this new operating model for quite a time, which ultimately should result in a lower tax rate going forward. But it is still kind of high here in 2024 and I guess that is no surprise. But do you have any high level thoughts how we should think about your tax rate for 2025? That would be my first question.

So the way we have said it is that once we come into 2016, going through 2016, our tax rate will start to drop towards the 30% we have talked about in our capital market today. I think we are well progressed. We are also aware that some of this may be challenged in the countries we are leaving. So we will also accrue for that. So you won't see our ETR drop like a stone until we come towards the end of 2026. So that is how we should think about it.

Okay, great. And then you still have some transformation to do in 2025. But on group level, should we expect further transformation costs in 2025?

There will be costs for us to move towards the new operating model, yes. If the question goes to whether we will call it out as one-offs, that we haven't decided yet.

Okay. And do you have any high level thoughts about the amount?

No, not yet. We do, but we will come and inform about it once we are a bit more crisp.

Okay, perfect. Thank you very much.

As my closing comments, we tried to make you fall in love with FLS. I think some of the comments, I think you are starting to kind of feel that we are a high quality company, but we go further. So if you think about FLS, we will be pure play mining services company. We have a high exposure to copper and gold. We have a leading position in most of the portfolio items in flow sheets. And we have a clear strategy how we move into higher margin, higher earning, low risk business. And also that when we are launching next year new ideas for the service growth and business growth, we hope that then that's kind of end of the transformation journey, profitability, transformation, cleaning the house, and then go back for growth. And I think hopefully then that's a kind of last bit of when you fall in love with us. I see some nice comments from already from some of you who have been following us for a long time. So we do our best to earn your trust. Thanks for the call.