Flsmidth & Co A/S B Shs

I would like to welcome you all to FL Smith annual report presentation of the 2024 result. As a summary, we are posting record profitability in FL Smith for a long time. It has been a good year despite weak market conditions. And as we promised before, there's no compromise on quality of earnings, no compromise on quality of the order intake. Some of the highlights of the year and the quarter. We highlighted to you all earlier in the year and in the meetings that we have a few areas of focus for growing the business. HPTR, we have record year in order intake and we sold the largest HPTRs in the world, which is cementing our market-leading position with regard to that technology. We are advancing well with the service contracts and service of the HBCR fleet around the world. Second focus area has been pumps. In pumps, we have increased market share globally through the conversions. Third focus area, midliners. Again, midliner has been fast-growing product in our portfolio. So that is a little bit behind the order intake numbers, annual level, 2% growth, strong quarter. But quarters are different and therefore it's best to look at average of four quarters. Mining product market continues to be weak, but in the weak market we are getting the product orders and technology orders that we want. We continued improving our profitability and are posting record profitability in many areas. In seventh business, we are in the middle of the sale process and we are happy with the order intake for services, which is significant for the process. We continue to progress in all our science-based targets. We are also winding down the non-coactivities and discontinue reporting that segment going forward. And that is well ahead of the original plan of winding it down in three years. We are one year ahead of the schedule. If I pick up one area from sustainability, which is most important to me and to our customers, it is safety. We are not yet meeting the targets that we have for safety, but there has been improvement, but that continues to be our focus area going forward. And that is the most important KPI on this chart for me and to our customers. Strong quarter for the order intake in services. We noted in the last quarter that the quarter three this year was slightly weaker, but then if you look at the average of the four quarters for the year, we are at the level that we planned in the beginning of the year. Very happy with the service order intake. In products, we continue to win critical product orders that we want to win, especially in the HBCR space. That has been a big success for the year. If you look at the order intake for the last quarter, just shy of 4 billion, for me that is a good level. And also mix is important to highlight that if you look ahead, mix between service and products, 73%. Optimal for us would be 65% to 70%, but that of course depends on the status of the capital market. Important to note that we are back on track in service revenue. We had a couple of quarters that we were a little bit behind and now the revenue for the service 2.8 billion is at good level. So we are happy with that one. And then product revenues deliveries reflect basically backlog and timing of the backlog. But I'm especially happy about service revenues in this page. Adjusted EBITDA margin of 14% for Q4. That's for the organization and for myself. It's a tremendous result. Very happy about that one. And then if you look at underneath reported margin EBITDA improvement year on year. about four percentage points you don't often see that fast improvement in profitability so we are really happy with this result and it's reflecting transition that we do in the company it is like a train that continues nice steady continuous improvement we've done it so far continue to do so in the future as well few highlights for cement We are in the middle of the sales process, but the number that you need to look at, which is important for Cement is service order intake. 650, 700, anywhere thereabouts, we are happy. Then it shows that it's year on year, like for like, small growth or steady service business with a good profitability. At the same time we've done portfolio choices for cement that we don't take projects, we focus on service and products only. And now it's also reflective in the revenues. So the revenues of the products are going down quite fast by choice. We don't want to do loss making bad business in cement. The level of revenues is good and also mixes getting better is 66% service, but it continues to improve going forward. And as I said, service is the key number here to look at both in orders and revenues because of the sell process. I'm also happy to report that Cement has met the long-term EBITDA target that we announced in the capital market today, and we are there quite early. And there was a little bit of lack of confidence after the capital market that we could ever reach 8% EBITDA in Cement, and now we've done it in two years. Also one area where I'm extremely proud is that we are out of the NCA at record time. It has been internally an externally painful process, but now we are out of it and we are moving the remaining tiny backlog to the mining products, mining capital business. We have few people remaining, just dealing with the backlog related matters. It's fully provided for, but for all intents and purposes, we are closing down the segment. And that is, I would say, a big achievement from the organization. Then I hand over to Roland for more detailed numbers.

Thank you for that, Mikko. So having a look at the quarter's consolidated financial performance, a revenue of 5.33 billion with a gross profit margin of 33.7%, SG&A of a bit more than a billion and an adjusted EBITDA margin of 12.1%, and after tax and financial costs, a profit and loss for the group of 360 million. If we have a look at the gross margin, I think I'll just spend two minutes explaining a reclassification we have done. So we have decided to reclassify IT-related costs from SG&A to gross profit. And the reason why we're doing it is that it follows typically the staff-related IT costs. And that means that we get swings in the SDNA as and when blue colors move in and out of the P&L. And secondly, it belongs more rightfully on the production costs. The way we have done it, we have reclassified in 2023, 127 million. of IT costs from SG&A to gross profit. And we have put it all in Q4 2023. So that's negatively impacted by this reclassification. Similarly, we have reclassified 127 million GKK for the year 2024. And we have put it all in Q4 2024, so negatively impacting gross margin in Q4. It's a pure coincidence that it's 127 million for both years. So if you look at the gross profit hereafter, it's basically like for like that the gross profit from Q4 last year to Q4 this year is increasing significantly. Also, Q1Q, Q3 to Q4, our gross margin is improving, despite of the reclassification. Gross profit is increasing both in mining and cement, and even NCA had positive gross profit this time as we're closing out the last business pieces before virtually shutting that segment down. And that moves us to ST&A. where we have the same reclassification. This is obviously negatively impacting this, sorry, positively impacting this one as costs are taken out and moved to production cost. And hereafter, we have 1,885,000,000 in Q4 24. 51 million of those are called out as transformation and separation costs. And then we have restructuring provisions in that quarter also predominantly severance in both mining and cement of about 200 million DKK. Group EBITDA as And Miko also went over combining it obviously also moves forward to an adjusted EBITDA of 12.1 and reported group EBITDA margin of 11.1. And there on the right hand side our traditional margin bridge. So taking integration costs out from last year brings us to an adjusted group of 9.2. Then we have less revenue now in CA out and capital revenue down in mining and a bit also in cement. Gross margin significantly improved, and then negative flow in SG&A and others, leaves us with adjusted group EBITDA margin of 12.1%, and then we have transformation and separation cost of 1%, and that gives us a group EBITDA margin in Q4-24 of 11.1%. Networking capital slightly better in Q4 than Q3 predominantly driven by significant trade receivables collections and then a few other bits and pieces moving work in progress and offset by trade payables increase. If we then look at the combined cash flow, that gives us a CFFO over 621 for the quarter. And deducting a CFFI, including acquisitions and disposals of 222, leaves us with a free cash flow for the quarter of 422 million. That we spend on reducing our debt, and that means that we come out of the year with a leverage ratio of 0.4x and a NIBG of 847 million. Then we're ready with the new full year guidance for the year 2025. And we expect mining to deliver a revenue of about 15 billion plus minus. And an adjusted EBITDA margin of 13.5 to 14%. And we'll be calling out the one-off cost to transformation and separation of about 200 million as one-off cost for the full year 2025. In cement, we will be guiding revenue of about $4 billion and an adjusted EBITDA margin of 9% to 9.5%, and excluding 50 million Danish kroner for transformation and separation costs. And adding that up, the group will deliver revenue of about $19 billion and an adjusted EBITDA margin of 12.5% to 13%, and reported EBITDA margin of 11% to 11.5%. Our transformation work streams are progressing quite well. We still have some simplification to do and the operating model also needs to fall in place during the course of twenty twenty five moving predominantly support functions to global business service centers and a few other adjustments. We will continue to follow that closely. Commercial investments and risk management and de-risking is basically done. It's not like we won't do it anymore, but we will stop reporting on it as a strategic initiative. This is now fully ingrained as part of doing business in F.L. Smith. And similarly for cement, risk management and de-risking is fully implemented, and also the simplification and the operating model is roughly done, so we will stop reporting on that. And that means that this follow-up slide here will be a bit simpler as we move forward. NCAA is virtually done and will exit the P&L as from 25 and onwards most likely. And thereby back to Mikko.

I'm just highlighting some of the key priorities for 2025. Just as a reminder on the map, what we launched in the capital market today, where we defined the core, streamline the portfolio, make portfolio decisions, value over volume and so forth. I hope that this is the last year of major transformation. Of course, everything is a transformation in a bit when you're pushing forward. But hopefully most of the big ticket items are done this year and completed. And therefore, we are creating foundation for future growth. And why do I say foundation? As I said in the beginning, we make no compromises on order intake quality and quality of the earnings. So there will be no nasties when the growth comes up. comes back from the backlog. So we want to have a clean, good backlog to execute when the market is back. Some of the focus areas today is that we see lots of volatility in the supply chain and we still can improve the supply chain a lot, operating in all key supply markets. And of course, geopolitics is creating new dynamics for that supply chain market. And sometimes there are also opportunities that we can take advantage of in this instance. procurement, supply chain, logistics for improved efficiency and reliability. We are also looking to expand our market presence. We still have a few white spots in the market that we don't cover well enough, and then we will be driving sales excellence. During 2025 we will have new initiatives how we deepen customer intimacy and create stronger relationships. We will have some ideas that we believe that nobody else is doing in the market that we can take us much closer to the customers, customers business planning, customers operations than typically is done. So we are launching those initiatives during the year. And we continue to try product innovation and first market references. And that's why, for example, the win in India for Deloitte's HPCR was particularly important because that is the biggest, largest, modern HPCR in the market. And then it's setting us apart from anybody else in the market. So we are by far the largest. play in the HPGM market and at the same time we have the largest ones that will be in operation in India. We continue to transform the company, one mining which is simplifying the way of doing business, simplifying operations at the same time looking at the principal company model. And we talked earlier about new corporate model means that we will have a lean and mean head office model and then most of the resources are close to customers, part of the business lines and regions or then in shared services setup in our global business centers in Mexico, Romania and in India. And that will generate us efficiency, not only cost savings, but efficiency and scalability when the market will come back. And we are of course middle of the disposal of the cement asset. And then we go to the Q&A.

We will now begin the question and answer session. To ask a question, you may press Star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roaster. First question is from Christian Tornow. Seb, please go ahead.

All right. Yes, thank you. A couple of questions from my side. So maybe just first of all, on your market view, has anything changed? I recall, Nico, you've said that you sort of hope mining product orders could start to pick up towards the end of the year, into the beginning of next year. Would that still be your view?

My view is similar to what we discussed last time. The level activity in 2025 is going to be very low. So, we see no improvement in 2025. So, it's a historically very low level of investment. But we are hoping to pick up in 2026. And we've referred to the high level of activity in EPCMs regarding study work. but we don't see those activities turning into projects in 2025. So, of course, there is activity in 2025, but it's going to be another slow year for capital business. Service is stable, but there's a price pressure around capital and service. So in heavy capital equipment, we will see deflation in absolute prices, means that When we are getting savings in procurement, those savings will be handed over to the customer in form of the absolute price reduction. So, we've seen deflation in heavy capital equipment in 24, and I think we continue to see that in 25. So, the capital equipment prices are going down in absolute terms, which are then compensated by the procurement savings.

Understood. Second question is on these transformation and separation costs of 200 million you expect for mining in 2025. Can you maybe just elaborate exactly what this goes to? And more specifically, do you expect any of such costs in 2026 as well?

Thank you, Christian. There will be costs related still to close a few sites we have of their legal entities and so on. We're not 100% done with the carve out of cement. And also the move from certain of our countries to global business centers will require transformational cost in nature. In terms of our one mining, there will be costs that we will capitalize and there will be a part of this one off that also goes to that. And there will also be some in 2026, whether we call it out or not, that we have not decided yet. But even if we call it out, we are still having our long term target of 13 to 15 percent as in a reported EBITDA number.

understood quite clear and then if I may just the very last one here on this reclassification of the IT cost why do you do the reclassification in Q4 I'm just thinking ahead when we get the Q1 numbers Will we then look at SG&A for mining where it's reclassified in Q125 and not reclassified in Q125?

So we will do like for like from Q1 and onwards. When you do a reclassification, there's also some audit requirements. I cannot just do a quarter of it and then... reopen historical quarters. So we had to do it the way we did it. And I appreciate it's not super pretty, but from Q1, we will make sure we do light for light comparisons. And for your forward-looking analytics and so on, you just use the 127 divided by four per quarter. That will be reflective.

That is very excellent. That's all for me. Thank you.

Next question is from Klaus Alner, Nordea. Please go ahead.

Thank you. Yeah, also a few questions from my side. But first of all, congratulations with a very strong performance in 24 and not least in Q4. You mentioned this divestment of cement, that you wouldn't give a lot of color. But could you possible, say a little bit about time. Is it the first half? Is the second half? Is it dragging out? That would be very helpful if you give some more details. That would be the first one.

Thank you for that, Klaus. So as Mikko says, the cement process, we're in the middle of selling the cement. We're in the middle of the process. And I think politely, we will say that we don't have any more comments to that for now. So as soon as we have news, we will disclose it to the stock exchange.

Fair enough. Hopefully, you're not in the middle, but in the end of the process.

Hopefully, exactly. I think it's important to say we will sell the cement business. So it's still the intention to sell the cement business.

Perfect. And going to the mining guidance, to what degree have you included an impact from the added sales people and also the investment in service centers you announced yesterday?

So in the guidance, it's fully included.

But what have you included? Is there an impact?

Yeah, impact have been included. These service centers are not that heavy on manpower. We started service centers up in 24 and the ones we announced yesterday is sort of a continuation. These are not huge factories with hundreds and hundreds of employees, but running costs have been included in guidance for 2025.

Where close we've been adding people is pump cyclones of our business, people to the front end and we see the payback from that investment in 24. So we are increasing our market share in pumps and how we measure the market share is that conversions, how many competitors we are converting out and what's the kind of competition balance. So we see actually that investment to the front end is paying off.

I was also more thinking about the revenue impact. I know there will be some costs, but do you also see a revenue impact already in 2025? That was actually the question.

We see some. That's not a lot. That will come gradually.

Okay. And then just my final question, cash flow, and I know you don't guide on cash flow, but in past calls you have given some color to what we should expect and giving the guidance for 25 for the mining you know cash flow should be pretty solid uh so could you give a bit help on what we should expect for 25. yeah so we expect to improve cffo in 25 over 24 but you should not expect it to come higher than a billion okay that's very very clear thank you that was all for my side thanks

Next question is from William Mackey, Kepler Chevrolet. Please go ahead.

Yeah, good morning, Miko, Roland. Thank you for the time. First question relates to mining service and maybe conceptual, but when we think about your product categories, you've called out your focus on building pumps and valves and GPRG products. capture rates, but how would you describe your capture rates across the service business in relation to the installed base? And what is the upside opportunity across some of those categories? I'll follow up with the second one.

So the capture rates are highest in our pumps business because we have a design in the pumps which is a little bit more difficult to copy so it's extremely high in pumps so oversimplifying if we get the pump in we get the aftermarket or service as a result. In HPTR It has been improving. ThyssenKrupp, before acquisition, lost some business to third parties. And we've been gradually, steadily, gradually winning it back. We've signed kind of long-term HBCR service contracts in quarter four, for example, for five years with an important customer. And it's still too low, but we see significant recovery in HBCR. aftermarket, but of course we have a good success in the equipment sales as well. So that continues to be one of our focus areas.

Thank you. Staying with mining, the second question relates to the OE business. You talked about a rising level of project preparation activity. Maybe you could speak to which parts of the world are beginning to see a pickup around perhaps critical mineral strategies or copper, for example. And then more specifically, you called out deflation in heavy capital equipment. I mean, why is that deflation? Is that something to do with an increased competitive tension or is there a separate factor?

So where we most likely see the pickup first will be in copper and expanding existing operations. We see very little greenfield activity. And of course, greenfield is dependent on licensing. And we don't know yet what's going to happen in the US. But the area which will pick up soon is this copper expansions. South America, and then a few important copy assets elsewhere. So that's where we see the quickest recovery. Of course, gold prices is record high. But of course, when the price is super high, then all the gold producers don't want to interrupt their operations. They just want to get everything out what they can as long as it's going to but it's 2,900 or so. But COPE South America will be first one to pick up, and then others will follow later. And also that COPE price has been good, or it was okay last year, but we've seen some pickup in the beginning of the year. And of course, if that continues throughout the year, that should kind of support the sentiment to kind of... release some of the work or turn studies into projects. And deflation has to do with, when I talk about capital, I talk about heavy capital with the large costings and where the material cost is very significant. So we've seen intense competition in the market and in order to kind of compete successfully we've been looking at different sources developing new suppliers so as a result the market has seen reduction in heavy capital equipment prices but we've been able to compensate that in our savings in our procurement but of course in the down market you get a saving it goes fully to the customer instead of us making higher margins so we see Margin is kind of stable, small downside in heavy capital equipment, but the absolute price is there's a deflation in the market.

Thank you very much, Mikko. The final one. In this fast-changing world with regard to tariffs, I just wonder if you can speak to how the operational structure of the company sits with regard to cross-border flows, particularly in North America or the USA, and what, if at all, you are exposed to in the event that some of these worst-case scenarios unfold.

We run the scenarios, and I think if I look at the mining supply market, I think our position is quite good, because we do have significant operations inside the United States, and we also have sourcing options for components from other markets, so it's a very dynamic market. Nobody knows what's going to happen in one week's time, but we've done all the analytics where we source components and products from, and we have alternatives. And also that we have a significant manufacturing operation inside the US for pumps and cyclones. We have an operation of mill liners inside the United States, so we do have actually operations inside the US, and therefore everybody will be impacted, but I think in relative terms we should be quite okay. And of course in where the product lines are also focused. Most of our product lines are based in Salt Lake City, United States, so we're actually quite US-centric in our mining operations.

Super. Thank you very much. I'm back in line.

Thanks. Next question is from Kirita Sina, JP Morgan. Please go ahead.

Hi, everyone. Thank you for taking my question. My first one is on the mining OE side, just on the base equipment level. Previously, I think it was said that the run rate that we can expect is about 500 to 800 million DKK. But obviously, in Q4, it was slightly better than this. So, with the commentary that you've given for 2025, what kind of run rate should we expect for base OE levels?

Yeah, so I think we're maintaining what we said also for 24. So base level 500 to 800 million, and then bigger orders come when they come. That's a bit more erratic.

Okay, thank you so much. And my second question is on provisions. I know this time last year you were guiding to provisions coming down both on the restructuring side and then the other basket. How should we model this going forward into 2025 from here?

Yeah, so I think warranty is a relatively stable thing, right? Some slides out, some comes in. On restructuring, obviously we have taken restructuring charges in Q3 and especially in Q4, and they should be expected to turn to cash over the next 12 months or so. These are predominantly severance charges, both in cement but predominantly also in mining. So they will turn to cash, and theoretically, that should go to zero. So when we stop restructuring dramatically, that would be a zero thing. Then the other bucket, that is things from the NCA, things we inherited from TK, and so on. And some of that will have to be reduced over the next two to three years. And what we said earlier, said that that should be cut in half. and that will still be my best guess over the next two to three years that's a hard one to to predict because that has to do with when we do the settlements on on individual projects as a few legal cases as well as bits and pieces and that we solve as we go there hasn't been a lot of outflow this year surprisingly actually so I think over the next couple of years we will probably expect a bit more of that.

Thank you very much.

Next question is from Lars Topholm, Carnegie Investment Bank. Please go ahead.

Yes, hello. Also, congrats with a solid quarter. Very well done. I have a couple of questions. Firstly, I'm trying to figure out the underlying run rate of OPEX in mining. And, of course, I understand now you look... 721 million as OPEX in Q4. Then I add 110 million and deduct 28 million to get, what should we say, a number where the reclassification of cost is sort of probably annualized. So that's a run rate of 803 million. But then, as you say, there has been significant provisions in Q4 that you have charged. I just wonder... If you can specify the level of provisions net in mining in Q4 so we can get the underlying cost run rate. That was question number one.

So we're doing the 200 million in Q4 on group level, right? And the majority of that is mining. There's not an exact number for that, but the majority of that is mining. And I think it's a difficult one to break, understand what you want to do, Lars. So we have provided a lot of severance. That means that certain people will leave over the next three to six months. So expectedly, SG&A will start to come down queue by queue as we move forward. On the other hand, Q4 is a little bit of a seasonal low. SG&A bonuses and other stuff comes out in Q1 and a bit also in Q2, so that will be slightly higher. So all in all, run rate will start to come down over the course of 2025. That's what I'm going to give you, right? And also, we are guiding towards the long-term targets next year. We're also guiding on the gross profit, and that means that the residual that I think you call OPEX will lead you to 13% to 15% reported.

When cement is out I think we have a better visibility for stranded cost as well because we simply don't know it at that time because when we have a buyer then we have a service level agreements and they cover part of the cost so we simply don't have the exact number for stranded cost at the point of cement departure yet.

What I'm trying to understand is also the guidance, because if you have 15 billion in revenue with a 32% gross margin, let's say that's a gross profit of 4.8, you guide and adjusted EBITDA of 2 to 2.1, sort of in round numbers, and that means your cost run rate should be around 700 million euros. But if you have significant provisions in 2024 and don't have significant provisions in 2025, doesn't that actually imply a decrease in underlying profitability in mining for 2025? Or where are my calculations wrong?

No, I think that the way you should look at it is that we will come in and maybe have a relatively high Q1, and then it will start drop over the course of the year. That's how you should think about it. And the guidance is not too low, if that was the question.

Okay, yeah. Then separate question on... Your net working capital and your capital employed. So on group level, you have 10.4% in net working capital. I wonder if you can give the standalone number for mining. And also you have 17.8 billion in capital employed. I wonder also if you can say how much of that is mining.

By far the most... I'm not going to give you the exact number because we are in the middle of carving out and... bits and pieces can change, but by far most of the working capital, most of the goodwill, most of the balance sheet is mining. By far. Okay. And, you know, I understand you want precise numbers, Lars, but we're not ready to give that until in a month or two.

This is a fine answer. Thank you very much. Appreciate it. That was actually all I had. Again, congrats with the solid Q4.

Okay, thanks.

Next question is from Toro Fangman, Bank of America. Please go ahead.

Hello, hi and thank you for taking my question. My first question would be on could you just specify a bit more what has been the big driver of the margin improvements in Q4 and especially the driver and the gross margin improvements and just going forward how sustainable is it and then could you quantify a bit more of how much of SG&A savings we actually can expect going into 25 and 26. Thank you.

I start by commenting the kind of auto intake and product margins. We see them remaining stable in service, even though it's the staple marketing service, we expect that to remain at this level what we have and then in the capital business heavy capital equipment occasionally we see small downside small reduction in in in order intake margins but we've been able to compensate that mainly with the procurement savings so starting really from the top which is order intake product margin we see net-net that being stable in the kind of coming years. We will not see significant kind of change one way or the other there. And I think, Roland, you can go further down in the kind of line items.

Yeah, so I understand the question in Q4 what drove our cross-profit. So we're a little bit positively impacted, of course, by positive split service compared to our OE business. And I think going forward, what we're saying is that our gross profit will be between 31% and 33%, and that you can count on for 25% and also into 26%. And then we are guiding our EBITDA of 13.5% to 14%. I understand you want the run rates on SG&A. We're a little hesitant in being specific on that. That also last was... was asking about, but that adds up to our EBITDA guidance, and eventually we will deliver on the long-term targets, which is 13% to 15% reported next year.

Okay, thank you. And I would have just one follow-up question on the pricing comment around the heavy equipment in mining that you've made. To me, at least, this was news that we see negative pricing in mining right now. When has this started and do you see the same like is it for every competitor basically or is it just something that currently you do to win more orders?

I think what we see of course is that because it's so slow the capital market And of course the few ones which are moving, the case is of course customers are taking advantage of the kind of everybody fighting for the small part of the business. And that competitive pressure has I think pushing down the prices. And I mainly talk about heavy capital equipment because it means that the big stuff. with a kind of large casting, lots of steel and sort of things. But then at the same time, of course, we are looking at savings in our procurement cost around the world. But in absolute terms, so it has been going on now maybe for, for six months, nine months and we expect intense competition to continue still throughout the year because the market is quite weak. But it's a little bit of the cost game in product cost that you need to find new sources of supply, develop suppliers, push sub suppliers and get better costing. But the top line prices are going down and But also at the same time, we've been focusing on high quality orders. So we are not desperate for the volume. So we will not go after the... Because earlier there was a question to us when we started transformation. Can you hold your nerve when the market is quiet? And yes, we can. So we don't take material handling business in, which is extremely low margin, high risk. So we are true to our commitment for quality of the earnings. So, we are selective, we are picking up the orders that we want to win, and also that which has a kind of significant return through the aftermarket. But there's deflation in heavy capital equipment for the last, I would say, nine months.

Okay.

Thank you. Next question is from Christian. Hinder Aker, Goldman Sachs. Please go ahead.

Morning, Miko. Morning, Roland. Thanks for the time. I want to start on the SG&A cost, if I may. $4.2 billion for the year. They were $4.3 in 2023, but then you've reduced the employee number at the firm quite significantly, down around 1,600 people, or 17.5% of the employee count. I appreciate you've got slightly lower revenues, but I want to understand... how it is that SG&A costs are only down modestly relative to that shift in headcount. Maybe we can start there.

Yeah, thank you for that, Christian. So 24 have been, again, a restructuring year, right, where we have made people redundant to a large extent. We have also been closing down sites and offices, moved to bigger sites, but fewer of them. And that has an underlying run rate. also a lot of the employee or some of the employees that we let go of blue collar workers that's among others why we are reclassing sdna here so that part follows the blue collar workers that sits on the on the production cost and lastly we've also outsourced a bit and that is pulling down the headcount but not necessarily cost in the outset so savings of outsourcing only come over the course of the years as we progress both on IT, on finance, and other operational back office support. So that's why we don't see SG&A come down significantly yet coming out of 2024.

Thank you, Roland. Maybe a bit of a niche one here, but can you give us a bit more colour on the deferred tax asset that you've got in note 4.3? It's 2.1 million kroner on a net basis. That's about 10.5% of your revenue, two and a half times the tax you paid last year. I just want to think about how we can think about the potential release of that and what impact it could have on future profitability.

Yeah, so the future, the tax assets predominantly sit in Denmark. But we also have tax assets in US, a bit in Chile and a bit in a few other countries. So the faster we move our principal company model to the right structure where most of the handling and the substance and the decisions are made in Denmark, we will make use of that tax asset. And that's how we're going to get to a more normalized effective tax rate as we progress beyond 2026. I think we are releasing, or I don't think I know, we are releasing a tax report where we give a bit more granularity.

Thank you. Maybe just a quick final one on the service network expansion. I don't know if you've given a number there in terms of we talked about the potential SG&A implications, or rather, sorry, cost implications in the round. Do you have an indication of what the CapEx spend might be and over what time frame?

Ah, that's not gonna be a lot. That's gonna be less than, am I gonna say a number here? Less than 30 million Danish kroner. That's not a lot over the next 18 months or so.

And we also, some of the service centers, we are building it up over the time so that we start a little bit more asset light and then we are building it as the business is coming in. So it's not a massive number, but it's more the presence and then as the business is growing in those service centers, then we are also adding more machining, more type of equipment in the shops.

I think some of this has already started, right? So some of the CAPEX sits already in 2024, and then we hit the ground running over 2025.

Thanks. This concludes our question and answer session. I would like to turn the conference back over to the speakers for any closing remarks.

I'd like to thank you for your time, and as I said in the beginning, we feel that this has been a good year for FLS in a kind of weak market. And of course, the whole idea is that, as I said earlier, that we return to growth in the coming years, but still creating foundations for the future growth, and then Hopefully then when the market will come back, we are ready for that market and then we have a quite scalable SG&A, quite scalable COX structure with our new operation model. So we are able to take full advantage of the market recovery. So we are optimistic about future and happy about 2024. As I said earlier, using a train reference so that we hope to be like a train that we continuously kind of continue our kind of profitability journey and performance improvement with no nasty surprises. And that's why we are extremely focused on quality of the order intake, quality of the backlog, not having any nasties coming up later. Thanks very much for your time.