Flsmidth & Co A/S B Shs

Good morning and good afternoon everyone and welcome to the FLS Q2 investor call. My name is Toni Laaksonen and I'll be presenting today with our CFO Roland Andersen and we start the presentation with the Q2 highlights. So first deep diving to the market and commercial aspects and from there we can say that with two business lines we saw excellent development in Q2. The service business line continued their strong commercial performance with their order intake and we were growing plus 14% organically in Q2 which was excellent development and continued development compared to the previous quarters. Then with our pump cyclones and valves we demonstrated similar great development We were gaining some shares from the market and grew 18% organically in Q2, which was clearly ahead of the certain peers. Then on the other hand, With our orders we saw some development now with the bigger larger orders and the first one was now awarded during the quarter that came from South Asia for our products business line and it was around 300 million DKK and in this case we were awarded to the supply technologies related to an iron ore beneficiation project. So a good order for us and demonstrates that the market activity is building up also with the bigger projects. Then a few words on the financial highlights. So our revenue development was great throughout the business lines. So all three business lines demonstrated excellent revenue conversion in Q2 and we were growing organically by 16%. Then on the other hand, this revenue conversion was showing up in our margins and EBITDA margin improved significantly and we landed at the level of 17.3. So good development there. So a 2% jump from the previous year. So great development. Then one of the development areas for us is the cash flow. With our cash flow we were impacted by our net working capital. So net working capital was building up during the quarter and therefore we didn't have positive cash flow and we will come back to this topic later in the presentation. Then strategic and corporate highlights. There we are developing well with our share buyback program. So it was launched and we have been now progressing with the share buybacks according to the original plan. Then on the other hand, we have been developing now the new team setup with FLS and we made several executive appointments after the quarter. So four positions and nominations were announced. First of all our General Council was nominated. Today we announced the Chief People Officer nomination and then we also have a new position within the Executive Team called Chief Strategy and M&A Officer who will join us next year and then we as well announced the new President for the Service Business Line. All these announcements then support our new way forward and our growth plans. Today we also informed about certain adjustments to our financial guidance and We practically narrowed the guidance with our revenue growth so that we expect to grow between 0 to 4 percent. Previously it was minus 1 to 4 percent and then with the adjusted EBITDA margin we expect to land between 16 to 16.5 percent. Previously it was 15.5 to 16.5. So good development also from the strategic point of view. Then moving on to the sustainability aspects. Here we had positive development with our safety and we can be very happy about that one. So our injury rate improved during the quarter and we have been seeing continuous positive development this year with our health and safety figures. So that's positive. Then with the other sustainability measures and KPIs we were not trending that well so there were slight decline throughout the other KPIs. Some seasonality impacted on this for instance related to the water consumption and emissions and then on the other hand one Update was done with our reporting practices. So the scope 3 greenhouse emissions are being reported annually from now on. So therefore we have been taking that off from the quarterly reports. Then a few words on the market outlook and how we are seeing the mining business development. So as we have been stating previously, we see the same outlook with the bigger mining projects. So most of them are very active at the moment when it comes to our customer base. There's more and more engineering activity and the pipeline is building up. Copper and gold prices are still at relatively high levels which is then supporting the pipeline and especially with these commodities we are seeing a lot of major movement. And based on this we still expect that in the end of this year and next year we are seeing larger greenfield projects being sanctioned and therefore we believe that in the end of this year and next year some of these projects will materialize and will be visible in our orders. So positive development in that sense and the outlook remains as we have been stating previously. Then on the other hand with the brownfield sites we see a positive development. So all the miners are running their sites as fast as possible and trying to develop their efficiency. From our point of view this is visible then with the service business line orders and with our pump cyclones and valves. So there are smaller replacement investments taking place, upgrades, modernizations and of course all these sites require services and maintenance which is helping us then from the service point of view. So there is robust outlook for the services and PCV business lines in this respect and we expect that the order intake development and revenue conversion continue in a solid manner during the next quarters. Then when deep diving into the business lines, we start from the service side. So as mentioned previously in the call, order intake was very positive with our service business line. So we were up organically plus 14% in the quarter and then 16% year on year. Then on the other hand, we're looking at the longer term development. The first half was great for the service business line, so plus 17% and now we have been having Good order intake level throughout the last three quarters. So very positive market development there. And then the revenue conversion improved pretty nicely compared to Q1. So we were up with our revenue pretty significantly compared to Q1 this year and that demonstrated then that our supply chain worked well during the Q2 and we expect that the same continue within the next quarters. And of course this revenue conversion helped us then to reach higher profitability in the quarter. So great development in Q2 with services. Then we're looking at the margin. The margin was a bit lower in Q1 with our service business line, but now when the revenue conversion improved, we jumped to the normal levels with this business line. So a bit over 20%. And as we have been stating, the normalized level with services is somewhere between 19 to 20%. So this is something that we are expecting from this business line when moving forward. So a very good quarter for the service business line all in all. Then our products was converting revenue very fast in Q2 and that was a really positive outcome then from The products side and they had their product project portfolio well under control and the deliveries were improved so that we were executing faster and faster throughout the quarter which was then visible in our revenue. So good supply chain management from their side which was then visible in our revenue figures. So good development all in all in Q2 and as a result of this our organic revenue growth is now on the positive side when it comes to the first half figures. Then with the order intake, we were up compared to last year, slightly up, and then the first half landed a bit lower than last year. But all in all, we are seeing the same development here that we expected that during the end of the year, we are seeing the larger orders. Our product business line is heavily dependent on the larger orders when it comes to the order intake. and therefore we believe that the order intake will improve in the end of this year and then next year. Very positive side with the products business line was the profitability development so when the revenue conversion improved we also jumped to the black figures so now we have the first half results Done with the products and the end result and outcome was that we are a bit above zero which is an excellent achievement compared to the previous years. So this is excellent development from the product side and of course there are still fluctuations with the quarterly figures but we are getting more and more towards the situation where we are continuously on the black figures. with this product line. Then the third business line, pump cyclones and valves, a very positive quarter over here. So we are gaining the momentum and keeping it up with our orders. So the order intake has been We are on a very good level and developing positively already throughout the last three quarters and excellent development in that sense that we were growing close to 20% in Q2. Also the revenue conversion improved with BCV compared to Q1. And that was a great achievement from the business line leading to a fact that the organic revenue growth was 8% during the first half of the year. So all in all a really good start for the PCV business line and the outlook remains very positive here. Of course, when the revenue conversion improved, it also helped us with our margins. The margins were in line with the expectations. There were certain mix related things. between our product and aftermarket deliveries which were impacting on the margin slightly but all in all that the margin was at the expected level so good development in DKK especially so the margin in DKK jumped from Q1 quite nicely so a positive story with the pumps as well in line with the services And now we move on to the financials and I hand over to Roland.

Thank you for that, Toni. And as you say, 14% growth overall in order intake and 17% growth normally in revenue. And with the cost in check, that means we can post an adjusted EBITDA margin of 17.3%. And after taxes and finances and a few other bits and pieces, profit for the period of 441 Gross margin stayed at a healthy level. That's clearly a positive mix on company level from the product business line still only being about 20% of total revenue, but still a strong and healthy gross margin delivered by all three business lines. Our SD&A costs are slightly up in Q2, but as a percentage of revenue, it's down to 17.8% for the quarter. All this higher revenue trickles through to the 17.3% EBITDA market as also Toni touched upon. Our net working capital is up and it's predominantly driven by growth after three quarters of B2B above 100. We are now starting to convert the backlog significantly higher levels to revenue and that sits in an ongoing deliveries and work in progress and to a certain extent in inventories. If we look at our cash flows, our EBDA earnings are up, but mitigated completely by the change in working capital. That means that our cash flow from operating activities is minus 84 for the quarter. And adjusting for capex and investments and a bit M&A, then our free cash flow is minus 135 for the quarter. But that also means that we are keeping our leverage at 0.6x that it has been for a number of quarters now, plus minus, well below our capital structure target of 2x. We still have a lot of dry powder for M&A and we continue to deliver on our share buyback program that by the end of close of business yesterday was a bit more than 40% completed. And on the back of a highly satisfactory first half, we are adjusting our financial guidance for 2026 a bit. And Tony touched upon it. So we are adjusting our growth margin for the total company from previously minus one to four to now zero to four. And we are narrowing the bid time margin expectations from previously 15.5% to 16.5% to now 16.0% to 16.5%. And if you have a quick look on the bridge, how the 0% to 4% is expected to play out. We now expect the service business to grow 3% to 5%. I think previously we said 2% to 5%. Products unchanged, minus 5 to minus 15. And our pumps business is expected to do slightly better instead of 4 to 7 percent now, 5 to 8 percent for the full year organic growth. And our EBITDA margin bridge is Our adjusted margin, we are just about a percentage point for predominantly ERP related costs that we are currently rolling out. On the negative side, on the positive side, OOI means other operating income, and this is predominantly the sale of the Valby headquarters in Q1, will leave us to a reported EBITDA margin of about 20% to 20.5%. Then we have just sent out the invite to the Capital Marxist Day. It's going to be on the 17th November, as you know, and it will be held here in Copenhagen at our new headquarters. And we expect that to be four hours from 1 p.m. to 5 p.m. And I think the register is open for signups as we speak. So we hope to see a lot of you there. And with that, I think we give it over to 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're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our rosters. The first question comes from the line of Chit Sinha from JP Morgan. Please go ahead.