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.

Hi, Toni, Roland. Thank you for taking my questions. I have three, please. My first question is just on the four-year guide, where you've only nudged yourself slightly towards the top end. Given the strong Q2 results, should we see that there was maybe some early deliveries, which would mean that Q3 might be slightly softer than where we had expected? Specifically thinking on service, where you previously communicated a more gradual pickup through the year on sales and margins. Thank you.

Yeah, so if we start with the margins, I think it's still a little wobbly. As you know, our Q4 is typically the strong quarter. And in Q2, we know for a fact that the product business line will not convert nearly as much revenue as they did in Q2. So it's a little bit swingy. So we expect from the guidance a slightly lower margin in the second half from the total business and it's a bit swingy. Maybe the pumps will do slightly better, products will do slightly worse and then products will be back in black numbers in Q4 as from Q4 as we have promised before.

Okay, very clear. And then my second question, my second question is just on the networking capital, where I understand that there was obviously a build to support the service and PCMV sales for the remainder of the year. So is it right to assume a strong unwind then in Q3? And then does this change any expectations for the full year?

So we're not going to give you a number today, but we won't see an immediate unwind. So there's a significantly higher Conversion of the backlog into revenue and for a while that will sit in work in progress. I think also the inventory levels are up to a higher level to support both the footprint expansion in the service business line, but to a certain extent also the same in our pumps business. So the unwind of work in progress will happen throughout the 27.

Okay, thank you. And then my final question is just on PC&V. Just wondering if you could provide a bit more colour in terms of the OE aftermarket mix in sales this quarter, so we can better understand the margin performance.

So with PCV, the roughly right split is normally like 30 to 70% as a guideline. So 30% from the equipment business, 70% from the aftermarket. That was the outcome in Q2. Sometimes the equipment content is a bit lower and then of course that mix impact then of course might impact on our margin as we spoke in the call. So even slight changes there might adjust the margin level one or two percent. So that was visible now. with the figures but all in all PCV great results and now when the equipment business is as well building up it will generate an aftermarket when moving forward even more.

Thank you very much.

The next question comes from the line of Ed Hussey from UBS. Please go ahead.

Hi Toni and Roland, thanks for taking my question. Maybe just following up on Chit's question and asking it a slightly different way. So the midpoint of guidance seems to imply 0% organic revenue growth in H2 and you delivered a books bill of 1.1 times in H1. And you've also got an elevated backlog and not a particularly tough comp. So I'm just wondering, is there not, you know, is there some other kind of headwind that we should think about revenue growth in H2?

So there was a little bit of a bad connection, but you're talking about growth or margin?

It's looking about great.

So the product business is going to convert less revenue in Q3 than they did in Q2. So Q2 was a pretty good revenue considering the backlog for the product business is going to be less in Q3. and I think all business lines have a pretty tough comp in Q4. So basically all business line delivered well revenue in Q4 and especially the service business line. So I think you need to see if we hit the midpoint then we have done quite well for Q4 also with the same growth numbers. That's how we think about it.

Okay. That's very helpful, thanks. And then maybe just one more. Obviously some pretty positive commentary on the potential near-term large order FIDs. Is there any chance you could maybe just give us a bit more colour in terms of regionally where what this comment relates to? Is this of North and South America and specifically maybe which countries would be super helpful?

So maybe geographically we can talk about the regions so of course from our perspective South America is among the biggest or the biggest region for us and there we see quite nice activities especially with the bigger projects and then some activities as well in North America and In Central Asia and Africa, but the majority is definitely coming from the South American side.

That's very helpful. Thank you.

The next question comes from the line of Vlad Serdievski from Barclays. Please go ahead.

Yes, gentlemen. Good morning. Thank you very much. I have three questions. I lost them one by one. Just one. On the mining cycle, look, it was predominantly about brownfield projects up until now. Are you actually seeing a broader appetite for larger greenfields across customers from now on? Or we are talking about those three, five big greenfields that we know about for a long time and finally they are moving towards FID?

So on the project side we are seeing both type of activities with larger orders so that we have a brownfield expansions which we almost consider as green fields when when the customers are ramping up like additional lines for their existing mine sites so these type of activities are taking place and then as mentioned especially in In South America we are seeing that there are certain complete greenfield projects moving forward and there is now more maybe support from the local governments in those respective countries. to promote the mining projects and investments and that this favorable environment of course is helping our customers and at the same time of course the price level the commodity price level is high so this combination is a pretty good combination when you are making the investment decisions that's great if i can follow up on this specifically for south america

Are we talking about like two, three large greenfields there that are moving forward now and getting support? Or do you think it's a broader base of greenfields, let's say, mid to high single digit number, which is potentially up for FID in the next two to three years?

I would say that it's a broader thing at the moment. There are several projects under development and under consideration and already in the engineering phases. Of course, any projects which are in the engineering phase and if we are involved, we have pretty good visibility of what's happening with the project.

Perfect, that's super helpful. Can I specifically ask also about your product orders? Excluding the largest 300 million order that you booked, smaller base orders appear to be on the lower side this quarter. Is there any particular reason for that?

So like mentioned the products business line is dependent on these bigger orders quite a bit and practically it means that then the timing of these bigger orders might impact on their top line order intake figure quite notably. Based on our outlook, even though the total order intake wasn't that high, we are confident that there are no issues with this business line as the outlook for the end of the year is rather positive.

Understood. Thank you very much. And final question to Roland, please. Can I go back to those work in progress assets? I mean it was a very sizable 500 million plus increase this quarter, it equaled to what, 12-13% of your quarterly sales. Could you give us some idea of what exactly you're building there? I mean 500 million is bigger than perhaps the biggest project you're working on right now.

Yeah, so it's a number of things actually across the three business lines, so we have a number of Upgrades and repair projects there and the reason why it sits there because it takes a bit longer to complete than just the four or six weeks. Then there's a few bigger projects on the construction orders that we entered into a year ago, a year and a half ago. And then to a smaller extent also a few ongoing things on PCV. So it's a bit across the board. And that's also why I can say with certainty we're not going to unwind it, you know, just in two or three months. It's going to take time until this is being expedited out of the backlog and then normalizing a bit more.

Super helpful. Thank you very much, gentlemen.

The next question comes from the line of Tor Frankman from Bank of America. Please go ahead.

Good afternoon. Thank you for taking my question. Just two from my side. First would be on the outlook for the service margin. You've done a very good job in ramping up your consumables business. Do you see a negative mixed impact in the coming quarters when consumables might be growing faster than the modernization of your business? Thank you.

As mentioned during the presentation we still believe that with our future mix we are reaching this 19-20% profitability corridor and of course Quarter by quarter there can be fluctuation and this is then something that we expect to deliver with the full year results from this business line. So even though if the consumable business grows we don't expect that our margin will slide and then on the other hand of course As you can see from our quarterly figures, if the business goes up, it has a positive leverage impact that as our fixed costs will not go up with that pace.

Understood, thank you. And just lastly, more strategic, you now have a Chief M&A Officer. Could you maybe flag a little bit on what is your appetite for M&A going forward? Are you interested in larger transformational M&A or will you stick to purely bolt-on? Thank you.

So we have been building the pipeline this year for the M&A cases and we are focusing on the bolt-on cases and we are reviewing them in detail and let's say that the pipeline has been developing positively And Roland mentioned that we still have some dry power left and available for these M&A cases. So the intention is that when the right target is there, that we would move forward. So late this year or next year, we would expect that we have some news around these topics.

Okay, thank you.

The next question comes from Klaus Almer from Nordea. Please go ahead.

Thank you. Yeah, also a few questions from my side. So the first question goes to this quite impressive auto intake you had in Q2 within service and PCV. To what extent do you believe this was based on market share gain and also maybe within service a result of your investments and initiatives within your service setup and moving closer to customers etc. That would be the first one.

So if I start from PCV I would say that the growth has been now on a good level throughout several quarters and we have been seeing positive order intake like double digit order intake continuously so there when comparing to the peers I would say that we have been growing A bit faster and our organic development plan which we have for the unit is paying off so we have been expanding our supply chain with the unit we have been improving our service coverage with the unit and also expanding our sales network so all these organic activities are definitely helping us now to gain more order intake so that that has been positive then When it comes to the service business line, one aspect is that we have been increasing the service network, getting closer to the customers. That's helping us with our order intake and then of course the one big positive driver there within that unit is the consumables business which has been performing well and we have been increasing our order intake relatively fast. and we have a clear plan how to develop that product area then forward in the coming years.

So, Ton, does this mean that all the immunity tips you have done so far has been executed and you should expect more growth in line with the market or do you see further potential for the things you have already implemented?

The market development we expect to be positive. The expectation is that the mining market grows something like 3-4% somewhere there when looking at the copper demand for instance. So the copper production is expected to grow with that pace. And of course, if the copper production grows with that pace, it's also helping us from the growth point of view. But then we come to the more detailed forward looking plans with the unit when we have the capital markets day.

And then my second question goes to the pump area. With these equipment orders you have received and grown quite nicely in the last couple of quarters, when should we start to see the aftermarket orders and revenue picking up?

So it depends of course on the timing of the installation but normally if it's a replacement case the replacement happens within the next months from the order and then after a few months the pump will then generate Aftermarket business for us if it's a part of a larger like a brownfield expansion then the delivery time might be a bit longer but normally with the pumps we are talking about the replacement cases so then in a few months that the new pump will provide more services to us

So would it be fair to assume that already in Q3 we start to see this effect and getting even stronger in Q4?

Maybe a bit longer in your spreadsheet there. That would be safe.

That was Roland, you know, talking down expectations and we're not getting too carried away or...?

I was clarifying. That was the intention.

Fair enough. Thank you so much.

The next question comes from the line of William Mackey from Kepler Chevreux. Please go ahead.

Yeah, good morning. Thanks for the time. I would like to ask a couple more questions on your outlook again, please. Let's stick with service. Roughly, I think if my numbers are right, your orders over the last three or four quarters are up mid-teens in service. Your backlog is up If I take the midpoint of your guidance for the full year and look at what you've achieved in the first half, you're implying a sort of average low single digit growth in revenues in the second half, which seems hard to reconcile. So maybe you could put some color on any specific features that would hold back the timing of the book-to-bill conversion and limit the conversion of the backlog and entire quarter order growth into the second half.

Yeah that's a valid point so we have been commenting this in the previous call as well but with the services we have in the mix certain bigger upgrades as well and then as well certain like mill liner deliveries and in these cases for instance The lead time is much longer from the order to revenue conversion so we are talking about in some cases like even like nine months or longer because the customers are ordering the parts for their next shutdown and that the shutdown might be such that it's 6, 9 or even 12 months out because they are advance ordering and then it practically means that we are gaining the orders this year delivering maybe in the end of the year or even early next year so that that's causing some of this timing issue but of course when the backlog is building up we have a pretty solid foundation then to deliver revenue This year and early next year based on that, but we need to remember that there are these bigger cases as well in the service business line mix.

Thank you. That's helpful. I guess, again, you could do the same math for both divisions, but I guess the book-to-bill conversion for PC&V is shorter. And again, you've been achieving high teams order growth and the backlog is So, to the point that you're implying kind of mid single digit at the midpoint of second half growth despite the strong momentum we've seen in the backlog, is it the same feature what you would spotlight for PC&V?

So PC and V also have capital orders that follow the product sales, so to speak. So it can be a bit longer for the capital part. So that's one thing. But also mathematically, both on service and on PCV, we are up against a relatively high comp in Q4. So it's not just taking the growth numbers from H1 and then applying. It needs to be on top of a relatively high comp. Just as a reference point.

Thank you. Thank you very much. My last question probably comes back to net working capital and cash flow from operations. I heard you earlier, Roland, but on limiting your guidance around cash flow. But I think in the past, there's been a rough expectation you might come close to a billion of cash flow from operation. Clearly, that becomes a very big hurdle after the first half cash generation. Is there anything that could swing contract liabilities in the second half or swing a containment of growth in contract assets that might help the working capital H2?

There may be a few things, but I think we don't expect it to unwind anytime soon. That also means that our CFFO Great. Thank you very much.

The next question comes from the line of Lars Topholm from DMV Carnegie. Please go ahead.

Yes, thank you. Also a couple of questions from him. I'm super sorry, but it's also about your revenue guidance. So if I take your full year outlook and deduct your H1 revenue, you have to produce a revenue between 7.4 and 8 billion in H2. Last year you did 7.5 billion, and Roland, I hear what you say about work in progress materializing next year, not this year, but if I look at your backlog, it's up by 8%. If I look at the percentage of that backlog that you say should be converted into revenue before the end of the year, that is up from 32% last year to 48% this year. which means that backlog conversion should produce 2.1 billion more in revenue this year versus last year if the math is correct. And I also think when working progress is up by 43%, even if most of that is for next year, that also implies growth. I simply don't understand what I'm missing in this picture. I can't make the numbers stack up. So please help me out.

I think you're right Lars that I think you're 7.4 up to 7.8 or 9 or so given constant exchange rate for the remainder of the year. But no more than that and that also means so that's going to be the conversion that yields the The organic growth guidance, and that means that it will take a while for us to unwind the work in progress. It's not necessarily linked, but in this case it is.

But Roland, if I take your backlog by H1 last year, then 32% of that, which is what you said would be converted before the end of the year, was 3.4 billion in revenue, which means you produced 4.1 billion in revenue from things that were not in the backlog by the end of H1 last year doing exactly the same calculation for this year yields 5.5 billion in revenue from conversion of the backlog so you implicitly only expect to do 2 billion from things outside of the backlog why is that revenue production from things that are not in the backlog so dramatically down this year

Maybe I'll add one thing which relates then to the product business line of course with that business line as we have been stating we know the timing quite well and when the revenue recognition will happen but of course there are certain uncertainties as well with the timing of the ramp-ups for individual equipment expansions and replacements. So that's of course impacting on our revenue guidance and that was visible when we were updating now the business line specific ranges. So with services we did modifications to the Revenue Growth Guidance and the same with BCV. So there we are pretty confident that we are improving compared to the original guidance and we can deliver but of course this product side is then causing certain uncertainties related to the timing of the deliveries. On that side, the timing of the deliveries is to some extent, of course, controlled by our customers. And we didn't change the revenue guidance for the products because of this reason.

But that doesn't really answer the question. So H2, last year you generated 4 billion in revenue in addition to the conversion of your backlog. This year you only guide for 2 billion from that. Why so much less?

I think I need to look at the Munkerod more specifically Lars, but the delivery cycles are longer this year. For SBL and also for PBL. And that's why it sits in work in progress and that's part of this reason as well. I think that's what you're fishing for.

No, not really. I'm just fishing for the proportion of revenue that is not converted from the current backlog. I mean, we know your backlog, that's 11.5 billion. You say 48% of that will be converted before the end of the year. That's 5.5 billion. To reach your guidance, you need to make 7.5 billion, so you need to produce 2 billion in revenue. Outside of the current backlog, last year that number was 4 billion. And it's a movement from 4 billion to 2 billion. I don't understand.

There's longer delivery cycles, right? I'll need to come back to you on this one. So the growth in the bigger upgrades in the service business line and PCV partly related to that. That just gives us a longer cycle on the backlog conversion.

The backlog conversion, that was the number that was up to 5.5 billion. It's numbers you disclose, Roland.

Yeah, exactly. But it takes longer.

11.5 billion to 5.5 billion. That's a hard number, I guess.

Can I have a look at the numbers you're looking for and come back to you Lars?

That would be amazing. I have a second question that goes to products and looking further ahead than just this year. How should we think about the margin development if we assume the mining cycle becomes stronger? Should we think about it in a way that gross profit will improve In line with order intake and then you will have a relatively fixed object space or what assumptions should I use if I want to calculate the margin a couple of years out?

So this is definitely a topic which we will address more in detail when we have the capital markets day. But what I can say is that we have continuous improvement initiatives ongoing throughout the business lines to improve our supply chain, cost efficiency and so on. So these continuous improvement initiatives will hopefully benefit us and I at least I don't expect that our margins would decline as such but there might be some improvement opportunities Is the incremental margin in products double-digit?

We will come back to that.

Okay, fair enough guys. Thanks for taking my questions.

The next question comes from the line of Christian Hinderaker from Goldman Sachs. Please go ahead.

Hello Toni, hello Roland, thanks for the time. I've got three if I may. I want to start on the product side and a follow up to Vlad's question on the 402 million DKK of base orders. I think that's the lowest level since you introduced your new segment structure. You mentioned in the commentary that the business needs to see more large project activity to grow and I appreciate that point. but I guess the question is a little bit more strategic and about your positioning in the market I mean your nearest peer had very strong base orders in the second quarter and I guess trying to understand if that 402 number is then comprised of you know four or five shall we say large package orders or if it's a broader set you know how do we think about the base order math Are you trying to sell standalone equipment units or is it more sort of packages you're trying to bring to market?

This is as well among the topics which we will address in detail actually in the capital markets day so we will elaborate the more detailed plans that how we move forward with the business lines and how we are planning to grow their businesses when moving forward. Offering development definitely is as part of this and we will outline the plans that how we can take forward all the units and like said at the moment We are to some extent dependent on the larger orders with our products business, maybe unlike compared to our peers. And then that might be, let's say, a positive development opportunity for us strategically when moving forward. But I would say so that we can comment on this very much in detail when we host the Capital Markets Day. But this is among the topics that we have on the list.

Okay, maybe then turning to the margin in products just briefly. I mean, were there any one-off contributors? I think there was some provision lease in Q1.

No, not really. This was a pure volume thing. So the revenue number... The level of... So at that revenue level, The business line is now currently in black numbers.

Very clear. Maybe just finally then on pumps. Obviously, you've seen the 12% growth last year, high teens this year in order intake. You've said that you're taking share, so I guess interested to hear So, I think it's important to think regionally whether there's any concentration to those share wins and also, I guess, in what form you're taking share. Is that from new projects or is that field trials on existing installed base? And then, Toni, you kind of gave a steer on the revenue mix in Q2. Perhaps you could just add a comment on the order mix. It sounded like that was more overweighted than usual.

So when it comes to the install base development we are following that very closely and mostly we are seeing these replacement cases so replacing existing pumps with our And that has been really driving the market development when it comes to the equipment deliveries. And as we have been seeing this development now throughout the quarters, it also starts building up this aftermarket on top of it. So the more we have installed base, the more there will be aftermarket. When it comes to the products on the pump side, it's mostly replacement. We have certain Project deliveries as well in the mix when you look at the order intake in the long run but the replacement business is the more dominant one and through that we are seeing that the install base is developing well and good development for instance in North America where we have a strong position through our factories and service centers The same in South America, so positive development over there and then we keep expanding in the other territories as well. In Q2 specifically, we were a bit more equipment heavy and product heavy with our orders, which was demonstrating that we were winning a bit more cases than normally. And again, it should be then visible in the coming quarters in our order intake. Not in Q3, of course, but starting maybe from the end of Q4. Thank you.

The next question comes from the line of David Farrell from Jefferies. Please go ahead.

Yeah, morning both. One question from me. I can understand kind of why my peers are kind of saying that the outlook for the second half is conservative, but if we look out beyond that to 2027 and look at the way that the order book is shaping up, it does look to be down on a year-on-year basis how much orders you've got to execute in So I'm just wondering, in terms of the business lines, is that purely within products? And if that's the case, to what extent can orders secured in the third and probably fourth quarter contribute into 27? Or is there anything within the PCMV and service markets, which is kind of running behind year on year?

Sorry, the line was pretty bad, so could you still repeat the key question?

Yeah, I can understand why my peers are saying that your commentary for the second half this year is conservative based upon your order book and the way that those orders are split. But if you actually look out to 2027, the amount of backlog for execution is below where it was last year. So is there anything in any of the divisions which is looking behind year on year as you look into 2027 or is it all just kind of within the products division?

When it comes to the business lines, of course the fact is that if we see an uptick with the product business line, with the larger orders, that will as well then drive forward our project type of orders for PCV and services. The timing of the orders will then define how the revenue mix develops. But of course, if larger orders materialize, it means that there will be more installed base, which is eventually driving forward our revenue as well. So then it would have a positive impact throughout the business lines. With most of the product business line orders which are larger ones the lead times might be even one year or longer and then the revenue impact will not be positive then next year if we capture the orders in the end of this year or early next year but anyhow the underlying demand for the brownfield businesses like for the brownfield sites that that remains positive based on our outlook and then if there are greenfield cases these larger cases then that will even accelerate then our business when moving forward but we don't see a huge jump for next year from the revenue point of view because these larger projects they take time okay that's very clear thank you for that

The next question comes from the land of Klaus Kael from Nikredit. Please go ahead.

Hello gentlemen, can you hear me?

Yes.

Perfect. First of all, we talked a bit about this movement in the net working capital and I understand that it most likely will not decline before 2027. But historically you've been talking about a net working capital sales ratio of around 17%. Should we start to think about a slightly higher number given the growth you are seeing in your service business or any thoughts on that?

I think we will be more specific on sort of a range number on the capital market today, but I think 17 is probably in the low end. I'll leave it at that now.

Okay, great. Order intake in service has been quite strong the last three quarters. I think you've been hovering around 2.4, 2.5 billion each quarter. And it's actually above that one rate you have been talking about for a while. So any comments on what would be reasonable to expect the coming, let's say, two or three quarters here? Or have you... Yeah. Changed structurally for the better.

Any thoughts on that? I think we'll stick to... There's been a lot of talk on our growth guidance. I think we stick to the 3-5% growth organically. Q and Q. So that's going to give you the number you're looking for.

Okay, okay. And then my final question is, do you have any news to share on this compliance case?

Yeah, no updates on that one. We still continue the internal review on that matter and then later on this year we will then report the case and provide the materials to the authorities.

Great, thank you very much.

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

Thank you for joining the call. Great questions today. We are looking forward to seeing you here in Copenhagen in November. You are warmly welcome to the Capital Markets Day. As mentioned today, you will get more information on our future plans during that day. Our key management will be present to meet you in person. Warm welcome and thanks for joining the call.