Epiroc AB (publ)

Hello everyone and a warm welcome to this Epiroc Q1 results presentation. My name is Karin Larsson and I'm Head of IR here at Epiroc. With me today to present the results I have Helena Hedblom, CEO, and Anders Lindén, CFO. We will have one hour for the call, and we will do as we always do. Helena and Anders will briefly present the results, and then we do a Q&A session. I will take the instructions when we come to the midst of the presentation before the Q&A session. So without further ado, please, Helena, the stage is yours.

Thank you, Karin, and also from my side, welcome. So thanks to all our dedicated colleagues around the world, we have many highlights to share this quarter. The commitment and hard work has led to strong results, not only financial, but also when it comes to sustainability. I feel happy to represent Epiroc and share our achievements with you today. So despite the pandemic, the year of 2021 has started strong for Epiroc. The customer activity was high and we saw good demand in our aftermarket in the quarter. Our customers continued to take decisions to invest in equipment, and we won several medium and large equipment orders. A few large ones above 100 million SEC, but several just below that threshold. All in all, we had record high orders received. The demand for autonomous solutions also remained high, and it's clear that our globally deployed and proven solutions have increased our customers' willingness to invest in these technologies. We see similar trends in digitalization and electrification. We also improved our operating margin compared to last year. In January, we introduced our new vision, Dare to Think New, highlighting our relentless focus on providing innovations that improve efficiency and safety for our customers. I will tell you more about a couple of innovations later on in my presentation. And to complement our organic growth opportunities, we create options for the future by acquiring companies. And this year we have announced two acquisitions, which is really exciting. The acquisitions are Meglab, a Canadian company with expertise in providing electrification infrastructure solutions to the mining industry. And DNA Heavy Industry, a South Korean manufacturer of hydraulic breakers for the construction industry. So a warm welcome to both companies and their employees to Epiroc. On the financials, I will be brief, as Anders will tell you all about the details later, but I would like to highlight a few figures. First, the strong order growth, of course, record order intake at 10.7 billion, and this corresponds to an organic growth of 21%. Equipment orders were up 55% organic. Service was up 4% organic, which is also quite good given the hard comparables in Q1 2020. Tools and attachments was up 14% organic. Orders received increased both for hydraulic attachment and for consumables, with the highest growth rate achieved for exploration drilling tools. Revenues increased by 6% organically, with growth in all segments. And we have had organic order growth now for equipment since Q3, and it's good to remember that the lead time from order to revenue is approximately 2 to 3 quarters. Lastly, I would like to highlight the margin. The adjusted operating margin improved more than 2 percentage points to 23%. I would also like to provide you with an update on the current status of the pandemic. So we should not forget that we are in the midst of a pandemic. And it is important that we follow the recommendations to limit the spread of the virus. And I am sad to report that we in Tolta have lost nine valuable colleagues. We and I send my warmest thoughts to the families, colleagues and friends that have lost near and dear ones. On the business side, things are looking more bright. Our aftermarket, manufacturing and distribution is fully operational and we keep focusing on safeguarding the availability and the supply of spare parts, rock drilling tools and other essential products to keep our customers up running. Transports are relatively stable, even if there are disruptions and related impact on freight lanes by air, road and sea. The impact from these disruptions was limited in the first quarter. On the equipment side, the deliveries and commissioning of equipment are, by and large, being carried out as planned, even if they are sometimes impacted by disturbances. So coming into our priorities then and starting with innovation. One innovation presented in the quarter is the Boomer M20. And it is the new generation of our most sold phase drilling rig. It has unique features such as protected hydraulics, electronics and sensors. And in this picture to the right, you see it, but also in the cabin, one of our employees. And it's actually one of the engineers behind this revolutionary drill rig. One of more than 1,200 colleagues in R&D at Epiroc. Another innovation is the battery retrofit for existing equipment, where we replace the diesel engine with an electrical driveline. And the ST1030 loader, which is one of our most popular loaders, is the first model to which the retrofit solution will be available. And as I mentioned in the beginning, when I spoke about highlights, in addition to investing in innovation to support organic growth, we also grow through acquisitions. So Meglab will give us products and capabilities related to electrical infrastructure in mining, which is needed to ensure a successful rollout of our battery machines in the coming years. And DNA will strengthen our position and offering of hydraulic attachment, and they will both contribute to profitable growth. Another priority is our aftermarket. And in the quarter, the aftermarket continued to grow well. So our continuously increased offering to help customers increase their productivity and safety is well received by our customers. So we had strong demand for midlife upgrade, but we also won several service contracts that will support our revenues for the coming years. The consumables were also growing well on the back of a high customer activity. Hydraulic attachments grew well in the quarter too. So after optimizing the product offering and tools and attachments, we are now back in profitable growth territory, which is really good to see. Another positive is that our connected fleet is growing. Almost all machines sold today are equipped with our telematic solution, and we also retrofit existing machines. At the end of the quarter, we had 4,900 connected machines, and this gives us and our customers valuable data and insights to improve the productivity further. Our third priority is operational excellence, and it's just much more than just cost savings. The supply chain program for parts and consumables with the aim to improve delivery service to our customers, reduce cons for transport, and reduce capital continue according to plan. And we are also working with improving our service excellence. We are convinced that we can always do things a little bit better, and this also includes efficiency in our service operations. And we have many, many more things ongoing around the world. If we then look into the actions that were aiming at saving cost. So the program of more than 500 million annually was completed already in Q3 2020, as you know. But it is, of course, relevant for comparison. And in first quarter, discretionary savings remained at a good level. So now coming into sustainability, which is included in everything we do. Financial results are, of course, important, and it's a good measurement of our success. But just as important is how we achieve these results. So therefore, in February, we launched an updated version of our code of conduct, which supports us to walk the talk. So by conducting our business in an ethical and socially responsible manner, while offering the best products, solutions and services, we will strengthen our customer relationships further. The proportion of women employees and women managers increased somewhat compared to last year. So we are around 16 and 21 percent, respectively. And we work hard to be inclusive at Epiroc. And this does not only relate to women. It's also about origin, culture, experience, education, etc. I strongly believe that diverse teams performs better. The number of injuries decreased, much thanks to our focus on safety and several preventive measures. Another positive is that the energy from operations as well as CO2 from transports decrease. So let me give you an example of what we do. So our Hyderabad product company in India, which is one of the facilities where we produce consumables, are installing solar panels. And this installation will cover around 16% of the plant's total energy consumption. And we have several projects like this around the world. So all in all, we have a positive trend for people and planet. So well done to the organization. So Anders, would you like to take us through the financials, please?

Thank you, Helena. Thank you, Helena. Let me start with profit. So the adjusted operating margin was strong at 23.0%. So then let's take a look at the details. Year on year, the operating profit was down 3% to $1,867,000,000, but the adjusted operating profit increased 5% to $2,016,000,000 and a margin of 23.0%. Not far from the record level achieved in Q4 of 23.2%. As you know, the Epiroc shares have performed well in the first quarter, and this means we had a change in the provision for share-based long-term incentive programs of 149 million, this affecting comparability. When the share price goes up, the provision increases and vice versa. The operating profit was positively impacted by increased revenue, volumes and cost savings, but negatively impacted by the currency. In the bridge, we see a contribution of more than 300 million SEC from volumes and cost savings. And this supported the margin with more than two percentage points. Currency was negative with nearly 200 million, but with no effect on the margin as the top line was also negatively impacted by currency. The structure part of minus 180 million in the bridge is mainly an effect of the changes in the provisions for incentive program. As I mentioned earlier, this was negative 149 this year and positive 65 last year. We also had some restructuring costs last year. Again, if we adjust for the changes in provision for LTIs, we come to an operating margin of 23.0%. In equipment and service, we had a strong organic order development, again this quarter with 25% organic growth. Equipment was up 55% organically year on year. And it was a good underlying demand for equipment, and we won several medium and large size orders, including the order for surface drilling equipment to Rio Tinto, which we announced yesterday. For service, the orders received increased 4% organically, which is good given the tough comparable we had with last year. And the growth was supported by a combination of high customer activity in all regions together with our strong service offering. Revenues decreased 3% to 6.4 billion, mainly due to the large negative impact from currency, which was minus 10%. So organically, the growth was 7%. Keep in mind that orders in service translate faster into revenue than equipment, where there is typically longer lead times due to the manufacturing and sea transport. The profit was supported by the strong growth and cost savings and increased 7% year on year. This, in relation to revenues, gave us a reported operating margin of 26.5%. As in the last quarter, we had no restructuring in this segment, so the bridge is quite straightforward. Then starting with $1,586,000,000 in 2020, adding a positive effect of $2.62 in organic. This means volumes and cost savings, removing $186,000,000 in the currency headwind and adding back the $34 in structure. We end up at the $1,696,000,000. The structure is mainly the restructuring costs in the previous year. And as I said on the previous slide, this resulted in a reported operating margin of 26.5%. Now, looking at tools and attachments. Orders received increased 2% to 2.7 billion, corresponding to an organic increase of 14%. Currency impacted order received with minus 12%. Orders received increased both in hydraulic attachments and for consumables, with the highest growth rate achieved for exploration drilling tools. Revenues decreased 6% to 2.3 billion, but was organically up with 4%. Also here, the currency impacted the revenues negatively with minus 10%. And I will discuss the profit on the next slide. On the profit, we did well, up 15% to $386 million, and basically it came from good execution and the cost savings. The reported margin came in at a record high of 16.5%, and this was a great achievement from our colleagues in tools and attachments. The previous year included restructuring costs of $10 million, and we did not have any of this in this year. On costs, we have lowered our costs, and if we exclude the LTI of 149 million, which is booked in admin, we end up with 1.4 billion. Of course, the absolute number is lower due to currency, but even excluding this, we have lowered our costs permanently, and I see that we maintain a good cost control. Net financial items and interest net was also lower than last year, as was the tax expense. Our strong financial position remains. At the end of March, we had 16.2 billion in cash and a net cash position of 5.7 billion. Now, if the AGM approves, we will distribute more than 5 billion in dividend and redemption in Q2 and another 1.5 billion in November. So with that, we will still be net cash positive after Q2, which we will use to grow organically as well as with M&A. As you know, the board has also proposed a dividend for the fiscal year 2020 of SEC 250 per share. And it is proposed to be paid in two equal installments. Record date is April 30 for the first installment and October 28 for the second installment. And the board also proposes a distribution of 3 SEK per share through a mandatory redemption. This redemption will be done automatically. And the preliminary record date for this is May 17 to receive these 3 krona per share. Now a few words on capital efficiency. Starting with the graph to the right. Return on capital employed the last 12 months was 20.9%. Of course, affected by increased capital employed, mainly from the accumulation of cash, which is also visualized in the graph. To the left, we have the net working capital. And compared to the previous year, the net working capital decreased 16%, of which 6% relates to currency to $11.2 billion. We have done really good things to reduce the net working capital. For example, we are more efficient in the inventory. But having said that, we continue to work hard to become even better. So coming to the cash flow, a topic close to my heart, as you know. So what have we managed to achieve this quarter? The operating cash flow came in around the same level as last year, around $1.6 billion. To go into some, but not all of the details and compared to 2020, the profit was lower than last year. Taxes paid were a little higher, but the main improvement is in working capital. We have reduced sales stock, but the growth drives an increase in production stock and in the payables, of course. And we also continue to have good development in the receivables. So with that, I conclude the discussion on cash flow. And Helena, so please take over and summarize.

Thank you, Anders. So if we then conclude the quarter, there is a high customer activity and investment willingness out there, which is pleasing to see. We won several medium and large sized equipment orders and we saw strong demand for automation and aftermarket. We achieved record high orders received and improved profitability. Our cash flow was stable, and we have improved our sustainability KPIs around the world, and the organization is driving further improvements. We launched our new vision, We Dare to Think New, which will help us to be even more innovative onwards. And we create options for the future by acquiring companies that help us maintain our technology leadership position. So if we then look ahead, what do we expect? We expect that the demand, both for equipment and aftermarket, will remain at a stable high level in the near term. But please let me emphasize that this is a comment related to the demand, so the underlying market activity. So before we move into the Q&A, I also would like to invite you to our Capital Markets Day on December 1st. We will host it virtually, just like we did last year. It will be a few hours filled with highly interesting topics such as innovation, aftermarket, and how we can continue our journey with strong profitable growth and value creation for our shareholders, employees, and not the least, our customers. Thank you so much, and over to you, Karin.

Thank you, Lena. Thank you, Anders. Good presentation of strong results. Wonderful. Now it's time for the Q&A session, and we're happy to see that we had questions coming in already before the presentation started, so it seems like you're quite a few. So please keep it short. We do appreciate your questions, but keep it short and concise. One question, maybe one follow-up would be appreciated. Thank you very much. Operator, please open up the line.

Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. And our first question comes from the line of Claes Bergerlin from Citi. Please go ahead, your line is open.

Thank you. Hi, Helena and Anders, it's Claes at Citi. First, on the order pipeline, obviously, this strong growth has taken place before any proper upgrade cycle to battery-driven machines and We know of miners out there that are intent to replace its entire fleet underground to battery-driven equipment. So what did you see in the quarter? This is the first time your battery range is commercial. And looking further out, your green ambition with 50% of revenues by 2030 from carbon-free equipment. Can you talk a little bit about the likely mix here between battery-driven equipment and other ways to reduce carbon? Thank you.

Yeah, so the order pipeline, I think what we saw in Q1 was very much the same as we have seen in previous quarters, you know, with small numbers of one or two machines being ordered when it comes to electrical machines. But there are, as you say, some very interesting projects out there with mines that would like to go for full electrical fleet. And of course, we are working together with those customers on that. I would like to highlight the acquisition of MegLab that we did now during Q1, which, of course, will give us capabilities also to support our customers on this journey and take the responsibility also to make sure that the electrical infrastructure can be able to cope with battery technology. So that together with the retrofit initiative that we have ongoing, we have the first model ready now, and we will continue, of course, to expand this offering in the coming quarters. Then we have a solid offering for electrification in the coming years.

Thank you. Just a quick follow-up, if I may. On surface drilling, where you have a very strong position, some of your peers, guess who, now have an ambition out there to take market share on the surface side. Can you talk about what you're doing in drilling, where you also see battery and automation potential, maybe not to the same extent as underground, whether we see any inflection, what products you have in the pipeline? You obviously took a large order with me on the surface side, strengthening your position, but interested in your thoughts on the surface side.

So on the surface side, we have a very strong position. And if you look on the technologies there that are embedded in many of the larger orders that we have landed also during this quarter, they are related to fully autonomous machines. What we have in the pipeline is mixed fleet automation to be able to run the pit wipers and the DC65 machines on one platform, for example. And then, of course, mixed fleet automation also when it comes to trucks. So it's a lot of initiatives ongoing towards, you know, the most advanced autonomous solutions that are available in the surface space. Then on batteries, as we said, you know, our goal at 2030 is to provide the full range also with emission-free products also for surface. And that is what we're working towards now.

Thank you.

Thank you. Our next question comes from the line of Arsalan Obaidullah from Deutsche Bank. Please go ahead. Your line is open.

Hi. Good afternoon. Thanks for taking my question. Obviously a very strong quarter in terms of orders, especially on the new equipment side, but obviously given a peer that reported last week had sort of also very strong numbers and in some ways stronger. Just concerned is this sort of just more sort of timing issue with certain large orders to come through? Or are there sort of other challenges that you're seeing, given that obviously there's a very strong backdrop for yourselves in terms of this payable commodity environment?

I think generally speaking, we saw both in Q3 and Q4 that there was an underlying good activities. Many customers took decision to invest in equipment. We continue to see that also in Q1. But on top of that, also that that more customers also, you know, took decision to go for larger package. So I would say it's very much the same underlying activities that we've seen in three quarters now. And then, of course, you know, a number of larger ones as well on top of it.

And you're not sort of seeing sort of, let's say, market share. That's not a concern of yours at this stage and sort of anything like that. You're kind of quite sort of comfortable on that side of things.

Absolutely. I think there was no one on that question.

Yeah, yeah. No, we are not concerned when it comes to our market share. Sorry if that was the question. I think that was the question. We are not concerned.

Okay.

Yeah. Thank you.

Thank you. The next question comes from the line of Max Yates from Credit Suisse. Please go ahead. Your line is open.

Thank you. Just my first question would be around what exactly is driving the pickup and equipment orders. I mean, could you give us a feel of whether this is some pent-up demand from last year as kind of people come back to the mine sites, some of the decision makers kind of do some overdue replacements, or are you actually seeing kind of a lot more kind of expansion plans coming through, even some sort of greenfield mining plans from the junior miners, just a little bit of feel kind of what has driven that sort of billion step up in equipment.

So we see good activities in iron, copper, and gold. And when we look at the type of orders, it's both expansion, expansion of existing fleet, and replacement. And on top of that, of course, we also see good demand for midlife upgrades or rebuilds, which is also a signal that customers are really trying to push the output as much as possible now.

Okay. And just my follow-up question would be on the 4,900 connected machines that you mentioned with telematics. I'm just curious to understand, is this a sort of an offering which sort of comes with the equipment, or when we talk about these kind of 4,900 connected machines, are we talking about a sort of annual offering? an annual charge for using this software, using this service. Is this a sort of separate charge for the customer or is this just something that comes sort of It keeps you ahead of the competition and is a sort of offering within your existing service business. I think I explained that badly, but I think you understand the question. Do you take an annual sort of service charge for this?

Yeah. So the solution by itself comes with equipment. Then, you know, customers need to pay for the level of intelligence that we provide them with, given the data, you know, that we collect from all these machines.

Okay. Okay. Sure. Thank you.

Thank you. The next question comes from the line of Maddy Singh from Bank of America. Please go ahead. Your line is open.

Yes. Hi. Thanks for taking my questions. Just a couple of questions from my side. Firstly, on the equipment order side, very strong growth. I'm just wondering, How much of that is coming from Greenfield spend, if at all? What trends are you seeing on that side? Is there willingness to spend there? And secondly, return on capital now around 21%. Does that level concern you at all? Or is there a plan to bring it up in short to medium time or we have to wait for some meaningful M&A transaction to see this ticking up.

So if I start with the first one, and then maybe you can comment on the return there. So the equipment growth that we have seen in the last, I would say, three quarters, it is replacement and brownfield, not that many greenfields. However, there are, of course, greenfields in the pipeline, but that is more on, say, evaluation level. So not yet translated into orders.

Can you repeat the second question? I'm not sure I got the full.

Just wondering, you know, return on capital just about 21% now. So, you know, historically you have had very high return on capital. So does 21% level concern you? Yeah, yeah, yeah. No, I understand.

Sorry, I didn't catch you broke up a little bit. I mean, you could say that when you measure the return on capital employed, we measure it during a 12-month period. And the difference between last year and this year more or less split 50-50 in the accumulation of of capital employed, which you can translate into cash. And the other is actually that over the last 12 months, given the Q2 as the first of four quarters in a 12-month period was lower, so the second half of the reduction in the return on capital employed is actually a lower profit level over the last 12 months.

We always have plans ongoing when it comes to inorganic growth as well. So hopefully we will come back on that as well.

Maybe to repeat a little bit, I mean, the cash buildup, which I explained to you, I'm sure you have seen that also, that obviously a big chunk of that will be distributed in Q2 and a smaller piece than the second installment of the dividend in November.

Okay, thank you very much.

Thank you. The next question comes from the line of Nick Hasden from RBC Capital Markets. Please go ahead. Your line is open.

Yes, thank you for taking my questions. I just have a couple. So looking at the 55% organic growth in equipment orders, can you give us a sense of of maybe what this would have been without the large orders to maybe get a sense of the underlying small and medium order demand. And then as just a follow-up to that question, we have had a few quarters where customers have been holding off on the large orders, and now these do seem to be coming through, which is obviously a good thing. Do you think we've turned a corner maybe now with the vaccine rollout going well in many parts of the world and that we can maybe expect for stronger or, you know, should I say larger number of large orders coming through in the next few quarters? Thank you.

I think if I start with the second one, it's always very difficult to predict when the large orders will come. As I said, the pipeline has very much been the same for quite some time. It's just that decision is being pushed out in time. Since the planning horizon for many mining companies are very long. But, of course, given the strong commodity prices, expansions are part of the long-term planning and short-term planning for many mines, trying to increase capacity as much as possible. If we look on the large orders in the quarter... You know, I don't maybe have the numbers, but maybe roughly, could we say 500 million comes from the large orders, roughly?

Something like that. It's a little bit less, I would say, if we define the large orders as the ones who are above 100 million.

400 maybe, 400 to 500. As I said, we had many orders just below the threshold of 100 that we defined as a large order.

Understood. Thank you very much.

Thank you. Our next question comes from the line of Guillermo Pena from UDS. Please go ahead. Your line is open.

Thank you for taking my question. I wanted to ask about lead times of order intake. Can you comment a little bit on how the time is actually moving for, let's say, fourth quarter orders into first quarter orders and why you're taking now?

Yeah, so lead time varies a lot between the different machine types that we have. The smallest machines and the simpler machines, there we could have, you know, three to four months lead time. And, of course, the more complex the machines become, if we take the largest pit wipers, for example, for surface machines, there we're up to nine months lead time. So that's normal lead times and acceptable lead time from the market as well.

And is that being impacted by recent supply chain issues, or are you able to deliver as fast as you were able to deliver maybe four quarters?

Yeah, I would say that it's not really, of course, there are some disturbances on the inbound as well as on the outbound. I think that goes, you know, it's the same for more or less all companies right now. But I would say that it's more the normal lead time. You know, we manufacture our equipment in Sweden, in U.S. and China and India, and then you ship it also by sea to the different regions and different countries. So it is normal lead times. I don't see that lead times are starting to be prolonged right now. Then, of course, there are still challenges when it comes to the supply chain in general, but I think that we have managed also to find ways to continue to do business given the circumstances. We have been in this situation now for almost a year.

Thank you.

Thank you. Our next question comes from the line of Christian from Liberium. Please go ahead. Your line is open.

Good afternoon. Good afternoon. Thank you for taking my question. Just interested to understand what you're looking at in terms of M&A pipeline. Obviously, you did two transactions during the quarter and clearly, you know, a lot of cash on the balance sheet. Just interested in any further plans there and sort of what sort of activity levels you are seeing. Thank you.

So, you know, the M&A agenda for us is very much linked to building a strong technology platform around the technology shifts that are shaping the industries that we serve. I think the MegLab acquisition is one good example where we take on, you know, a company that will enable a faster rollout of our technologies. Then we are also focusing on growing our customer share on the aftermarket. And the DNA acquisition in the quarter is a good example of that one. Then on top of that, of course, if you look on what we did in Q4 with the mine RP acquisition, I think that is also moving into then the digital space in a different way, offering software products and software solutions that will help the mines to optimize the drill to mill. So this is a space where we are active looking for targets.

I think it's fair to say for the record that obviously you see a part, but we are very active.

Very clear. Thank you.

Thank you. The next question comes from the line of Robert Desi from Morgan Stanley. Please go ahead. Your line is open.

Thank you for taking my questions. My first one was just around the aftermarket activity. You mentioned the midlife refurbs. I know there was a tougher comp on the service business in the quarter, but just more broadly, I know you still called out midlife refurb. How much runway do you think you've got ahead of you in terms of that midlife refurb activity? It's obviously been a bit of a kicker over the last year, but just wondered how far down the road you've done in terms of the potential target you're looking at.

I think there is still more to do there. And as always, in an uptick in the market where production volumes are going up, and also many customers don't want to wait for a new machine, and then the midlife rebuild is a faster way to get productivity up. When we look at, we don't have a full offering of midlife rebuilds for all our machines yet. We have started, of course, with the fleet where we have the biggest opportunity, and that is what we have been working with so far. So I continue to see good opportunities when it comes to midlife rebuilds to support, of course, the rest of the customer share development that we're also working with. And as I said, we had quite tough comparisons compared to last year. But if I look on the overall activities in the aftermarket, you can see that also in the nice growth, we have the 40% up for tools and attachments. That, of course, gives a good understanding also of the actual drilled meters out there. So the activities in the aftermarket or the actual production out there is high. And I would say that in all regions, it's back to the levels we saw before the pandemic.

Thank you. And then my follow-up was just around the progression on sales. Well, we had relatively solid order growth through the back half of last year. And just looking at today's numbers when they were coming in, I think orders were running a bit ahead of consensus and sales were a bit below. I just wondered if you had any issues on the sales side in terms of delivering those products from site access, customers receiving and signing off any of the products. Is that even an important aspect to sort of booking and recording the sales in your business? That was my follow-up. Thank you.

No, it's more related to the lead time, actually, for us to translate the orders into actual revenue. So it's not, you know, of course, a lot of what we have as revenue this quarter is the orders we gained in the middle of the pandemic. So, you know, it's more the lead time of normal lead times of equipment. Then, of course, we also had a very strong Q4. So, you know, it's always that lag when it comes to the equipment. When it comes to the aftermarket, it's turning much, much faster.

Understood. Thank you.

The next question comes from the line of William Mackey from Kepler Chevrolet. Please go ahead. Your line is open.

Good afternoon, Elena and Karin. Thank you for the time. My first question really would come back again to the execution of the order backlog. You flagged that there's this between three and nine month delay from the very strong order intake that we've seen. When you're looking at the production systems, to what extent do you have to at this point increase investments, personnel, additional expansionary capacity to meet the planned expansion over the next 12 to 15 months? perhaps 18 months. So the first question is what's your thinking on expansion and investments and additional costs to deliver on the growing backlog?

So we have our asset light manufacturing strategy, which in essence is that we do the final assemble ourselves, and then we have sub-suppliers that do part of the assembly. This philosophy has served us well over the years, both in upticks and when the market goes down. And the way we are doing it is that we always work with temporary workers. And we have done that for many, many years as well. So what we are doing right now, of course, and we have been doing that for quite some quarters now, is to add temporary resources in our manufacturing assembly lines for equipment. So that is the normal way of handling the swings.

Okay, thank you. The follow-up really relates again to the telematics question, you called out 4,900 connected machines. How should we think about that number in relation to the potential for increasing the penetration of your installed base with increased telematic or connected capabilities to support the productivity of your customers? So are you continuing to roll out? How much of the installed base opportunity is now captured?

So I would say that we have captured a fair portion, and it is to the level where you get good statistics from 4,900 machines. This is an enabler to grow the aftermarket, especially in the segments where we have small customers with fewer machines that is not being used maybe 24-7. especially for the infrastructure segment. So I really see that this enables, of course, data, insights, where the machines are, how much they're consuming, et cetera, and their health situation gives us the understanding of also what type of service products we can develop to capture a bigger share of the aftermarket. So I see it very much as an enabler. Of course, the data as such is important for the customers from a productivity standpoint. And that work we're doing together with our customers, with dashboards, et cetera, to support their productivity. But it's also extremely valuable insights for us to work with growing our customer share in the aftermarket.

Thank you very much. Maybe to add to this, obviously, the cost of putting one of these solutions on a new machine is fairly small these days compared to if you go back a few years, the cost of the hardware, the cost of equipment, Equipping a new machine is really small, so it's just really the low-end machines that are not equipped from factory. So it's just a matter of if the customer would like to use the service or not, and then we can actually just switch it on. We also have something called Hathcon on our hydraulic attachments, which is something we introduced not very long ago, and that actually gives an opportunity also to the attachment business.

Super, thanks.

Thank you. The next question comes from the line of Olaf Larshammer from EMB Markets. Please go ahead. Your line is open.

Thank you very much, and thank you for taking my question. And it's a little one on the off-the-market and especially foods. And I can see that, you know, off-the-market revenue is down a bit in Q1 compared to Q4, while, you know, order intake is on a similar level. And from what I can, you know, recall historically, it seems like, you know, off-the-market, you know, normally, you know, stable or growing slightly in Q1 sequentially versus Q4. So I'm just wondering if you have any thoughts on that.

No, but I mean, no, not really. But I think this year, this last year has been different, if I say so, with closures and openings and the pandemic. So I can't really comment on the sequential comparisons. We know that in general the beginning of a new year tend to be slow. We have a lot of business in the southern hemisphere with South America, southern Africa and Australia. So that sometimes have an impact on the activity level.

to mention when it comes to the midlife rebuilds there is of course a lead time also to do that so we can of course take an order of midlife rebuilds and then of course you need to plan those rebuilds very carefully because you can't take a full fleet off and do the rebuilds so you do that you know step by step so there of course you have a delay in revenue okay thank you very much thank you

I remind you that if you want to ask a question, you will have to press 01 on your telephone keypad. We have a question from the line of Andrew Wilson from J.P. Morgan. Please go ahead. Your line is open.

Hi. Good afternoon. Thanks for taking my question. I just want to pass on the infrastructure side of the, I guess, of the portfolio. We've obviously talked a lot about mining. I guess seeing that the hydraulics have done particularly well, I would guess that's more driven by infrastructure. But sort of elsewhere, can we kind of take some of the same comments that you've made, I guess, on the group as a whole is also relevant for infrastructure? Or would you be pulling out, I guess, different trends, whether by region or products in terms of the infrastructure side versus mining, just trying to sort of cover off the other side of the portfolio?

So we see that infrastructure is picking up as well. We see it in, of course, China has been healthy throughout last year. But what we have seen in Q1 now is also U.S. picking up as well as Europe. And that goes both for hydraulic attachment, which is very much, you know, the actual work. And you can also see that on consumables towards these two segments. So activity levels are clearly higher in infrastructure now than compared to last year.

That's great. Thank you.

Thank you. The next question comes from the line of Carl Bergqvist from ADT. Please go ahead. Your line is open.

Thank you, and good afternoon. My question was related to the infrastructure part here, and I think you partly answered it already. But I think just overall, should we keep anything in mind when it comes to mix if you're growing in infrastructure compared to mining? And also, do you think that, I mean, this quarter infrastructure grew almost 30% versus mining low single digits on reported orders? I think just for the remainder of the year, do you think that mining will outgrow infrastructure? Do you have any thoughts on this?

I guess it depends all on the stimulus packages here and when that will start to kick in. What we see so far is more the activities on existing excavators out there and existing machines out in the infrastructure, and they are being used more hours. That is really what has translated into the orders. Then there are, of course, projects ongoing in several parts of the world, and we have a very strong offering towards infrastructure as well on the equipment side.

Okay, thank you.

Thank you. There are no further questions at this time. Please go ahead, speakers.

Wonderful. So then it's me back again. Thank you for all the questions. You did well. They were short and concise. Thank you, Anders and Helena, for a good presentation. To all of you out there, we will see you again in July for our Q2 presentation and then in October. And as Helena mentioned, we have our capital markets day in December. So please note that in your calendar. Stay safe and take care. Thank you very much, all of you. Bye-bye. Thank you.

Thank you so much.