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.