Epiroc AB (publ)

Hello everyone and thank you for joining this Epiroc Q4 results presentation. My name is Karin Larsson and I'm head of IR here at Epiroc. We will follow the same presentation format as we always do and in short it means that our CEO and CFO briefly present I do, however, have some news today besides the strong results, because once our CEO, Helena Hedblom, has presented her slides, we will have the pleasure of having Håkan Folin, our new CFO, on stage. I'm very much looking forward to hearing them both. So, without further ado, Helena, please, the stage is yours.

Thank you, Karin. So with the COVID-19 pandemic still holding the world up and running. So we are monitoring the development continuously and we are taking actions where and if needed. And the actions taken the last two years have made Epiroc both stronger and more successful. Teamments and challenges. And in the end, it turned out to be a record year for Epiroc. High customer activity in combination with increased investment willingness led to record high orders received of 46 billion. So despite challenges with the COVID-19 pandemic and in the supply chain, our revenues increased and our operating profit and margin were record high. We had a solid cash flow and ended the year with a strong dividend of 3 SEK per share in line with our financial target of a 50% payout. We completed eight acquisitions and we launched groundbreaking innovations and made good progress in the sustainability, health and safety during the COVID-19 pandemic. So we have shown yet again that we are a strong team at Epiroc and we can adapt quickly to changes. And we are always ready to walk that extra mile to support our and all the engaged employees in Epiroc. So moving over then to some highlights in the fourth quarter. On the demand side, the pandemic does not seem to damper the activity level nor the investment willingness. Aftermarket performed particularly well. And I am convinced that our local presence with skilled service technicians and aftermarket support functions contribute to this development. The revenues came in at record high details later. On the sustainability side, one highlight was that our ambitious climate targets were validated by the science-based targets initiative. And this means that our industry-leading position within sustainability has the industry's transition towards reduced climate impact, and not the least with our growing offering of battery electric equipment. And today we have the broadest offering in the market, and we see good demand. Our strong orders received increased 25% to 11.6 billion, And this corresponds to 19% organic growth compared to the previous year. And acquisitions contributed with another 4%. Both in service, which is up 19%, and in tools and attachments, which is up 16%. Sequentially, the orders received decreased around 5% organically. But then again, we compare with a record quarter in Q3. The underlying demand and activity among our customers remains strong. Revenues increased 9% organically to record high 11.2 billion and our reported operating profit increased 17% to 2.40 million in positive one-time items and the adjusted operating margin was 22.9%. The margin was diluted from acquisitions. The constraints in the supply chain intensified, increased to 2.4 billion with a positive cash flow from working capital. And this is quite an achievement given that we are growing strongly. So to remain the leading productivity innovations, acquisitions and partnerships to strengthen EPROC's position. And starting off with innovations. So the remand program, which Jess Kindler told you about at the Capital Markets Day in December, new component, the customer returns a used component to us in exchange for a remanufactured component. It is a lower cost option while maintaining the highest availability and reliability. So following the strong electrification trend and also following the acquisition of Meglab, we have taken a step further than only just providing electrical vehicles. So to support customers in their transition of flexible charging products, including lifting tools to our offering. And this ensures that battery electric equipment can be charged at any given time or place. and if connected, cloud service. And speaking about acquisitions, another acquisition in the electrification space is FVT Research, which converts diesel-powered mining machines to battery electric vehicles. So we closed, we held 34% of the shares already before, and now we own 100%. So Mobilaris provides advanced situational awareness solutions that increase safety and optimize operations in mining and civil engineering. I'm pleased to welcome our new colleagues to the EPROC family, and we are looking forward to leverage our wider customer offering on a global scale in the coming years. Another topic we mentioned at the Capital Markets Day is fully implemented the first semi-autonomous integrated production level. And while a semi-autonomous production level can be seen at many operations across the world, this partnership is taking automation to a new level. And this takes safety and productivity one step further. And if you have not seen our Capital Markets Day, the webcast is available on our website. So please have a look. Which represents two-thirds of our revenues. It is resilient, profitable, and it's growing. And it's not all about a high customer activity, even if that definitely is a contributor to the growth. But I would say that we gain a customer share around the world, and this is appreciated by our customers. We also have an attractive offering. And in this quarter, we had good demand for midlife services or larger rebuilds. And rebuilds are good in many ways for productivity immediately. At the same time, it prolongs the life of the equipment, which is good from a resource and environmental perspective. The connected fleet is also growing, which makes us even better in helping customers with 6,000 machines now that have been delivered with connectivity. I cannot speak about the aftermarket without mentioning the supply chain challenges and if or rather when there is the lack of components, we do prioritize existing cars than delivering new equipment sooner. So in combination with our progress in the supply chain improvement program, we have actually managed to increase availability for our aftermarket, which is very good given the circumstances. Another focus, and to me and to us, it means that we want to do the right things and we want to do these things even better. So we have many initiatives ongoing continuously in our organization. First, we work to improve the supply chain excellence. Financial effect has been offset by increased transport cost. In administration, we constantly improve our way of working. For example, we simplify and have established regional centers of excellence to align administration processes. In order to be successful and to be the true partner of choice for our customers, we need competent and capable service technicians with diverse competencies. and therefore we focus on training, on certifications and share. We also focus on making our more than 100 service workshops more and more efficient in a structured way. We have made good progress in the sustainability area, both during 2020 of increased share of women managers and employees continued also in Q4. On injuries, we saw more lost time injuries in the quarter, while comparable total recordable injuries decreased. It is concerning that our employees and our customers are safe at work and come home after each day or shift. So therefore, we work hard with our initiatives such as Safe Start and Live Work Elimination. On a more positive note, the science-based, and with this our position as a sustainability leader has been reinforced, and more important, we contribute to keep global warming at a maximum of 1.5 degrees Celsius. The energy consumption in our operations increases. For comparable units, energy consumption increased 5%. And we have several initiatives that have been implemented to increase energy efficiency, but not enough to fully compensate for the higher activity level. The reduction is a very good achievement, giving the higher volumes. And this is partly thanks to a higher share of shipments by sea and road instead of air. So with this, I conclude this first part of the presentation and I welcome Håkan to this.

Thank you very much Helena. Hello everyone, it's a great pleasure to be here today and to represent Epiroc. I've spent now all my very humble and hard-working approach It's a fascinating industry to be in, and I fully share the view that Epiroc plays an important role in helping our customers towards sustainability and higher productivity. 15Q4 was higher than ever before. We reported an operating profit of 2.6 billion. If we adjust for items affecting comparability, it was somewhat lower, but yet the record high level of 2.55 billion. operating profit of 2.2 billion in Q4 last year, and it increased 17% up to 2.6 billion, including items affecting comparability, which were 40 million. These items include a positive revaluation effect of the shares, MCE, of 167 million. It also includes a change in provision for the share-based long-term incentive programs of minus 127 million. The operating profit was positively impacted by increased volumes. The adjusted operating margin was 22.9%. Supported a bit by currency, but diluted by acquisition, roughly about 90 basis points in the quarter. We continue to invest in these high-growth tech companies. You will find more details about them in the quarterly report. There you can also see that the finalized acquisitions during the year have contributed with 641 million in revenues and a negative 56 million in operating profit during the year. In services, demand was strong, as Helene already said. Orders increased by 27% to 8.8 billion, which correspond to an organic growth of 20%. And here we had a contribution from the acquisitions with another 4%. If we compare, if we look at equipment specifically, orders increased 28% to 3.8 billion and also here organically 20%. And we saw that order intake increased both for underground and surface equipment and in the quarter. And here I also want to mention equipment lead times. These are longer than normal, about one quarter on average, so now it's about three to four quarters. However, large variations between different type of products. This is due to delays in the supply chain. For service, orders increased 25% to 5 billion, 19% organic growth, and this was actually a record. Growth was supported by a combination of a high customer activity, several orders for mid-life service. Increased presence and strong offering has made us gain customer share. Moving over to revenues, they increased 14% to 8.5 billion, corresponding to an organic growth of 9%, also this actually being a record. And here we had contribution of what they will bring on a yearly basis around 90 million in annual sales. We normally have some seasonality tailwind on revenues in the fourth quarter, and I would say that so we did this year again. If we then move over, operating profit for equipment and service increased 18% year-on-year to 2.3 billion, positively impacted by this one-time effect of Mobilaris, as you already heard about. Acquisitions, however, diluted the margin in the quarter for the segment just over 1%, with relatively low revenues at the moment. But we do see good demand, and we look forward to see the future development of these businesses contributing to the growth of Epiroc. The reported operating margin for equipment and service was 27.3%, for the one of, though, it was 25.4%. If we then instead move into tools and attachment, this segment also had a strong quarter. Orders increased 20% to 2.8 billion for both hydraulic attachment and for rock drilling tools in the quarter. Revenues increased 16% to 2.6 billion, up 8% organically. And also here we had some support from the acquisition, 5%. Before moving on, I would also like impressive improvement. The adjusted operating margin was up 4.2 percentage point to 17.5%. Then back to the quarter. And here are the details of operating profit and margin for tools and attachment. And also from the acquisition already mentioned. And also the margin improved and came in at 18.2%. Solid improvement supported both from volumes and slightly from currency as well. Note that last year on this graph. We had high invoicing from the acquired companies. There was not really any dilution on the margin as part of the acquisition. Moving on then, I think it's clear to all of you that Epiroc is growing. Administration costs are linked to increased volume. For example, the cost for our distribution centers are booked here in admin costs. We also have more activities. In R&D, we have invested more than ever, more than 360 million. In relation to revenue, these costs were fairly stable at around 16%. The cost initiatives that we finalized already last year are still bearing fruit, and these allow us to invest in, for example, R&D, to allow us to invest in further value-adding initiatives. Net financial items were clearly lower than last year. Last year, we had a negative effect from exchange rate differences. Income tax expense was higher due to over. For Q4 specifically, the one-time profit from the Mobiliaris MCE shares lowered the overall tax rate since this is a non-taxable income. Our operating profit... Sorry, our operating... Payment of interest does vary between the quarters, and that's a little bit what you see here. We also managed to have a positive cash flow from working capital, which I would say is quite an achievement in this growth environment. Less positive than last year, but still positive for 2021. This was 97%. Coming back to working capital then, as I mentioned, compared to Q4 last year, the net working capital increased 15% to 12.2 billion, If we exclude if we do require more working capital when we grow, but in relation to revenues, we have improved. The average net working capital in relation to revenues decreased to 29% from 33.8% last year. Operating profit to 26.1%. Growth and acquisitions contribute to increased capital employed, while shareholder distribution and repayment of loan reduce the cash portions. And this is with and also distribution to the shareholders. And they combined have been more than the operating cash flow. We still have a strong financial position and we ended the year with a net cash of 1.3 billion. And this, of course, gives us good flexibility going forward with the cash that we are generating. Well, Epiroc's goal is to provide long term stable and rising dividend to its shareholder. And this is part of it. The board has proposed a dividend to the shareholders of three Swedish kronor per share. The proposal is to do this in two equal installments with record dates April 27 and October 24. In total, the dividend amount to approximately 3.6 billion. In the graph, you see a yellow bar. That represents the redemption proposed by the board this year. Before concluding the financial part, I would like to say thank you to Anders Lindén, my predecessor. And Anders, you have been a great support to me during these two months so far. So thank you very much for that.