Epiroc AB (publ)

So hello everyone and thank you for joining Epiroc Q1 results presentation. My name is Mattias Olsson and I'm Head of Corporate Communications here at Epiroc. Today I'm covering for Karin Larsson who is on parental leave. This time we are doing only a conference call as we have the Annual General Meeting coming up this afternoon. But still we will follow the same format as we always do. First our CEO Helena Hedlom and our CFO Håkan Tholin will briefly present the results before we do the Q&A. It is possible to listen to the presentation and Q&A over the internet, but the questions will be handled over the phone. So now we turn to page two, and Helena, please go ahead.

Thank you, Mattias. So it was a strong start of the year. The demand continued to be on a high level, and orders received reached a new record of 13.8 billion. The organic growth was 18%. And there is a strong demand for our equipment, both for our solutions within automation, digitalization and electrification, as well as for our aftermarket offering. We've won six large orders above 100 million set in the quarter and several sizable orders below that threshold. And many of these included battery electric vehicles and automation. The development for our service products remained robust and the order intake was record high. The revenues almost reached the level of the record fourth quarter 2021 and our reported operating profit was record high. And the adjusted operating margin came in at 23.3%. The supply chain challenges that we talked about when we reported Q4 in January are still there, and our teams are really walking that extra mile to be able to supply our customers. And I would say that we are managing well given the circumstances. We see cost increases on components and general inflationary pressure, but we have been actively working with price management during last year and this year. The war in Ukraine and the resulting humanitarian catastrophe is truly horrifying, and we take the situation very seriously, and we hope that a resolution soon will be found to end the war. For us, our primary concern is the safety and well-being of our colleagues, and of course it has also impacted us financially in the quarter. We will come back with some more details later on. Also, the COVID-19 pandemic had some impact, mainly sick leave in the beginning of the year, but the impact was reduced and it was very limited at the end of the quarter. So then over to the key financials, and Håkan will come back with more details later. So I repeat, record order intake at 13.8 billion, organic growth for equipment was 18%, and service even higher, up 22%, and tool for attachments up 11%. Organic revenue growth was 14%, also here with double-digit growth for all the segments. So we are still building backlog and we see longer delivery times, just as we mentioned last quarter. And many of the large orders that we have received will be delivered in 2023. Adjusted margin came in at 23.3%, which is higher than last year. So now I turn to page four. And as you know, we are a leading productivity and sustainability partner to our customers. So let me start with innovation. So we introduced a more powerful surface blast hole drill rig, the DM30XC, which can be equipped with our rig control system with several additional safety and productivity features. Also, we now have Mobius for drills. Mobius is a system that enables multi-vehicle command, control, and monitoring to maximize productivity and safety. We are a true partner to our customers. I have often talked about the technology shifts that are happening in our industry. Customers are investing in automation, in digitalization and electrification. And we win orders for these solutions. And we have even received repeat orders now for battery electric vehicles in the quarter. So that's good to see. I want to mention the large order for equipment, including battery electric machines and automation solutions from the Canadian Malaitic Partnership. We also won a large order from them in 2021, and we will also provide service and spare parts, as well as expertise on electrification solutions. And the quote on the slide is from the general manager of the Odissei mine. It is really a collaboration and we share their ambition on safety and productivity. Then a few words about the aftermarket. So this continues to develop strongly with record orders received. And this is very good to see. Customer activity continues to be high, which supports the strong growth. Our structured work towards our customers is also paying off. And we are winning service contracts as well as orders for our other service products. And also more and more machines are delivered with connectivity. We have not seen so much of it earlier, but now we see examples of customers that are placing orders for parts to safeguard deliveries. It is, however, difficult to estimate how big of an impact this has. Aftermarket represented 69% of the revenues in the quarter. On operational excellence, on page 6, we continue to work with our supply chain excellence. And in the quarter, we inaugurated a regional distribution center in Belgium that will serve our customers in Europe, in Middle East, and parts of Africa with both spare parts and rock drilling tools. It is, however, a challenging situation within the supply chain, and we are taking some precautionary measures to safeguard availability of components. The work to improve efficiency in administration and service also continues, and no new main initiatives were taken in Q1, but the earlier initiatives taken show positive results. Then over to sustainability, and if I start with people, we are pleased to see that the share of women employees and managers continued to rise in both categories with 0.5 percentage points since December. When it comes to injuries, on the other hand, we see a negative development with more work-related injuries, even if we have not had any severe injuries in the quarter. We have many newly employed people, and we can see, for example, that they have higher injury frequency rate on our additional workforce. And this is not a good development, and we are taking measures to bend this trend. On planet, I'm pleased to announce that we have entered into a partnership with SSAB around fossil-free steel. And this is exciting. We will initially use fossil-free steel in the production of a prototype underground mining machine that will be produced in our factory in Örebro. And the plan is to increase the usage of fossil-free steel over time. We have lower CO2 emissions from operations, mainly due to higher share of renewable energy and installation of solar panels. For transport, the CO2 emissions have increased, mainly due to higher volume transported. So, now I will leave the speaking line to Åkan, and he will give you some more details on the financials.

Thank you Liliana, and we are now on page 8. Before we go into the details and analysis of the financials, some words on our exposure to Ukraine and Russia. We have received orders and revenues have been recognized in Ukraine and Russia during Q1, predominantly in January and February. In 2021, our revenues was almost 300 million in Ukraine and about 2.4 billion in Russia. We have only sales and services in this market. At the end of March, when we closed quarter, we had orders on hand of about 1.8 billion. And it is uncertain if and when these orders will be delivered and invoiced. If we look at the balance sheet in Russia, we have working capital, cash, and fixed assets of about one billion Swedish kroner in total. It's very little fixed assets, and the majority is inventory and customer receivables. There's limited operations at the moment. Some service and deliveries are made in Ukraine for customers that are still operational. We post our deliveries to Russia on March 1st, and it is a highly complex and fluid situation. There are continuously changing sanctions as a response to the Russian invasion, and even if the sanctions are not targeting the mining industry as such. And at the same time, Russia is proposing legislation to counter sanctions and company actions. And in addition to the sanctions, there are also continuous challenges with logistical flows and financial transactions. So, we are closely monitoring the situation. We will continuously evaluate the implications for our colleagues' business and operations, both in the short and in the long term. Now, if we then look at the development in Q1, and we are on page 9, our operating profit increased by 41% to 2.6 billion, and we achieved a record operating profit again. The reported margin was the highest ever at 23.7%, and it was supported by a positive change in provision for our LDI program. But if we instead then look at the adjusted operating margin, we saw an increase now in Q1 up to 23.3% from 23.0% last year. And this is actually only 10 basis points from the best quarter we've had so far, which was Q3 2021. And if we look into the details on the profit, and we do that via this profit bridge then, the organic growth, volume, and price contributed 443 million and 1.6 percentage points to the margin. Parents supported the operating profit, but was more or less neutral or actually diluted somewhat the margin to 20 basis points. Structure and acquisitions together was positive 193 million, and this is due to the LTI program. The change in provisions for the program was positive, as I mentioned, in this quarter with 43 million, and in Q1 last year it was actually negative with 149 million. Acquisitions have a negative impact on the profit and the margin, and the dilution of the margin from acquisitions is about one percentage point. This is mainly related to a few of our technology acquisitions where revenues are still relatively low. During the quarter we had, as Helena mentioned, challenges in the supply chain and early in the quarter, high sick leave in many of our operations due to COVID-19. But when we combine all these factors and when we look at the adjusted margin, all in all it brings us down to 23.3%. Now I will zoom in on our two segments. We start with equipment and services, where orders receive increased 20% organically to a record high level of 10.5 billion. We have, as I mentioned, six orders above 100 million each. And on top of that, we have many medium-sized equipment orders as well. All in all, 5.3 billion in equipment orders. But as we have said before, equipment orders are by nature lumpy. But still, the underlying demand for the small and medium-sized order is at a high level. If we instead look at the organic growth in service, it was actually fairly impressive with 22%. And as mentioned, we see examples of customers that are placing orders for parts to safeguard deliveries. But clearly, the high demand is definitely there. We had a good contribution from acquisition, 4% on the order growth, and then also currency contributed to 8%. On the revenue side, we had a 17% increase organically with strong growth both in equipment and in service. And I will cover some more details on profit and margins on the next slide. And we are now at slide number 12. So the operating profit increased 26% to $2.1 billion. The operating margin was 26.1, supported by strong organic growth, diluted by currency and also by acquisitions. The organic growth contributed to the margin with 1.2 percentage points, but this was offset by dilution from the acquisition. And currency was also somewhat deterred today. On the mix, the share of service revenues was slightly lower compared to last year, 68% compared to 60% in Q1. Now, on page 13, and we switch them to tools and attachments. Here we also had good growth. Orders increased 11% organically. The order intake reached record high 3.3 billion Swedish kronor, where we got support by currency with 8% and acquisitions by 3%. And both hydraulic attachment and the rock drilling tools had solid growth during the quarter. And also seasonality was there for the strongwater intake, supporting strongwater intake in the first quarter. Revenues increased by 10% organically to 2.9 billion, and also operating margin improved compared to Q1 last year. If you look at the profit bridge then for tools and attachment, operating profit increased 35% to 520 million, supported by the organic growth, currency, and also by acquisitions. We had some one-time cost last year, which is reflected in the structure and the positive margin impact from that. Margin impact from acquisitions was fairly small. But all in all, the operating margin improved quite a lot, up to 18.1%, and four tools in attachment. This was the third quarter in a row with a margin of above 18%, which we consider being a solid level. If we then dig into cost, net financials, and tax, it's good to see we have good cost control. We saw sequentially somewhat lower costs. Compared to last year, costs are higher. There are more activities. We also continue to invest in R&D at the high level. Some of these costs are also volume-related. We have a current impact on the cost, and we also have acquisitions performed during last year's impact. But measured at the percentage of revenue, the costs were lower both sequentially and year-on-year. Net financial items were minus 63 million. They were minus 33 last year. Volatility here is mainly exchange rate differences, and interest net was quite stable. During the quarter, the income tax expense was $564 million. That corresponds to an effective tax rate of 22.0% versus last year, 24.2%. There are lower tax rates in some countries, and this is having a positive impact on our tax rates. Then a look on the cash flow on page 16. Our operating cash flow in the quarter was $867 million. it was positively impacted by the higher operating profits. Compared to last year, we paid higher net financial outcomes and also taxes, and these payments vary between the quarters, but now for this quarter, they were somewhat higher. We increased working capital with nearly 1.2 billion in the quarter. We do tie up more capital when we grow, and on top of this, we are taking proactive decisions a secure availability of parts and components, which means that we do increase inventory a bit more often. Also, for working capital, currency and the cost and price increases have an impact on the total level. Cash conversion left 12 months was at 8%. Now, on the capital efficiency, on the next slide, you can see the increase in working capital compared to 2004. It's higher than Q1 last year, up 23% in total, and 14% when you include currency and acquisitions. As mentioned, we do tie up more working capital when we grow, but when we compare it to revenues, it is actually lower at 28.9%, slightly lower than Q4, and actually more than 4% lower than the same time last year. Capital employed is also increasing, mainly due to growth and acquisitions. But at the same time, return on capital employed continues to improve mainly due to the higher operating confidence to 27.7%. Finally, then, for me on page 18, on the capital structure, we have a net cash position of 1.9 billion. It gives us good flexibility going forward. It's lower than last year mainly due to acquisitions and also distribution to shareholders. Note also that later today we will have our annual general meeting. The proposal for dividend is 3 Swedish kronor per share. In absolute terms, that's 3.6 billion that will be distributed in two parts to our shareholders, half in Q2 and half in Q4. And with that, back to you, Hjalmar.